
Discuss What is Average True Range? at the Technical Analysis within the Traderji.com; hello, I read that while selecting a stop loss level, the stop loss should not ... 

Technical Analysis Discussion of all the principles involved in technical analysis. 

Thread Tools 
#1




What is Average True Range?
hello,
I read that while selecting a stop loss level, the stop loss should not be too tight so as the wipsawing mrkt will trigger it. One should use at least One "Average True Range" can some one guide me how do we calculate "Average True Range" (if possible using an example) Regards Sanjay Advertisements 
Advertisements 
#2




Re: What is Average True Range?
Quote:
Hope this helps Alok 
#3




Re: What is Average True Range?
Measuring Risk in the Markets with The Average True Range
Before placing any trade, you should know your risk point. We have all heard this many times over. Know your risk or it will ruin you. The big question is how do you determine risk. One of the easiest way to measure risk is to use the ATR. What is the risk of any market on a given day? The answer to this question is not a difficult as it may seem. The risk on any given day is the range of the day. The range represents the amount that the market moved. The range can be in your favor, or against you. If you are long you want the range to be higher than the previous day. On some days there will be a large range and on some days there will be a small range. Markets very rarely have the exact same ranges over a period of days. If you look at the range as risk, then you can determine that risk is variable. Using the range to set stops will keep you close to how the market is acting. If the range is large, then you will need to use a greater stop. A small range would show that the market is not moving that quickly and a smaller stop could be used. We have found that averaging the range out over a period of days gives us a picture as to how the market is acting most recently. How to calculate the Average True Range (ATR)? First you must calculate the True Range for the market. The True Range is the maximum of yesterday’s range to today’s range. This can be found from three simple calculations; you will take the maximum of these numbers. The distance from today’s high to today’s low The distance from yesterday’s close to today’s high The distance from yesterday’s close to today’s low Here is an example: Day Open High Low Close (Yesterday) 215.5 217.5 215.5 216.5 (Today) 216.0 219.0 214.0 215.0 Checking the distance from yesterday’s high (217.5) to today’s low (214) yields 3.5 points. Checking the distance from today’s high (219) to yesterday’s low (215.5) yields 3.5 points. Checking the distance from today’s high (219) to today’s low (214) yields 5 points. What does this measure tell us? It tells us the maximum distance that this market traveled over a 24hour period. The maximum risk for this 24hour period was 5 points in this particular market. This calculation is called the True Range. We will average this result over a set period of days, 10 perhaps. We will assign more weight to most recent time period. Example: Day True Range Weighting Factor ATR Value 1 5.50 1.00 5.50 2 4.75 1.00 4.75 3 5.75 1.00 5.75 4 6.50 1.00 6.50 5 4.50 1.00 4.50 6 4.50 1.00 4.50 7 4.25 1.00 4.25 8 6.00 1.00 6.00 9 5.75 1.125 6.47 10 6.25 1.125 7.03 ATR 5.30 5.45 Using this method of figuring the value of the Average True Range we are favoring the last 20% of the sample period by assigning it a higher weighting factor. Typically one can use a 12.5% weighting factor to the last 20% of the sample period. Why do we do this? Look at the example above. Just the average of the True Range is 5.30 points. The ATR Value is 5.45. Notice the progression of True Ranges over the sample period. The last two days that were sampled had a higher True Range than the previous days. The market was experiencing a higher degree of volatility over these two days. Since the ATR really measures risk, we would like to be aware of any sudden increases in risk for a market. Weighting the ATR gives you a better idea of what is happening now or the estimated risk for this market. Normally traders will use a 2 times the ATR for their stop placement. In our example this would be a stop of (5.45 * 2) 10.9 points. This is done to give the market some room, to ensure that you are not stopped out too prematurely. As your ATR value increases or decreases, you can move your stop accordingly. Some traders trail their ATR stop behind their position. They adjust their stop with each move in their favor and keep the stop the same for each move against them. The ultimate decision on how to use the ATR is up to you. However, you now know that the ATR is an invaluable resource for traders. 
#4




Re: What is Average True Range?
Awesome!Truely Awesome!maybe one of the best literatures(from practical point of view) available in the Net
TATraderFrom ur experiencein the Indian Scenerio,what weightage factor(exponential)do u feel would be reasonable1 being the maximum,0.10.4has been given in some literatureswhile J.H. Wilder the creator of ATRapplied a different smoothering process Regards, joy_mitali 
#5




Re: What is Average True Range?
If you have Metastock, please check out the following link.
http://www.tradernexus.com/advanceds...ancedstop.html 
#6




Re: What is Average True Range?
Thanks TATrader for the detailed reply. And thanks alokdaga for the URL.
http://www.stockcharts.com/education/ The site stockcharts seems to be a excellent resource for learning Definitions of the charting terms. As always the payback is more than 'just the answer' to the queston asked on Traderji... As per the article on stockchart the ATR can be for 14 days, and I liked the method used to calculate, because of its simplicity. (13 * ATR of last Trading Day or Session + Todays True Range) / 14 Regards Sanjay Last edited by SGM; 19th February 2006 at 07:29 PM. 
#7




Re: What is Average True Range?
hello everybody
Advertisements 
Bookmarks 
Thread Tools  


Similar Threads for: What is Average True Range?  
Thread  Thread Starter  Forum  Replies  Last Post 
best moving average periods for day trading  gopu  Technical Analysis  17  5th December 2012 11:16 AM 
Exponential Moving Average  gopu  Technical Analysis  6  2nd April 2010 11:52 AM 
Mid range rule  sanefellow_213  Equities  3  6th September 2007 07:47 PM 
average price  cmlee  Software  3  17th August 2005 10:45 AM 
Indemnity, Disclaimer & Disclosure
Notice:
• By visiting Traderji.com you automatically indicate that you agree to our Forum Rules, Indemnity, Disclaimer & Disclosure Notice and General Content Disclaimer Notice and indemnify Traderji.com, its
associates and related parties of all claims howsoever resulting from
the usage of the forum/site.
• Disclaimer: Trading or investing in stocks & commodities
is a high risk activity. Any action you choose to take in the markets
is totally your own responsibility. You are recommended to make appropriate enquiries and seek appropriate advise before sending money, incurring any expenses, acting on recommendations or entering into any commitment in relation to any advertisement published here. Traderji.com does not vouch for any claims made by the advertisers of products and services. Traderji.com will not be held liable for any consequences in the event such claims are not honoured by the advertisers. Traderji.com will not be liable for
any, direct or indirect, consequential or incidental damages or loss arising out of the use of any information by anybody mentioned anywhere on this site.
• Disclosure: The information in this forum is neither an offer to sell nor solicitation to buy any of the securities mentioned herein.
The writers may or may not be trading in the securities mentioned.
• All names or products mentioned are trademarks or registered trademarks of their respective owners.
General Content Disclaimer Notice:
In light of our policy of encouraging candid, open exchanges of views and the rapid distribution of information originating from many sources, Traderji.com cannot determine the accuracy or legality of any information that may be uploaded to the forum. Opinions, advice and all other information expressed by participants in discussions are those of the author. You rely on such information at your own risk. You are urged to seek professional advice for specific, individual situations and not rely solely on advice or opinions given in the discussions. Since Traderji.com is an open and free discussion forum, any comments made by members of this forum in their posts reflect their own views and not of the owner or administrator of Traderji.com. Thus the owner/administrator indemnify themselves of all claims whatsoever and will not be liable or responsible for any members comments/views in this forum Traderji.com. Although we constantly delete all irrelevant content and/or SPAM, if you should find any objectionable or offensive posts made by members of this forum which you would like to bring to our notice for removal then please Contact Us.