Average True Range

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Average True Range

The Average True Range (ATR) is a measure of volatility developed by J. Welles Wilder and introduced in his book, New Concepts in Technical Trading Systems (1978). The indicator does not provide an indication of price direction or duration, simply the degree of price movement or volatility.

According to Wilder, high ATR values often occur at market bottoms following a “panic” sell-off. Low Average True Range values however are often found during extended sideways periods, such as those found at tops and after consolidation periods.

Method of Calculation

The calculation of the Average True Range is similar to the Average Range indicator's in that it first measures the difference between the High and Low price of the interval (the range), but the ATR also looks to the previous interval's price to ascertain the "true" range.

atrformula.png

User Settings

Period for Averaging

The user can set the number of previous true ranges that will be averaged to produce the average true range for a given interval.

Type in a whole number in the Periods text box in the Parameters tab of the Average True Range Properties dialog box.

The default number of periods is 20, this setting will use all the true ranges of the previous 20 periods and average them to produce the Average True Range for the current interval.

Display

The Average True Range is displayed in an indicator window below the price chart.

The exact display of the plot is controlled on the Plots tabbed page of the Average True Range Properties dialog box.

The Style selected for the plot can be one of the following: Solid, Dashes, Dots, Points, Histogram or Step.

Once the style is selected the Color, Weighting and Visibility can also be controlled from this page.

The Scale's display is controlled from the Scale Settings and Scale Appearance tabbed pages.

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