Average True Range is a popular method of determining a
security's volatility. That is, the tendency of a security to move, in either
direction. Its uses range from that of system entry (i.e. market searches) to
money management (i.e. determining trade size and exits).
CALCULATION
The True Range for a particular day is the greatest of the
following:
§ 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.
The Average True Range is then calculated by taking an
average of the true ranges over a set number of previous periods. Care should be
taken to use sufficient periods in the averaging process in order to obtain a
suitable sample size, i.e. an ATR using only 3 periods would not provide a large
enough sample to give you an accurate indication of the true range of the
security's price movement. Note: MetaStock uses a period of 14 as its default
value.
SYNTAX ATR(Periods)
Periods _ This specifies how many periods are used to
calculate the average of the true ranges.
EXAMPLE
The following formula obtains the value of the 15 period
Average True Range:
ATR(15)
In the above example:
Periods = 15
APPLICATION
A more useful application of this example could be:
ATR(15)/C*100<3.5
This formula categorises different securities in the market
by considering their volatility percentage. A volatility percentage represents
the ATR of a security as a percentage of the present price. As such, speculative
securities would generally have higher volatility percentages than blue chip
securities. The formula above stipulates that the volatility percentage (denoted
by `ATR(15)/C*100') is less than 3.5% (denoted by `<3.5').
This
article is a snippet from the
MetaStock Programming Study Guide...
"Discover
The Simple Secret to Make Metastock Easy & Identify Profitable
Trades"

copyright 2007 www.metaformula.com