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Glossary

Average True Range ATR

Technical Indicator

Average True Range (ATR) is a technical indicator used to measure the volatility of an asset. It was introduced by J. Welles Wilder in his book "New Concepts in Technical Trading Systems" in 1978. ATR calculates the average price range of an asset over a given time period, taking into account any gaps or limit moves that may occur. Essentially, it gives traders a sense of how much an asset typically moves in a day.

ATR is calculated using the following formula:

ATR = [(Previous ATR x 13) + Current TR] / 14

Where:
- TR = Max[(High - Low), Abs(High - Previous Close), Abs(Low - Previous Close)]
- Previous ATR = previous day*s ATR

The 14-day period is often used as a default, but traders can adjust the time period to suit their needs.

The ATR value is displayed as a line on a chart and can be used in a number of different ways. One common method is to use it to set stop-loss orders. For example, a trader might set a stop-loss order at 2x the value of the ATR below the current price, in order to account for potential volatility. Another use of ATR is to compare it to the asset*s current price to determine if the asset is overbought or oversold. If the ATR is larger than the asset*s current price, it may be considered oversold and vice versa.

Overall, ATR is a useful tool for traders to manage risk and make more informed trading decisions.




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