Average True Range:
Average True Range indicator is a volatility indicator. When the average true range indicator is showing lower readings for any currency pair that means there is low volatility for that currency pair. When the average true range indicator is rising that means the volatility of the currency pair is increasing and you can see large bars for that currency pair. When the ATR indicator started decreasing after reaching a higher point the volatility of the currency pair is decreasing. Check the following picture.
In the above picture two regions are highlighed where the ATR indicator is rising and the ATR indicator is falling. You can see large volatility in the currency pair when the ATR indicator is rising and less volatility when the ATR indicator is falling after reaching a higher point.
ATR indicator does not say anything about the trend. It only says about the valatility of the currency pair.
How to trade using ATR indicator:
There might be many ways to use ATR indicator in forex trading but the following is one way you can use this indicator in forex trading.
Scalping: You can use this indicator for scalping in a low volatility markets. Check the following picture which is an hourly graph of GBPUSD currency pair. I have indicated the area where the ATR indicator is falling after it has reached a higher point for that particular day. Once you observe that the ATR indicator started falling in the hourly graph shift to 5 min. graph. Add a stochastic oscillator with default options and put the levels as 30 and 70. Check the previous trend for that particular day. In the picture the previous trend was downwards. In the 5 min. graph you need to enter long trades as now reversal will take place. In the 5 min. graph when the currency pair reaches the oversold region that means below 30 line and when the slow and fast moving stochastic lines cross each other enter a long trade. When you get a 5 to 10 pips profit exit the trade. If the prior trend is upwards you need to enter short trades in the 5 min. chart.