This is one of the many indicators included in most
charting packages. This
indicator known as “Average True Range”, or “ATR” f
or short, basically tells
you the amplitude of each candle on your chart, or
more specifically for what
it is intended, it tells you the
Average
over a selected period. The ATR
indicator measures volatility but does not provide
an indication of price
direction or duration; it just shows the degree of
price movement or volatility.
This indicator was developed by some guy named “J.
Welles Wilder” and was
introduced to the world in his book “New Concepts i
n Technical Trading
Systems” (1978). It is important to recognize the p
eople who developed new
trading systems... especially as I would hope that pe
ople will mention me as
the brain behind all the techniques I have personal
ly developed (smile).
It is not my intention here to explain everything a
bout ATR, especially
because the way we will be using it is an adaptatio
n to figure out something
important to know for the trading techniques presen
ted here in this book. In
the next paragraph I’ll briefly explain what ATR is
, and after that I’ll explain
how we will be using it, but before I start explain
ing all that I need to make it
very clear to you that the ATR indicator is not a t
rading method, but rather is
just a tool to figure out some important facts that
will be useful information
for the trading techniques that will be presented l
ater in this book.
The True Range (notice I didn’t say “Average”), or
TR, is simply the range of
the period between the high and the low prices. Te
chnically speaking the
above statement seems to be inaccurate according to
descriptions I read about
TR in Technical Analysis Encyclopedias, but (and fo
rtunately because this is
what I really want) the Forex charts I like using se
em to provide the TR
according to the above description.
According to the definitions of manuals (usually wr
itten for stock &
commodities) the True Range (TR) is calculated by t
aking the difference from
the previous candle’s close to either the extreme h
igh or low of the candle
(whichever is the greater of the two).
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