Working Money: Average True Range by Sharon Yamanaka
Average or extraordinary, “true range”
is often referred to in stocks and
commodities trading. But what is it?
rader, author, and technician J.
Welles Wilder developed average
true range (ATR) in the 1970s as a
measurement of price volatility.
Wilder believed that the range was
directly proportional to volatility,
and that range — the high and low of a stock for
a given period, be it intraday, daily, weekly, or monthly — was indicative of a trend. If the volatility of a stock
increased, it was entering a trend, and if it slowed down, it
suggested a reversal. He further refined the trading range,
calling it a true range when he included changes in price that
occurred from the previous day’s close rather than starting
from the opening price. Such things as after-hours
announcements that would predispose the market to open
higher or lower next day would not be accounted for.