Average True Range (ATR)
Definition of 'Average True Range (ATR)'
It is important to note that because this is a volatility indicator it does not provide an indication of price trend but instead the degree of price volatility.
The average true range is an N-day exponential moving average of the true range values. Wilder recommended a 14-period smoothing.
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.
TrueRange = Max(High, PreviousClose) - Min(Low, PreviousClose)
The true range is the largest of the:
- Most recent period's high less the most recent period's low
- Absolute value of the most recent period's high less the previous close
- Absolute value of the most recent period's low less the previous close
The idea behind ranges is that they show the commitment or enthusiasm of traders. Large and/or increasing ranges suggest that traders are prepared to continue to buy or sell a future throughout the course of the day. A decreasing range suggests falling interest.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.