Name, Sometimes Called:
Average True Range
Often abbreviated ATR
Also see Standard Deviation
Brief Description:
Average True Range (ATR) measures only volatility,
not direction or trend duration
Definitions, Formulas:
ATR is a measure only of price volatility. It does
not indicate either the direction of prices or the duration of a
trend.
ATR can be based on any period (n), but a 14-day period
is most commonly used. ATR is the 14-day EMA
of True Range (TR) values. Wilder defines True Range as the maximum
of three values:
TR = MAX(T1, T2, T3)
where
T1 = current period’s high – current period’s
low
T2 = ABS(current period’s high – previous period’s
close)
T3 = ABS(current period’s low – previous period’s
close)
and ABS( ) means “take the absolute
value.”
Then ATR = EMA(14)(TR).
ATR has no positive developments.
Positive Development Calculation:
ATR has no positive developments. It measures only
price volatility.
History:
The ATR indicator was developed by J. Welles Wilder,
Jr. who introduced it in his book New Concepts in Technical
Trading Systems (Trend Research, PO Box 128, McLeansville,
NC 27301, 1978). Wilder found that high values of ATR often occur
when a market bottoms out after panic selling. Low ATR values often
occur during extended trending
periods, like those at market tops and after periods of consolidation.
This chart shows the ATR indicator in use. Remember that ATR has
units of the same currency as the prices. Here we can see the increase
in volatility from early September 2000 to mid October 2000.
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