Blockchain and Cryptocurrency Advanced - The ATR Indicator: Best Settings and Advantages and Disadvantages

Best setting of the ATR indicator period

In my opinion, the best settings for the Average True Range (ATR) indicator greatly depends on the particular time period for the analysis, whether it is for short-term or long-term analysis and also depends heavily on the trading strategy. However, the default value of the ATR indicator is 14 which is considered very common period for the ATR indicator. However, it is important to know that the periods that is used has a big effect on the smoothness of the ATR line.

Even though the ATR indicator has a default settings of 14, the period can be changed to suit the particular timeframe. For example, it is more ideal to make use of short period length for short-term timeframe, and more ideal to make use of longer period length for long-term timeframe. Longer period length is slower and generates a smoother line on the ATR indicator with fewer trading signals when used on a selected timeframe. Shorter period length is faster and generates a rougher line with more trading signals on the ATR indicator with fewer trading signals when used on a selected timeframe. From the AAVE/USDT chart below we can see the different period length from short period length to longer period length and how it affects the smoothness of the ATR. Short period length produces rougher line on the ATR and longer period length produces smoother line on the ATR indicator.

The advantages and disadvantages of the ATR indicator

Advantages

• One of the main advantages of the ATR indicator is that it is very simple and easy to use and read by anyone.

• It can provide good signal for entry and exit when combined with other strategies or indicators.

• It offers flexibility which means that it can be combined with other technical indicators to confirm signals so as to make better trading decisions.

• Can be used as a risk management strategy to set stoploss and take profit points when trading any cryptocurrency asset.

• It can be used on any timeframe and still generate good signals.

Disadvantages

• It isn’t not known for providing direct buy and sell signals singlehandedly

• It has to be combined with other strategies and technical indicators to make the best use of the ATR indicator

• It is very difficult to tell what is happening in the market just by looking at the ATR indicator alone

• The ATR indicator only measures volatility in the market and cannot just tell the direction the market will go on its own.

The ATR indicator has proven to be a very powerful and simple to use indicator when it comes to technical analysis and cryptocurrency trading. The ATR indicator has proven to be effective in measuring price volatility of an asset and is a very powerful for identifying how much the price of any given cryptocurrency asset has fluctuated during a particular period of time. Because of this, it is very popular among traders for indicating market volatility. However, it is important to know that the ATR indicator is not perfect and should be used in combination with other technical indicators and trading strategies to make the best use of the indicator and make better trading decisions.