Average True Range (ATR) – FX Replay User Guide

The ATR is a volatility gauge that shows how much price is moving in a given period. On FX Replay, it’s a go-to tool for adjusting stops, setting targets, and sizing risk in any test strategy.

What It Measures

• Volatility — not direction.
• Calculates the True Range, which is the largest of:
  1. Current High – Current Low
  2. |Current High – Previous Close|
  3. |Current Low – Previous Close|
• The result is then averaged over a set number of candles (default 14 periods).

How to Use It on FX Replay

• Rising ATR → Increasing volatility — market is expanding.
• Falling ATR → Decreasing volatility — market is tightening or consolidating.
• High ATR → Expect wider price swings (ideal for breakout trades).
• Low ATR → Expect tight ranges (look for mean-reversion setups).

Actionable Use Cases

• Stop-Loss Placement: Set stops 1.5×–2× ATR from entry to avoid normal market noise.
• Target Setting: Place profit targets at ATR multiples (e.g., 2× ATR above entry).
• Position Sizing: Scale trade size with ATR so risk per trade stays consistent.
• Breakout Strategies: Add/Subtract ATR from the session’s first-candle close to create breakout levels; confirms the move has enough range to follow through.
• Volatility Zones: Plot ATR envelopes (price ± ATR) to visualize high/low volatility bands during replay sessions.

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