Average true range Indicator ( ATR Indicator ) : The Jwelles is the best field of technical analysis developed in 1978. They are used as standard indicators by the technicians. Average true range Indicator tool will help a technician to enter and exit the trade. The opening gap is a common occurrence and market moved limit. They make it difficult to implement some systems that we're developing. The stock breaks out of a narrow range to continue moving for some time in the direction of the breakout. The ATR is a useful indicator because it shows what happens when price volatility is given. Here we combine ATR with price action. The other indicator provides an alert about price direction. They are used by traders to find potential breakouts and define stop-loss order to avoid premature termination of their positions.
The expanding ATR indicates the increased volatility in the market with the range of each bar. The reversal in price will increase in ATR that indicates strength behind the move. ATR is not directional so expanding will indicate the selling pressure. The high ATR Indicator value results from a sharp advance and is unlikely to be sustained for an extended period. The low ATR value indicates a series of periods with small range. The low ATR values are found at the extended side as lower volatility. The prolonged period with low ATR value indicates a consolidation area as possibility of a continuation goes on.
view more Three equations are,
\begin{aligned}&1.\ \text{TR}\ =\ \text{H}\ -\ \text{L}\\&2.\ \text{TR}\ =\ \text{H}\ -\ \text{C.1}\\&3.\ \text{TR}\ =\ \text{C.1}\ -\ \text{L}\\&\textbf{where:}\\&\text{TR}\ =\ \text{the true range}\\&\text {H}\ =\ \text{today's high}\\&\text {L}\ =\ \text{today's low}\\&\text{C.1}\ =\ \text{yesterday's close}\end {aligned} 1. TR = H − L2. TR = H − C.13. TR = C.1 – L
Where: TR = the true rangeH = today’s highL = today’s lowC.1 = yesterday’s close
If a trader wants three asset portfolio where $100 stock has a $3 ATR over a defined time interval (ATR = 3% of stock’s value).The $75 stock with a $3 ATR (ATR = 4% of stock’s value), and a $50 stock with a $1 ATR (ATR = 2% of stock’s value) to make equitably weight by risk. The position size would come to 33.3% of the dollar amount for $100 stock. The 22.2% is $75 stock and 44.4% for $50 stock. They recognize the $50 stock twice as risky as $75 stock and $75 is 50% riskier than $100 stock.
They will measure the volatility of the market.ATR indicator is used to identify multi year low volatility because it can lead to explosive breakout trade. The average true range is based on 14 periods as calculated on a daily, weekly basis. ATR value is the high minus the low and first 14-day. It is an average of daily TR 14 days used to validate the enthusiasm behind a move. The bullish reversal gets increased in ATR that shows strong buying pressure. The bearish will support the breaks with an increase in ATR it shows a strong selling pressure and reinforces the support break.
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