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EABuilder Pro

Average True Range

Introduction

Section titled “Introduction”

The Average True Range (ATR) is a technical indicator that measures market volatility. It was created by Welles Wilder and has been widely used in various trading systems and indicators.

Volatility Indicator

Section titled “Volatility Indicator”

The ATR can reach high values during market bottoms caused by panic selling. Conversely, low values are typical during periods of sideways movement or consolidation at market tops.

Interpretation

Section titled “Interpretation”

The ATR can be interpreted similarly to other volatility indicators. A higher ATR value indicates a higher probability of a trend change, while a lower value suggests a weaker trend movement.

ATR shows volatility in price units: it rises with large bars and falls during quiet periods.

Calculation of Average True Range

Section titled “Calculation of Average True Range”

The True Range of a bar is the largest of three values, and ATR is the moving average of the True Range:

TR = MAX(HIGH(i) - LOW(i), ABS(HIGH(i) - CLOSE(i - 1)), ABS(LOW(i) - CLOSE(i - 1)))
ATR = SMA(TR, N)

Where:

  • HIGH(i) and LOW(i) are the high and low of the current bar;
  • CLOSE(i - 1) is the close of the previous bar;
  • N is the indicator period (14 by default).

ATR is expressed in price units, not in pips. On EURUSD an ATR value of 0.0015 equals 15 pips; on USDJPY a value of 0.15 equals 15 pips.