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Technical Indicators

Thu, Jun 5th, 2025
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The descriptions, formulas, and parameters shown below apply to both Interactive Charts and Snapshot Charts, unless noted. Please note that some of the parameters may be slightly different between the two versions of charts.
Studies noted with * are available only in Snapshot Charts and those noted with ^ are available only in Interactive Charts.
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Average True Range

Indicator Type: Standalone

Average True Range Technical Indicator (ATR) is an indicator that shows volatility of the market. It was introduced by Welles Wilder in his book "New concepts in technical trading systems". This indicator has been used as a component of numerous other indicators and trading systems ever since.

Average True Range can often reach a high value at the bottom of the market after a sheer fall in prices occasioned by panic selling. Low values of the indicator are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation. Average True Range can be interpreted according to the same principles as other volatility indicators. The principle of forecasting based on this indicator can be worded the following way: the higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.

When adding Average True Range to an Interactive Chart, you also have the option to plot a Moving Average of the results of the ATR.

Average True Range

Calculation

To calculate the ATR, the True Range first needs to be discovered. True Range takes into account the most current period high/low range as well as the previous period close if necessary.

There are three calculation which need to be completed and then compared against each other.

The True Range is the largest of the following:

  • The Current Period High minus (-) Current Period Low
  • The Absolute Value (abs) of the Current Period High minus (-) The Previous Period Close
  • The Absolute Value (abs) of the Current Period Low minus (-) The Previous Period Close

true range=max[(high - low), abs(high - previous close), abs (low - previous close)

*Absolute Value is used because the ATR does not measure price direction, only volatility. Therefore there should be no negative numbers.

*Once you have the True Range, the Average True Range can be plotted. The ATR is a Moving Average of the True Range.

Parameter

  • Period: (14) - The number of periods used to in the range calculation. If the chart displays daily data, then period denotes days; in weekly charts, the period will stand for weeks, and so on. Wilder used a period of 7. Other common periods used are 14 and 20.
  • Smoothing - This parameter is only shown when using Interactive Charts. It determines what type of moving average is used to smooth the true range values. The default is SMA. Options are
    • SMA: Wilder's (Smoothed) Average
    • MA: Simple Moving Average
    • EMA: Exponential Moving Average
    • WMA: Weighted Moving Average
  • Period2: (20) - This parameter is only shown when using Interactive Charts. It provides you with an optional Moving Average plot that will be added to the chart to show the moving average of the ATR.

Interpretation

Welles Wilder developed Average True Range to create a tool for a precise and realistic calculation of market’s price activity. This value is considered when calculating the directional movement of a market. Mr. Wilder defined the True Range to be the greatest for the following periods:

The distance from today’s high to today’s low.

The distance from yesterday’s close to today’s high.

The distance from yesterday’s close to today’s low.

True Range measures market volatility and is an integral part of indicators such as ADX (Average Directional Movement) or ADXR (Average Directional Movement Rating), and several others, to identify the directional movement of a market. The ATR is the basic unit of measurement for Wilder's Volatility System.

The Average True Range indicator identifies periods of high and low volatility in a market. High volatility describes a market with ongoing price fluctuation, whereas low volatility is used to label a market with little price activity. Measuring market volatility can help in identifying buy and sell signals and, additionally, risk potential. Markets with high price fluctuation offer more risk/reward potential, because prices rise and fall in a short time, giving the investor the opportunity to buy or sell at, supposedly, the right moment.

When a market becomes increasingly volatile, the ATR tends to peak rising in value, and during periods of little volatility, the ATR bottoms out decreasing in value. A market will usually keep the direction of the initial price move, though this is certainly not a rule. Analysts, therefore, tend to use Average True Range to measure market volatility and other technical indicators to help identify market direction.

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