ATR Analysis & ATR Trading Signals

Created by J. Welles Wilder

This stock indicator is a measure of volatility - it measures the range of price movement for a particular price period. The ATR is a directionless indicator & it does not determine the direction of the trend.

High ATR values

High Average True Range indicator values indicated market bottom after a selloff.

Low ATR values

Low Average True Range values showed extended periods of sideways price movement- Price Range, such as those found at market tops and consolidation periods. Low ATR values are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation.

Calculation

This stock indicator is calculated using the following:

• Difference between the current high & the current low

• Difference between the previous closing price and the current high

• Difference between the previous closing price & the current low

The final Average is calculated by adding these values & calculating the average.

Trading Analysis & Generating Signals

Average True Range indicator can be analyzed using the same principles as other volatility technical indicators.

Possible trend change trading signal - The higher the value of the indicator, the higher the probability of a stock trend change;

Measure of trend momentum - The lower the indicator's value, the weaker the trend movement.

Analysis in Stock Trading