What is an Average True Range?
The average true range is a volatility indicator. It measures the average of true price ranges over time. The True Range is the greatest distance between today’s high to today’s low, yesterday’s close to today’s high, or Yesterday’s close to today’s low.
- Current high minus the previous close.
- Current low minus previous close.
- Current high minus current low.
- The average true range (ATR) is a great tool for determining the level of volatility.
- To calculate the average true range, you take the average of each true range value over a fixed period of time.
- If using the ATR on an intraday chart, such as a one or five minute, the ATR will spike higher right after the market opens.
- This is because when using a one-minute chart the indicator is tracking how much each one-minute bar moves. Since the open is the most volatile time of day, ATR moves up to show that volatility is higher than it was at yesterdays close.
- The average true range indicator is an oscillator, meaning the ATR will oscillate between peaks and valleys.
- ATR breakout systems can be used by strategies of any time frame.