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The Average True Range (ATR) indicator is a measure of volatility. As such, it usually records higher values at times of panic sell-offs or sharp rises in a security’s price, and low values at times when a security moves sideways. The Average True Range does not provide a direction of a security, but rather points its trading state. It is therefore used as a component in many indicators and trading systems.
Step 1: Calculation of the True-Range: The True-Range (TR) is the greatest among:
1. The variance between today’s high and today’s low.
2. The absolute variance between yesterday’s Closing Price and today’s Highest Price.
3. The absolute variance between yesterday’s Closing Price and today’s Lowest Price.
Step 2: Calculation of the Average-True-Range (ATR): The Average True Range is an n-period Moving Average of the TR.
To see the calculation of ATR in Excell, click here: Attach:ATR.xls