What Is True Range Average?

To determine market volatility over a given time frame, people typically utilize the Average True Range (ATR) technical analysis indicator.

The technical analyst J. Welles created the volatility indicator ATR. In his 1978 book "New Concepts in Technical Trading Systems," Welles Wilder Jr. To establish an average, anticipated price volatility over a number of true ranges over a 14-day period can be calculated and provided.

ATR has some benefits, such as assisting traders like you and me in setting stop-loss prices, but it also has some disadvantages. Traders decide whether or not they want to buy or sell assets throughout the period based on these low or high price volatilities.

screenshot gotten from Tradingview

It's important to keep in mind that ATR simply approximates price volatility and should only be used as a guide.

How to determine the true average range

Calculating ATR requires determining the average true range, or TR, for a specific time period.

You must compute three different ranges and select the largest one to accomplish this:

The peak of the most recent period less the low of the most recent period.

The peak of the most recent period minus the previous close price, without taking into account any warning indicators. 

The exact distance between the most recent low and the prior close price.

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