Overview
The Average True Range is an indicator that measures commitment, and compares the range between the High, Low and Close prices. This indicator was developed by J. Welles Wilder.
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We recommend that you read Using Financial Formulas before proceeding any further. Using Financial Formulas provides a detailed explanation on how to use formulas, and also explains the various options available to you when applying a formula. |
Figure 1: The Average True Range in the lower chart area, and the High, Low, and Close prices in the upper chart area as a stock chart. |
Applying Average True Range
The following table lists the parameters used in the FormulaFinancial method to calculate an Average True Range, and also supplies a description of what these parameters mean:
Parameter |
Value/Description |
Example |
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Formula Name: |
AverageTrueRange
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FormulaFinancial(FinancialFormula.AverageTrueRange,"15",_ "Series1:Y,Series1:Y2,Series1:Y4","Series3:Y") |
Input Values: |
Value #1: The value which represents the High price (by default this is the first Y value in the stock chart). |
FormulaFinancial(FinancialFormula.AverageTrueRange,"15", _ "Series1:Y,Series1:Y2,Series1:Y4","Series3:Y") |
Output Value: (optional) |
The Average True Range. If not specified output is stored in the first input value. |
FormulaFinancial(FinancialFormula.AverageTrueRange,"15", _ "Series1:Y,Series1:Y2,Series1:Y4","Series3:Y") |
Parameter: (optional) |
Period, used to calculate the Average True Range (Default value is 14). |
FormulaFinancial(FinancialFormula.AverageTrueRange,"15", _ |
A line chart is a good choice when displaying an Average True Range series.
Financial Interpretation: High Average True Range values often occur at market bottoms due to extensive panic sell. Low Average true range values are characteristic with market tops.
Calculation: To find the Average True Range it is first necessary to find the True Range. Finding the True range is done in this manner:
True Range = MAX( |High(today) - Low(today)|, |Close(yesterday) - High(today)|, |Close(yesterday) - Low(today)|)
The Average True range is calculated as a Simple Moving Average of True Range.
Example
This example demonstrates how to calculate the Average True Range.
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