| Characteristic: | Volatility Indicator | ||
| Parameter Defaults: | ATR Period | 14 | controls the measurement period for the ATR |
| Plots: | ATR | ||
Average True Range (ATR) was developed by J. Welles Wilder Jr to measure the underlying volatility of price. ATR is not an indication of price direction but simply the degree of price movement or volatility expressed as a number of points. His observation was that as a trending move develops, the degree of daily range tends to increase as participants react more emotionally to the trend. Likewise, during a period of directionless trading in a tight range the consequent break out from a low level of average True Range often indicates a breakout in price also.
Average True Range is a running average of True Range.
Wilder defined the true range (TR) as the greatest of the following:
- The current high less the current low.
- The absolute value of: current high less the previous close.
- The absolute value of: current low less the previous close.
NOTE: The use of True Range was originally intended for futures markets where gaps between bars often occur. This does not happen often in the foreign exchange market, but the technique of measuring range remains relevant.
Wilder then calculated ATR by using a running average thus:
ATR = (ATRt-1 * P-1 + TrueRanget ) / P
Where: P = the measurement period for the ATR
