How Do You Read ATR Values?

The average true range (ATR) is a technical analysis indicator introduced by market technician J. Welles Wilder Jr. in his book New Concepts in Technical Trading Systems that measures market volatility by decomposing the entire range of an asset price for that period.1 The true range indicator is taken as the greatest of the following: current high…

The formula to calculate ATR for an investment with a previous ATR calculation is : \begin{aligned}&\frac{ \text{Previous ATR} ( n – 1 ) + \text{TR} }{ n } \\&\textbf{where:} \\&n = \text{Number of periods} \\&\text{TR} = \text{True range} \\\end{aligned}​nPrevious ATR(n−1)+TR​where:n=Number of periodsTR=True range​ If there is not a previous ATR calculated, you must use: \begin{aligned}&\Big ( \frac{ 1 }{…

A good ATR depends on the asset. If it generally has an ATR of close to $1.18, it is performing in a way that can be interpreted as normal. If the same asset suddenly has an ATR of more than $1.18, it might indicate that further investigation is required. Likewise, if it has a much…

The first step in calculating ATR is to find a series of true range values for a security. The price range of an asset for a given trading day is its high minus its low. To find an asset’s true range value, you first determine the three terms from the formula. Suppose that XYZ’s stock…

Average true range is used to evaluate an investment’s price volatility. It is used in conjunction with other indicators and tools to enter and exit trades or decide whether to purchase an asset.

There are two main limitations to using the ATR indicator. The first is that ATR is a subjective measure, meaning that it is open to interpretation. No single ATR value will tell you with any certainty that a trend is about to reverse or not. Instead, ATR readings should always be compared against earlier readings to get…