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The Average True Range (aka the "ATR") is a volatility measure. It was created by Welles Wilder who found that high ATR values usually mean teh bottom of the market (usually after a "panic" plunge). Conversely, low ATRs are usually associated with sideways chanelling, typically at the top of a move or inconsolidation phases. Used in any day trading method, the ATR may be of limited use, as it attempts to predict the general thrust of the day's move - and as we already know, predicting the future is impossible. If you DO want to calculate it though, first you need the 'True Range' which is the greatest of either the distance from today's high to today's low, the distance from yesterday's close to today's high or the distance from yesterday's close to today's low. Then the ATR is simply a moving average (usually 14 days) of the previously generated 'True Ranges'.. |
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