Average True Range

Type

Other indicator

Short introduction

The average true range ("ATR", also modified as "Wilder's Volatility") is the moving average of the true-range indicator developed by Welles Wilder in 1978. It is intended to take account of "limit" movements in volatile markets.

Meaning and calculation

The true range is used in some indicators, such as the DMI, to correctly considers days with a low daily trading range but a large gap to the previous day's close in the volatility calculation. The true range is always positive and represents the maximum of the following three formulas:

• Distance between daily high and daily low
• Distance between daily high and daily low

• Distance between today's high and the previous day's low

The average true range is then a MA, generally using 14 days, of the true ranges. The result is the "Average True Range" (ATR).

Interpretation

The average true range returns no individual signals. A rising indicator curve only signals an increasing volatility, while a falling indicator curve signals a falling volatility.

Default setting

• MA period: 14 periods

Example: Average True Range