## Bài viết

## Average True Range ATR Overview, How to Calculate and Interpret

The ATR is a technical indicator that measures the average range of an asset over a given period of time. The average range is simply the average of the high and low prices over a given period of time. For example, if the ATR for a stock is 10 and the stock trades at $50, that means that the stock has traded between $40 and $60 over the past 10 days. The average true range (ATR) measures the volatility of a security, and it can be one of the many tools used to research stocks and to spot breakouts.

- This can also suggest that there’s more of a push happening in the market to buy or sell the security that’s being tracked.
- Five Minute Finance has influenced how I see finance – I rely on it for insight on the latest news and trends at the intersection of finance and technology.
- However, while it can be useful in making trading decisions, there are some limitations on what it can tell you about a security’s projected price movements.
- After the spike at the open, the ATR typically declines most of the day.
- The ATR value can also be used to determine the appropriate size of a position.

Similarly, the 2022 loss may have been a shock to investors following the impressive three-year uptrend from 2019 to 2021. A war in another part of the world could restrict the supply of critical raw materials, having a negative impact on the stock market. At any given point in time, certain industry sectors can either underperform or outperform the general market.

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SharpCharts also allows users to position the indicator above, below or behind the price plot. A moving average can be added stock average true range to identify upturns or downturns in ATR. Click “advanced options” to add a moving average as an indicator overlay.

The stock closed the day again with an average volatility (ATR) of $1.18. Naturally, there is no hard-and-fast rule for setting stops according to the ATR. It depends on each trader’s individual risk tolerance while also allowing the trade “breathing room” to develop. That’s also why attempting to time the market is never recommended. It’s not possible to accurately predict the performance of the market in the coming year based on what it’s done in the previous year.

- By using the ATR value to calculate the potential risk of a trade, traders can adjust their position size to ensure that they are not risking more than they can afford to lose.
- To find an asset’s true range value, you first determine the three terms from the formula.
- Wilder created the Average True Range to capture this “missing” volatility.
- Traders can use shorter periods than 14 days to generate more trading signals, while longer periods have a higher probability to generate fewer trading signals.

Short trades are the opposite; the ATR or a multiple of the ATR is subtracted from the open and entries occur when that level is broken. The average true range (ATR) is a volatility indicator that gives you a sense of how much a stock’s price could be expected to move. A day trader can use this in combination with other indicators and strategies to plan trade entry and exit points. An average true range value is the average price range of an investment over a period. So if the ATR for an asset is $1.18, its price has an average range of movement of $1.18 per trading day. Once you have the TR and prior ATR, you calculate the current ATR from Wilder’s formula to smooth out the data with a moving average.

## How can I use the ATR to trade stocks

Average True Range (ATR) is the average of true ranges over the specified period and it measures the volatility taking in to account any gaps in the price movement. ATR calculation is based on 14 periods and it can be intraday, daily, weekly or monthly. As most of his indicators Wilder designed ATR with commodities and daily prices in mind. They are often subject to gaps or limit moves which occur when the commodity opens up or down its maximum. A volatility formula which is based only on the high low range would fail.

Wilder created Average True Range to capture this missing volatility. Average true range, a metric of technical analysis among in the securities industry, was first developed for commodity traders. It is a way to measure a security’s volatility over a fixed time period.

## Determine a Profit Target

The ATR indicator moves up and down as price moves in an asset become larger or smaller. On a one-minute chart, a new ATR reading is calculated every minute. All these readings are plotted on a graph to form a continuous line, so traders can see how volatility has changed over time. The average true range is a straightforward technical indicator used to determine price volatility. It is best used to determine how much investment price has been moving in the period being evaluated rather than an indication of a trend. Calculating an investment’s ATR is relatively straightforward only requiring to use price data for the period of investigation.

## Average true range

To find an asset’s true range value, you first determine the three terms from the formula. While ATR seems as wondrous as Donald Duck voyaging through Mathmagic Land, it is important to remember ATR provides objective data a trader interprets subjectively. In other words, ATR is not an oracle that predicts breakouts and price trends but a tool that measures volatility and price movement. This indicator shows that volatility is higher than yesterday’s close, and the opening is the most volatile moment of the day. A company with a higher level of volatility will have a higher average true range, and vice versa for a stock with a lower level of volatility. The trader must perform a few calculations before calculating the past 9-day average true range.

The image below shows examples of when methods 2 and 3 are appropriate. The fact that ATR is calculated using absolute values of differences in price is something that should not be ignored. This is relevant because it means that securities with higher price values will inherently have higher ATR values. Likewise, securities with lower price values will have lower ATR values. The consequence is that a trader cannot compare the ATR Values of multiple securities.

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Average True Range (ATR) is the average of true ranges over the specified period. ATR measures volatility, taking into account any gaps in the price movement. Typically, the ATR calculation is based on 14 periods, which can be intraday, daily, weekly, or monthly. To measure recent volatility, use a shorter average, such as 2 to 10 periods.

Assume that a trader is monitoring the price of stock ABC, which has been in a downtrend for the past several weeks. The trader notices that the ATR for stock ABC has been steadily decreasing over this period. For example, if the ATR value is $2 and a trader is willing to risk $100 on a trade, they would limit their position size to 50 shares. If the market has gapped higher, equation #2 will accurately show the volatility of the day as measured from the high to the previous close.

## The Average True Range (ATR) Formula

As with most of his indicators, Wilder designed ATR with commodities and daily prices in mind. They are often subject to gaps and limit moves, which occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. Wilder created the Average True Range to capture this “missing” volatility. It is important to remember that ATR doesn’t indicate price direction, just volatility.