Average
True Range
Average
True Range (ATR) is a volatility indicator. It is
also used as part of other trading systems such
as Starc Bands and Keltner Channels.
Overview
- ATR provides a measure
of volatility.
- ATR is calculated
as the moving average of true price ranges over
a given period.
- Developed by Welles
Wilder and first described in his 1978 book
New Concepts in Technical Trading Systems
Interpretation
Average True Range
is a moving average of the True Range over "X"
periods, usually 14-days. True Range is
the greatest difference from the following choices:
- Today's high and
today's low.
- Today's high and
yesterday's close, or
- Today's low and
yesterday's close.
True range
is always a positive number (negative numbers
from the calculation above are to be ignored).
Major tops
are typically accompanied by high volatility
during the blow-off phase of a market, as investors
become more and more nervous and ready to take profits.
Major bottoms are usually calmer, with low volatility,
as the hopes for quick profits have faded.
Signals
High
ATR values are often correlated with high volatility
as prices bottom and there is a sell off.
Low ATR
values are often correlated with low volatility
as prices stabilize or move into a sideways channel
prior to a possible breakout.
Further
Information
Also see
Keltner Channels.
Interpretation
The Swing
Index alone doesn't provide much in the way of signals.
It should be used in conjunction with the Accumulative
Swing Index.
See the
Accumulative Swing Index.
