ATR (Average True Range) - first we must compute the true range of movement. 1. H – L 2. Previous Close -Current High 3. Previous Close -Current Low True Range (TR) is the greatest value derived from these calculations. The true range is computed as the difference between the high and the low when the day’s trading range is large. If a large gap down: When the previous close is greater than the current day’s high, the TR is the difference between the previous day close and the current day high. If a big gap higher: When the previous close is lower than the current day’s low, the TR is computed as the difference between the previous days close and the low of the current day. The ATR is simply the average of the true ranges over a period of days. As each day of new data is calculated, the last is dropped. The ATR calculation is the number of days divided by the sum of the number of TR. Typically chart services begin with an ATR of 14. Higher ATR valuations often occur at market bottoms. Low ATR values are often found also during sideways periods, such as those found at tops, and after consolidation periods.
