Average True Range

Also referred to as the Trading Range, this system was introduced by J. Welles Wilder Jr. in his book "New Concepts in Technical Trading Systems." Wilder has found that high Average True Range values often occur at market bottoms following a "panic" sell-off. Low Average True Range values are often found during extended sideways periods, such as those found at tops and after consolidation periods.

The True Range indicator is the greatest of the following:

  • The price difference from today's high to today's low.
  • The price difference from yesterday's close to today's high.
  • The price difference from yesterday's close to today's low.
The Average True Range is an exponential moving average (typically 7-days) of the True Ranges.