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--- technical_indicators:average_true_range_atr [2020/07/13 22:10]
betseyp [Calculation]
+++ technical_indicators:average_true_range_atr [2023/08/30 23:40] (current)
jayanthi [Using ATRP With StockChartsACP]
@@ Line 2: / Line 2: @@
-===== Introduction =====
+===== What Is the Average True Range (ATR)? =====
-Developed by J. Welles Wilder, the Average True Range (ATR) is an indicator that measures [[:glossary_v#volatility|volatility]]. As with most of his indicators, Wilder designed ATR with commodities and daily prices in mind. Commodities are frequently more volatile than stocks. They were are often subject to gaps and limit moves, which occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. Wilder created Average True Range to capture this "missing" volatility. It is important to remember that ATR does not provide an indication of price direction, just volatility.
+Developed by J. Welles Wilder, the Average True Range (ATR) is an indicator that measures [[:glossary_v#volatility|volatility]]. As with most of his indicators, Wilder designed ATR with commodities and daily prices in mind. Commodities are frequently more volatile than stocks. They are often subject to gaps and limit moves, which occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. Wilder created the Average True Range to capture this "missing" volatility. It is important to remember that ATR doesn't indicate price direction, just volatility.
-Wilder features ATR in his 1978 book, //New Concepts in Technical Trading Systems//. This book also includes the Parabolic SAR, RSI and the Directional Movement Concept (ADX). Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular.
+Wilder features ATR in his 1978 book, //New Concepts in Technical Trading Systems//. This book also includes the Parabolic SAR, RSI, and the Directional Movement Concept (ADX). Despite being developed before the computer age, Wilder's indicators have stood the test of time and remain extremely popular.
 ===== True Range =====
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 Example C: Even though the current close is within the previous high/low range, the current high/low range is quite small. In fact, it is smaller than the absolute value of the difference between the current high and the previous close, which is used to value the TR.
-===== Calculation =====
+===== How To Calculate ATR =====
 Typically, the Average True Range (ATR) is based on 14 periods and can be calculated on an intraday, daily, weekly or monthly basis. For this example, the ATR will be based on daily data. Because there must be a beginning, the first TR value is simply the High minus the Low, and the first 14-day ATR is the average of the daily TR values for the last 14 days. After that, Wilder sought to smooth the data by incorporating the previous period's ATR value.
@@ Line 44: / Line 44: @@
 {{:technical_indicators:average_true_range_atr:cs-atr.xls?linkonly|Click here for an Excel Spreadsheet}} showing the start of an ATR calculation for QQQ.
-In the spreadsheet example, the first True Range value (.91) equals the High minus the Low (yellow cells). The first 14-day ATR value (.56) was calculated by finding the average of the first 14 True Range values (blue cell). Subsequent ATR values were smoothed using the formula above. The spreadsheet values correspond with the yellow area on the chart below; notice how ATR surged as QQQ plunged in May with many long candlesticks.
+In the spreadsheet example, the first True Range value (0.91) equals the High minus the Low (yellow cells). The first 14-day ATR value (0.56) was calculated by finding the average of the first 14 True Range values (blue cell). Subsequent ATR values were smoothed using the formula above. The spreadsheet values correspond with the yellow area on the chart below; notice how ATR surged as QQQ plunged in May with many long candlesticks.
-{{:technical_indicators:average_true_range_atr:atr-3-qqqqexam.png|ATR - Chart 1}}
+{{:technical_indicators:average_true_range_atr:atr-3-qqqqexam.png|ATR plotted on chart using StockCharts.com - Chart 1}}
-For those trying this at home, a few caveats apply. First, just like with [[:technical_indicators:moving_averages#ema_accuracy|Exponential Moving Averages (EMAs)]], ATR values depend on how far back you begin your calculations. The first True Range value is simply the current High minus the current Low and the first ATR is an average of the first 14 True Range values. The real ATR formula does not kick in until day 15. Even so, the remnants of these first two calculations "linger" to slightly affect subsequent ATR values. **Spreadsheet values for a small subset of data may not match exactly with what is seen on the price chart.** Decimal rounding can also slightly affect ATR values. On our charts, we calculate back at least 250 periods (typically much further), to ensure a much greater degree of accuracy for our ATR values.
+For those trying this at home, a few caveats apply. First, just like with [[:technical_indicators:moving_averages#ema_accuracy|Exponential Moving Averages (EMAs)]], ATR values depend on how far back you begin your calculations. The first True Range value is the current high minus the current low, and the first ATR is an average of the first 14 True Range values. The real ATR formula kicks in on day 15. Even so, the remnants of these first two calculations "linger" to slightly affect subsequent ATR values. **Spreadsheet values for a small subset of data may not match exactly with what is seen on the price chart.** Decimal rounding can also slightly affect ATR values. On our charts, we calculate back at least 250 periods (typically much further) to ensure a much greater degree of accuracy for our ATR values.
 ===== Absolute ATR =====
-ATR is based on the True Range, which uses absolute price changes. As such, ATR reflects volatility as absolute level. In other words, ATR is not shown as a percentage of the current close. This means low-priced stocks will have lower ATR values than high price stocks. For example, a $20-30 security will have much lower ATR values than a $200-300 security. Because of this, ATR values are not comparable. Even large price movements for a single security, such as a decline from 70 to 20, can make long-term ATR comparisons impractical. Chart 4 shows Google with double-digit ATR values and chart 5 shows Microsoft with ATR values below 1. Despite different values, their ATR lines have similar shapes.
+ATR is based on the True Range, which uses absolute price changes. As such, ATR reflects volatility at an absolute level. In other words, ATR is not shown as a percentage of the current close. This means low-priced stocks will have lower ATR values than high-price stocks. For example, a $20-30 security will have much lower ATR values than a $200-300 security. Because of this, ATR values are not comparable. Large price movements for a single security, such as a decline from 70 to 20, can make long-term ATR comparisons impractical. Chart 4 shows Google with double-digit ATR values, and chart 5 shows Microsoft with ATR values below 1. Despite different values, their ATR lines have similar shapes.
 {{:technical_indicators:average_true_range_atr:atr-4-googhigh.png?nolink&}}
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 {{:technical_indicators:average_true_range_atr:atr-5-mfstlow.png?nolink&}}
-===== Conclusion =====
+===== Average True Range Percent (ATRP) =====
+The ATRP is a variation of the ATR and is available in StockChartsACP. ATRP measures volatility, similar to the Average True Range (ATR), but there's a difference. ATRP is scaled as a percentage, which means you can use it to compare ATR values of different securities. The ATRP is calculated by dividing the ATR by the closing price and multiplying the value by 100.
-ATR is not a directional indicator like MACD or RSI, but rather a unique volatility indicator that reflects the degree of interest or disinterest in a move. Strong moves, in either direction, are often accompanied by large ranges, or large True Ranges. This is especially true at the beginning of a move. Uninspiring moves can be accompanied by relatively narrow ranges. As such, ATR can be used to validate the enthusiasm behind a move or breakout. A bullish reversal with an increase in ATR would show strong buying pressure and reinforce the reversal. A bearish support break with an increase in ATR would show strong selling pressure and reinforce the support break.
+<code>
+ATRP = (ATR / Close) * 100
+</code>
+==== Using ATRP With StockChartsACP ====
+In StockChartsACP, you can [[https://support.stockcharts.com/doku.php?id=acp:layouts|view multiple charts simultaneously]], making it simpler to compare the ATRP for different securities. For example, to compare the ATR for four semiconductor stocks, select the four chart layouts in StockChartsACP and add the four symbols. The example below shows a chart of Advanced Micro Devices (AMD), Intel Corp. (INTC), NVIDIA (NVDA), and Micron Technology (MU). You'll notice that out of the four stocks, AMD and NVDA are more volatile than INTC and AMD.
+{{:technical_indicators:average_true_range_atr:atrp-comparing-stocks.png|Comparing ATRP of four stocks in StockChartsACP}}
+===== The Bottom Line =====
+ATR and ATRP are not directional indicators like MACD or RSI. Instead, they're unique volatility indicators that reflect the degree of interest or disinterest in a move. Large ranges or True Ranges often accompany strong moves in either direction, which can be volatile. This is especially true at the beginning of a move. Relatively narrow ranges can accompany low-volatility moves. The ATR and ATRP can validate the enthusiasm behind a move or breakout. A bullish reversal with increased ATR would show strong buying pressure and reinforce the reversal. A bearish support break with increased ATR would show strong selling pressure and reinforce the support break. The ATRP can help you compare the ATR of different securities to determine which securities are more volatile than others.
-===== Using with SharpCharts =====
+===== Using ATR with SharpCharts =====
 Listed as "Average True Range," ATR is on the Indicators drop-down menu.  The "parameters" box to the right of the indicator contains the default value, 14, for the number of periods used to smooth the data. To adjust the period setting, highlight the default value and enter a new setting. In his work, Wilder often used an 8-period ATR. SharpCharts also allows users to position the indicator above, below or behind the price plot. A moving average can be added to identify upturns or downturns in ATR. Click "advanced options" to add a moving average as an indicator overlay. [[https://stockcharts.com/h-sc/ui?s=$INDU&p=D&b=5&g=0&id=p51341747448&listNum=30&a=202613287|Click here]] for a live example of ATR.