ATR Technical Analysis & ATR Trade Signals

Developed by J. Welles Wilder

This indicator is a measure of volatility - it measures the range of price movement for a particular stock price period. The ATR is a directionless indicator & it does not determine the direction of the market trend.

High ATR values

High Average True Range indicator values indicated market bottom after a sell off.

Low ATR values

Low Average True Range values showed extended periods of sideways trading price movement- Price Range, such as those found at market tops & consolidation periods. Low ATR values are typical for the periods of sideways movement of long duration which happen at the top of the market & during consolidation.

Calculation

This indicator is calculated using the following:

• Difference between the current high and the current low

• Difference between the prior closing price & the current high

• Difference between the prior closing price & the current low

The final Average is calculated by adding these values and calculating the average.

Technical Analysis & How to Generate Signals

ATR indicator can be analyzed using the same principles as other volatility indicators.

Possible trend change signal - The higher the value of the indicator, the higher the probability of a trend change;

Measure of trend momentum - The lower the indicator’s value, the weaker the market trend movement.

Technical Analysis in Stock Indices Trading