Introduction
The Average True Range ("ATR") is a measure of
volatility. It was introduced by Welles Wilder in his book, New Concepts in Technical
Trading Systems, and has since been used as a component of many indicators and
trading systems.
Wilder has found that high ATR values often occur at
market bottoms following a "panic" selloff. Low Average True Range values are
often found during extended sideways periods, such as those found at tops and after
consolidation periods.
The Average True Range can be interpreted using the same
techniques that are used with the other volatility indicators.
The following chart shows a stock hilowclose and its
Average True Range.
The True Range indicator is the greatest of the
following:
 The distance from today's high to today's low.
 The distance from yesterday's close to today's high.
 The distance from yesterday's close to today's low.
The Average True Range is a moving average (typically
14days) of the True Ranges
