The Average True Range (or simply: ATR) was developed by J. Welles Wilder in the book: “New Concepts in Technical Trading Systems”, Trend Research, June 1978, ISBN 0894590278.
ATR is a volatility indicator. The lower the ATR, the less volatility, the higher, the more volatility. Some analysts look for high ATR to indicate when a market is bottoming out following “panic” sell-offs, and low ATR’s to indicate when a market is consolidating, moving sideways.
Please note that Wilder designed this indicator with the main purpose of monitoring daily prices in the often very volatile commodity markets.
The True Range is the greatest variance value of the following:
- The variance between yesterday’s close and today’s high
- The variance from today’s high to today’s low
- The variance from yesterday’s close to today’s low