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Calculation of Average True Range (Wilder) 21 replies

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Average True Range

  • Post #1
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  • First Post: Jun 30, 2005 9:10pm Jun 30, 2005 9:10pm
When my charts plot the 14 ATR what do numbers .0095, .0090 etc mean? And how would this help you determine your risk in the markets?
Quoting bluemonkey
When my charts plot the 14 ATR what do numbers .0095, .0090 etc mean? And how would this help you determine your risk in the markets?
True Range is the greatest of the following three:

Difference between the High of the last bar, and the Close of the bar before it.
Difference between the Low of the last bar, and the Close of the bar before it.
Difference betwen the High and the Low of the last bar.

Do this back 14 bars and you have the average, which is ATR.

You can use multiples of ATR to set stops. Say your long entry was at 1.2300, and the current value of ATR was .0090 and your wanted to use a multiplier of 3x. Then 3 x .0090 = 0.0270. Since you are long, you would set your stop to 1.2300 - 0.0270 = 1.2030 which is a 270 pip stop. 2 times ATR would give a 180 pip stop and .3 times ATR would give a 27 pip stop. What multiplier you choose is beyond my ken.

I've done this from memory, so if I've got it wrong, then somebody correct me.
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Since my memory is not so good I just look at this site:

http://stockcharts.com/education/TAindex.html

Good, simple explanitions and more.
Forex Trading: The hardest way to make easy money.
to make what dialist has so impressively answered from the top of his head easier to digest, think of it like this...

> the range is the high minus the low of a particular bar (the "size" of the bar)

> the average range is the average size of each bar being evaluated.

> the average true range is the just the average range plus it takes gaps into consideration. (ie if the market opens up on a gap, it adss the gap to the range, so the range would be high minus the close of last bar.) because forex doesnt open and close everyday, there are few gaps, so the average range will be pretty much the same as the average true range.

so if you are looking at hourly bars, and the ATR(14) is reading out 0.0032, that means that over the past 14 bars, the average size of each bar is 32 pips.
Relax and be happy.
Quoting merlin
to make what dialist has so impressively answered from the top of his head easier to digest, think of it like this...

> the range is the high minus the low of a particular bar (the "size" of the bar)

> the average range is the average size of each bar being evaluated.

> the average true range is the just the average range plus it takes gaps into consideration. (ie if the market opens up on a gap, it adss the gap to the range, so the range would be high minus the close of last bar.) because forex doesnt open and close everyday, there are few gaps, so the average range will be pretty much the same as the average true range.

so if you are looking at hourly bars, and the ATR(14) is reading out 0.0032, that means that over the past 14 bars, the average size of each bar is 32 pips.
Ahhhhhhhhhhhh, now I get it. I was wondering why somedays I would get stopped out so quick!
Quoting merlin
to make what dialist has so impressively answered from the top of his head easier to digest, think of it like this...

> the range is the high minus the low of a particular bar (the "size" of the bar)

> the average range is the average size of each bar being evaluated.

> the average true range is the just the average range plus it takes gaps into consideration. (ie if the market opens up on a gap, it adss the gap to the range, so the range would be high minus the close of last bar.) because forex doesnt open and close everyday, there are few gaps, so the average range will be pretty much the same as the average true range.

so if you are looking at hourly bars, and the ATR(14) is reading out 0.0032, that means that over the past 14 bars, the average size of each bar is 32 pips.
Ah! Mo' better impressively put Merlin. I can visualize it much better the way you put it as the range plus the gap (if any). Thanks!

Now, can you wave your wand and conjure up some logical way to choose an appropriate multiplier for the ATR to use as a stop? Thanks!
sxaxlxvxaxtxixoxnxbxyxgxrxaxcxexdxoxtxoxrxgx
Quoting diallist
Ah! Mo' better impressively put Merlin. I can visualize it much better the way you put it as the range plus the gap (if any).
haha, well if you had posted the layman's explanation, i would have posted the quant version that you posted
Relax and be happy.
  • Post #8
  • Quote
  • Last Post: Dec 10, 2011 1:09am Dec 10, 2011 1:09am
As I am in the middle of changing my charting platform from Alpari MT4 to FXCM MT4, due to FXCM MT4 got weekend data (time zone: GMT), I have created one ATR indicator which exclude weekend data from calculation.
I am not sure whether the code is optimized enough, but it works.
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