Average Real Range

 Average Real Range

The actual average range indicates the volatility of a currency pair. In the foreign exchange market, the volatility measure is very important because it is related to direct market movements. In any financial market, increasing volatility indicates a market reversal and decreasing volatility indicates the continuation of the market. The spread of a stock is the difference between its high and its low on a given day. Provides information on the volatility of a stock. Large ranges indicate high volatility and small ranges indicate low volatility. The range of options and commodities (high minus low) is measured in the same way as for stocks.

 

 

 

How Does this Indicator Work?

A rising ATR indicates greater volatility in the market, with the range of each bar increasing. A reversal with a rise in ATR would indicate the force behind that move. ATR is not directional, so expanding ATR may indicate buying or selling pressure. High ATR levels are usually the result of a sharp rise or fall and are unlikely to be sustained over time.

 

The Real Average Range is a Moving Average (usually 14 days) of the Real Ranges.

 

ATR During Volatile Periods

 

If you recall the results of the May 2014 elections, the stock market showed more movement than ever. The day of the electoral declaration 16.

This is a chart put together by Nifty around the same time that you can see the ATR skyrocket amid market volatility.

 

ATR in Technical Analysis

 

Average true range is a classic component of technical analysis and measures market volatility in a manner similar to the Relative Strength Index (RSI) and the Exponential Moving Average (EMA). Technical analysis is the study of price movement and ignores all other aspects of fundamental analysis, such as external factors that can affect the price of an asset. By continually studying price charts, short-term traders can assess where profit targets should be pursued, as well as types of execution and stop-loss orders. ATR can be used to generate buy and sell signals based on market volatility so that a trader can decide whether to go long (buy signal) or short (sell signal). Sale).

 

Calculation

 

ATR = (Previous ATR * (n - 1) + TR) / n

 

OR:

ATR = average true range

n = number of points or bars

TR = true range

 

The actual range for today is the greater of the following:

 

Today's high minus today's low

 

The absolute value of today's high minus yesterday's closing price.

The absolute value of today's low minus yesterday's closing price.

 

ATR Indicator in Forex

 

Currency trading is the largest and most liquid financial market in the world, and traders can often suffer huge losses if they enter or exit trades at the wrong time. When a trader uses the true midrange appropriately in his strategy, he can assess the current volatility of the market to see where to place stop and limit orders. The higher the ATR value of a currency pair, the more generally a stop loss order should be used  read more.

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