Average True Range (ATR)

 

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" sell-off. 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 hi-low-close and its Average True Range.

ATR.gif (6931 bytes)

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 14-days) of the True Ranges