The Normalized ATR is a volatility indicator that adjusts the Average True Range (ATR) relative to price, making it easier to compare volatility across different currency pairs. In this guide, we’ll explore how Normalized ATR works, its advantages, and the best strategies to trade with it effectively.
The Normalized ATR is a volatility-adjusted version of the Average True Range (ATR) that scales ATR values relative to price, allowing traders to compare volatility across different assets more effectively. This indicator is particularly useful in forex trading, where currency pairs have different price scales.
The Normalized ATR formula is:
Normalized ATR = (ATR / Closing Price) × 100
Where:
Traders use Normalized ATR to set stop-loss levels based on current market volatility:
Example: If Normalized ATR = 1.5%, a trader may set a stop-loss 1.5% away from the entry price.
Normalizing ATR helps confirm breakout trades by identifying significant volatility shifts:
The Normalized ATR can help confirm whether a trend is strong or weak:
Pairing Normalized ATR with a moving average (e.g., 50 EMA) improves trade accuracy:
✅ Pros:
❌ Cons:
The Normalized ATR is a powerful volatility tool that helps traders adjust stop-loss levels, confirm breakouts, and compare volatility across markets. When combined with trend-following indicators, Normalized ATR enhances trade accuracy and risk management.
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Trading over-the-counter derivatives involves leverage and carries significant risk to your capital. These instruments are not appropriate for all investors and could result in losses exceeding your original investment. You do not possess ownership or rights to the underlying assets. Always ensure you are trading with funds you can afford to lose.