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.
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Example of How to Use the ATR
As a hypothetical example, assume the first value of a five-day ATR is calculated at 1.41, and the sixth day has a true range of 1.09. The sequential ATR value could be estimated by multiplying the previous value of the ATR by the number of days less one and then adding the true range for…
What Is a Good Average True Range?
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 Average True Range (ATR) Formula
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)+TRwhere:n=Number of periodsTR=True range If there is not a previous ATR calculated, you must use: \begin{aligned}&\Big ( \frac{ 1 }{…
What Is the Average True Range (ATR)?
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…
What Does the ATR Tell You?
Wilder originally developed the ATR for commodities, although the indicator can also be used for stocks and indices.1 Simply put, a stock experiencing a high level of volatility has a higher ATR, and a lower ATR indicates lower volatility for the period evaluated. The ATR may be used by market technicians to enter and exit trades and is a…
How Do You Read ATR Values?
An average true range value is the average price range of an investment over a period. So if the ATR for an asset is $1.18, its price has an average range of movement of $1.18 per trading day.