Average True Range or ATR is a technical analysis volatility indicator that takes a moving average of Welles Wilder’s True Range calculation. It is often used as a market volatility measurement; it does not provide signals of price trend. See True Range. Average True Range was introduced in Welles Wilder’s 1987 book New Concepts in Technical Trading Systems.
Average True Range (ATR) is a moving average (MA) of true range (TR) calculated over N days. True range and average true range are common volatility measurements.
TR modifies the standard range calculation by accounting for gaps between price bars. TR is defined as the largest value (in absolute terms) of:
- today’s high and today’s low (the standard daily range calculation);
- today’s high and yesterday’s close;
- today’s low and yesterday’s close.
For example, ATR(14) is a 14-day MA of the last 14 values of TR.
Notice how the ATR indicator rises, increasing in value as the volatility of the SPY increases during the downtrend in March.
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