ATR Technical Analysis & ATR Trade Signals

Developed by J. Welles Wilder

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

High ATR values

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

Low ATR values

Low Average True Range values showed extended periods of sideways trading 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 & during consolidation.

Calculation

This indicator is calculated using the following:

• Difference between the current high & the current low

• Difference between the prior closing price & the current high

• Difference between the prior closing price & the current low

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

Technical Analysis and How to Generate Signals

ATR indicator can be analyzed using the same principles as other volatility indicators.

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

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

Technical Analysis in Stock Indices Trading