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Investment Dictionary:

Average True Range - ATR

A measure of volatility introduced by Welles Wilder in his book: New Concepts in Technical Trading Systems.

The True Range indicator is the greatest of the following:
-current high less the current low.
-the absolute value of the current high less the previous close.
-the absolute value of the current low less the previous close.

The Average True Range is a moving average (generally 14-days) of the True Ranges.

Investopedia Says:
Wilder originally developed the ATR for commodities but the indicator can also be used for stocks and indexes. Simply put, a stock experiencing a high level of volatility will have a higher ATR, and a low volatility stock will have a lower ATR.


 
 
Wikipedia: Average True Range

Average True Range (ATR) is a technical analysis indicator developed by J. Welles Wilder, based on trading ranges smoothed by an N-day exponential moving average.

The range of a day's trading is simply high - low. The true range extends it to yesterday's closing price if it was outside of today's range:

true range = max(high,closeprev) - min(low,closeprev)

The average true range is then an N-day exponential moving average of the true range values. Wilder recommended a 14-period smoothing. Note this is by his reckoning of EMA periods (see the EMA article on that), meaning an α=1/14.

The idea of ranges is that they show the commitment or enthusiasm of traders. Large or increasing ranges suggest traders prepared to continue to bid up or sell down a stock through the course of the day. Decreasing range suggests waning interest.

Further reading

  • J. Welles Wilder, New Concepts in Technical Trading Systems, Trend Research, 1978, ISBN 0-89459-027-8

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

 
 

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