How do I calculate ATR?

The order is: true range – normalize – average. Instead of "Normalized Average True Range", I calculate "Average Normalized True Range". Then calculate ATR as usual, only using this normalized true range instead of dollar true range.

What is average true range (ATR)?

Average True Range (ATR) is the average of true ranges over the specified period. ATR measures volatility, taking into account any gaps in the price movement. Typically, the ATR calculation is based on 14 periods, which can be intraday, daily, weekly, or monthly. To measure recent volatility, use a shorter average, such as 2 to 10 periods.

What is ATR in trading?

Developed by J. Welles Wilder for trading commodities and subsequently introduced in his book “New concepts in technical trading systems,” the ATR is a simple moving average (SMA) or exponential moving average (EMA) of the true range (TR) values. Generally, the ATR calculation is based on 14 days (can also be intraday, weekly, or monthly).

What are the disadvantages of a simplified ATR calculation?

One drawback of the simplified ATR calculation is that ATR sometimes changes due to a sharp True Range change N bars back, as the simple moving average window rolls, even when current True Range remains stable. Below you can see the three ATR calculation methods in one chart.