Author: Luis Guilherme Damiani
The ATR ratio is a powerful indicator that compares the fast Average True Range (ATR) with the slow ATR. This ratio can provide vital insights into market movements.
When the ATR ratio spikes, it often indicates rapid price changes. Conversely, lower values typically signify prolonged periods of consolidation or sideways movement in the market. You can interpret this indicator similarly to other volatility indicators: a high ATR ratio suggests an increased possibility of a trend shift, while a low ratio indicates weaker trend momentum. Specifically, if the ATR ratio crosses above the blue horizontal line, it might be time to consider a buy or sell.
High ATR ratio levels often correlate with heightened volatility, whereas low levels suggest that prices are stabilizing, moving within a channel until a potential breakout occurs.
It's important to note that the ATR ratio alone doesn’t provide a wealth of signals. For best results, pair it with other indicators. Remember, volatility tends to follow the direction of the current trend. Just like moving averages, volatility indicators perform best in trending markets and may struggle in flat conditions.
This indicator was first developed in MQL4 and made its debut on Code Base at mql4.com on August 8, 2006.
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