Average True Range - ATR Analysis & ATR Signals
Created by J. Welles Wilder
This trading indicator is a measure of volatility - it measures the range of price movement for a particular price period. The ATR is a directionless indicator and it doesn't determine the direction of the Forex trend.
High ATR indicator values
High Average True Range values indicated market bottoms after a sell off.
Low ATR values
Low ATR values showed extended periods of sideways price movement- Price Range, such as those found at market tops and consolidation periods. Low ATR values are typical for the periods of sideways movement of long duration which happen at the top of the market and during consolidation.
Calculation
This trading indicator is calculated using the following:
- Difference between the current high and the current low
- Difference between previous closing price and the current high
- Difference between previous closing price and the current low
The final Average is calculated by adding these values & calculating the average.
Forex Analysis and Generating Signals
ATR indicator can be analyzed using the same principles as other volatility trading indicators.
Possible trend change signal - The higher the value of the technical indicator, the higher the probability of a trend change;
Measure of trend momentum - The lower the technical indicator's value, the weaker the market trend move.
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