Average True Range

Overview

Developed by J. Welles Wilder Jr., ATR stands for average true range, and is a volatility indicator.

Formula

True range is the largest of these three prices: 

• The absolute difference of Today’s High – Today’s Low
• The absolute difference of Today’s High – Yesterday’s Close
• The absolute difference of Yesterday’s Close – Today’s Low

Average true range is when you take an average of the TR values over a certain period. Wilder was inclined to use a 14 period average, but his method for averaging is somewhat different from normal averaging methods.

To arrive at the first ATR value in a series, Wilder calculated the TR values for the previous 14 days. The first TR value is simply that day's high minus that day's low. Once the initial ATR is found, subsequent ATR values are calculated using: