Average True Range ATR
- Average True Range ATR
- Bollinger Bands
- Commodity Channel Index (CCI)
- DeMark Indicator
- Envelopes Indicator
- Force Index FRC
- Momentum Indicator
- Relative Vigor Index (RVI)
- Relative Strength Index (RSI)
- Williams Percent Range
Average True Range ATR Purpose
Average True Range (ATR) is a Forex indicator developed by Welles Wilder that introduced in his book, “New Concepts in Technical Trading Systems” 1978. This indicator measures volatility based on price action during a certain period. A higher ATR indicates a high level of volatility and a low ATR - low level of volatility. ATR was developed mainly for commodities markets to evaluate daily price instability. These markets are more likely to have price gaps or limit moves. Wilder created Average True Range to capture this "missing" volatility. It is obligatory to take into consideration that ATR does not provide an indication of price direction, just volatility.
Average True Range Usage
Average True Range is based on an affecting average of true ranges, characteristically for 14 periods with daily and longer timeframes. The ATR reflects the volatility values that are in relation to the trading instrument's price. True range (TR) is the largest of:
- Current high minus the current low
- Current high minus previous close
- Current low minus previous close
Average True Range ATR Calculation
It is important to remember that Average True Range is not designed to predict the direction of the market. ATR helps traders judge the “true” volatility in prices. So the calculation method is:
- Multiply the previous 14-day ATR by 13.
- Add the most recent day's TR value.
- Divide the total by 14
In addition, the traders can use the Average True Range to confirm the strength of a price reversal or breakout.