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Revisiting Average True Range (ATR)

Corey over at Afraid to Trade posted a piece in which he discusses the use of ATR percentage. I’ve already submitted a comment on that post complaining about how he’s stealing my ideas. 🙂

Well, sort of stealing. He got the idea from someone else. I, however, wrote about what I called Normalized ATR (N-ATR) in an article for Trade2Win like three years ago and mentioned it in a post on this blog. I also had an article in Stocks & Commodities (Normalized Average True Range – A Basis for Comparison) back in May 2006.

Basically, the idea behind N-ATR (or Corey’s ATR Percentage) is to make ATR directly comparable between trading instruments of different price levels – or when you’re looking at something over a long time period where prices have changed a lot.

By the way, I use N-ATR in my Equity Market Analyst job to help identify stocks that are good trader candidates.

By John

Author of The Essentials of Trading

2 replies on “Revisiting Average True Range (ATR)”

Hi John,

Is there an indicator for the standard deviation of price ranges over the last N bars, or must I calculate this by hand?

Rod – I’m not familiar with one. That doesn’t mean there isn’t one, but it’s probably not something you’ll find in most charting packages. You’ll probably have to develop a custom indicator for that if you’re using a package which allows that sort of thing.

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