Average True Range ATR Stock Indices Technical Analysis and ATR Stock Indices Signals
Developed by J. Welles Wilder
This indicator is a measure of volatility - it measures the range of stock index price movement for a particular stock index price period. The ATR is a directionless indicator and it does not determine the direction of the Stock Indices trend.
High ATR values
High Average True Range values indicated market bottoms after a selloff.
Low ATR values
Low Average True Range values showed extended periods of sideways stock index price movement- Indices 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 stock indices market and during consolidation.
This indicator is calculated using the following:
- Difference between the current high and the current low
- Difference between the previous closing stock index price and the current high
- Difference between the previous closing stock index price and the current low
The final Average is calculated by adding these values and calculating the average.
Stock Indices Technical Analysis and Generating Stock Indices Signals
Average True Range can be interpreted using the same principles as other volatility indicators.
Possible stock indices trend change signal - The higher the value of the indicator, the higher the probability of a stock indices trend change;
Measure of stock indices trend momentum - The lower the indicator’s value, the weaker the stock indices trend movement.