The best setting for Average True Range (ATR) will depend on a trader’s individual trading strategy, risk tolerance, and the asset being analyzed.
The most commonly used ATR setting is 14 periods, which is the default setting in many charting platforms. This setting is based on the assumption that there are 14 trading days in a two-week period.
However, some traders may prefer to use a shorter or longer time period for ATR calculations depending on their trading style and the asset being analyzed. For example, a day trader might use a shorter time frame, such as 5 or 10 periods, while a swing trader might use a longer time frame, such as 20 or 30 periods.
It’s important to note that changing the time period for ATR calculations can significantly impact the results, so traders should carefully consider the implications of changing the setting before doing so.
Ultimately, the best setting for ATR is the one that aligns with a trader’s strategy and helps them make informed decisions about risk management and trade entry and exit points. Traders should experiment with different settings and use back-testing to determine which ATR setting works best for their specific needs.