Average True Range (ATR)
Average True Range (ATR) is an indicator based on trading ranges smoothed by an N-period exponential moving average percentage of the true range values. ATR can display volatility of stocks, ETFs and indexes. The principal of ATR is very similar to other volatility indicators: A high ATR value signals a possible trend change. A low ATR value correlates with a weaker trend movement.
The range of a day's trading is high to low. The true range also takes into account the previous day's closing price if it was outside of today's range. The results of the average true range displays how much a stock has moved either up or down on average over a defined period.
Average True Range is calculated:
ATR = ((Tr-X) * P) + X
X = Previous bars calculated ATR
Tr = True Range
P = Exponential Moving Average Percent
True Range is calculated: true range(Tr) = max(high,closeprev) - min(low,closeprev)
Exponential Moving Average Percent is calculated:
P = 2/ (1 + N)
N = Time Period
Note: The first bars Average True Range is always defined as Zero.
For example, to calculate the Average True Range of a particular point on a GE intraday 5 min 2 day chart (Default Period is set to 14):
1. Locate the actual point that you would like to calculate.
2. The True Range is provided for you in the Bar Information Window.
3. Calculate the Exponential Moving Average Percentage.
4. Calculate the ATR.
This will give you the ATR for that particular point.
Specific securities represented in this manual are for illustration purposes only. Any information concerning a particular security should not be considered a recommendation or a solicitation of that security. Illustrations may not represent current market values.