ATR and Standard Deviation | Forex Factory

Options

Permalinks
Print Thread

Similar Threads

Highly correlated pairs and standard deviation 11 replies

How to calculate standard deviation? 7 replies

Standard Deviation Histogram 1 reply

statistics and standard deviation 12 replies

Standard deviation indicator 3 replies

Attachments: ATR and Standard Deviation
Exit Attachments

ATR and Standard Deviation

  • #1
  • First Post: Apr 3, 2011 8:34pm Apr 3, 2011 8:34pm
I'm a bit of a math dummy and trading dummy, if the truth be known, so I need a little bit of help.

I think I have a fairly good grasp of ATR, but I'm bit lost as to what standard deviation is in general and especially specific to this example:

If I want to take the Average Range of a pair over a 2 month period, say that is 148 pips and then calculate the standard deviation from the 148 pips. What exactly I am I calculating? Or to put another way, what am I looking at? Or What does this data point tell me?

If my math is right 68.2% is a standard deviation, so taking 68.2% of 148 pips = 101 pips. So what should this tell me?

Sorry, I can't think of how to word this better. Thanks in advance.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #2
  • Apr 3, 2011 11:09pm Apr 3, 2011 11:09pm
From what I understand, Standard Deviation is a measurement of how far away a unit is from its average distribution.. based on the weight of its input values.

I think we're running in to problems by taking the ATR(60) and making an SD off of an already 'average' value.

Try taking an ATR(1) and running an StnDev(60) over that if you can. I think that'd be the proper way to show what you're looking for.
  • #3
  • Apr 3, 2011 11:35pm Apr 3, 2011 11:35pm
Update: 1 standard deviation contains 68.2% of data. So I guess what it means is that 101 pips is one standard deviation worth of the 148 pips.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #4
  • Apr 3, 2011 11:59pm Apr 3, 2011 11:59pm
Quoting LasVahGoose
I'm a bit of a math dummy and trading dummy, if the truth be known, so I need a little bit of help.

I think I have a fairly good grasp of ATR, but I'm bit lost as to what standard deviation is in general and especially specific to this example:

If I want to take the Average Range of a pair over a 2 month period, say that is 148 pips and then calculate the standard deviation from the 148 pips....
IMHO according to economics standard deviation is refer to volatility.
which mean if you have average 148 pips on that 2 month range with volatility 101 pips... trader might got pips between 148+101 or 148-101 (47 to 249) thats happen only if you right with the trend but if youre guessing a wrong trend the calculation should be -148+101 to -148-101
Verily, in every difficulties there is relief
  • #5
  • Apr 4, 2011 12:41am Apr 4, 2011 12:41am
Just wanted to post a pic to illustrate what a standard deviation is and how +/- 1 SD looks via a bell curve.

http://upload.wikimedia.org/wikipedi...iagram.svg.png
  • #6
  • Edited 1:12am Apr 4, 2011 12:55am | Edited 1:12am
Quoting primzvicious
IMHO according to economics standard deviation is refer to volatility.
which mean if you have average 148 pips on that 2 month range with volatility 101 pips... trader might got pips between 148+101 or 148-101 (47 to 249) thats happen only if you right with the trend but if youre guessing a wrong trend the calculation should be -148+101 to -148-101
EDIT: In 2 month sample I'm taking the highest value, in this case 148.

Okay, starting to get over my head. Would it be fair to say that if a currency pair has 148 pips average range over the previous 2 months and 101 pips is 68% (or 1 standard deviation worth of data) that on the new/current month on any given day (Sydney open NY Close) I can expect the price to move in and around 101 pips from high to the low 68% of the time?
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #7
  • Apr 4, 2011 3:28am Apr 4, 2011 3:28am
Quoting LasVahGoose
EDIT: In 2 month sample I'm taking the highest value, in this case 148.

Okay, starting to get over my head. Would it be fair to say that if a currency pair has 148 pips average range over the previous 2 months and 101 pips is 68% (or 1 standard deviation worth of data) that on the new/current month on any given day (Sydney open NY Close) I can expect the price to move in and around 101 pips from high to the low 68% of the time?
average range should be [(daily high1 - daily low1)+(daily high2 - daily low2)+...+(daily high(n)* - daily low(n))] / (n)

average range is the average of the price moving each day, in other word, based on the data you given as long as you are in the right trend and you enter at the daily low or daily top a great chance to get 148 pips most of the time.

standard deviation is equal to risk that mean from daily average 148pips there is a risk which sometimes price moving more than 148pips or less than 148pips (148+101 or 148-101) pips.

from the data. the only conclusion is each day price can move between 47 to 249 pips but most of the time the range of each day is 148 either UP or DOWN.
Verily, in every difficulties there is relief
  • #8
  • Apr 4, 2011 3:49am Apr 4, 2011 3:49am
Quoting LasVahGoose

If I want to take the Average Range of a pair over a 2 month period, say that is 148 pips and then calculate the standard deviation from the 148 pips. What exactly I am I calculating? Or to put another way, what am I looking at? Or What does this data point tell me?

If my math is right 68.2% is a standard deviation, so taking 68.2% of 148 pips = 101 pips. So what should this tell me?

Sorry, I can't think of how to word this better. Thanks in advance.
If we have Mean = X from a set of data
so, we can assume that normally the data distributions is between (X - standard deviation 1) and (X + standard deviation 1).

And here is an indicator that will help u to check the average and standard deviation of daily, weekly and monthly range.

Regards,

KG
Attached File(s)
File Type: mq4 KG Range Calc Slim v2.2.mq4   30 KB | 1,685 downloads
  • #9
  • Edited 4:36am Apr 4, 2011 4:34am | Edited 4:36am
SD is a measure of how individual values vary from a mean, it's not something you can run on a single figure and the calculation is not as simple as just taking a percentage (Excel will calculate it for you).

Suppose you had 20 measures of ATR taken say daily. The average might be 148 but the vast majority will be different to the average. The range might be quite wide, perhaps +/- 50 or tight say +/- 5. The standard deviation gives a measure of how tightly the individual values cluster.

If the SD came out at 10 then then roughly 68% of all values will lie within 10 of the mean, in this case 138-158. Similarly around 95% will lie within 2SD of the mean (128-168).

This assumes whats called a 'normal distribution' i.e it's not skewed one way or the other, if 18 of the ATRs were 148 and the remainiing 2 were 1000 then the above would not be true because the spread of values around the mean is odd.

The Wikipedia entry is a bit technical but the last paragraph of the basic section gives a useful example based on male height.

Hope this helps!
Too tired to argue. Too old to care.
  • #10
  • Apr 19, 2011 2:32am Apr 19, 2011 2:32am
you have to look for a set of data to understand average and SD. For example if we have 1000 data, SD +-1 which contain 62.8% mean that the area SD +-1 contain 628 data, and so on for other SD area (see above illustration about SD area). For average, we just calculate the average from this set of data (you can find in google for the ATR formula)
  • #11
  • Last Post: Edited 8:21am Sep 15, 2013 8:04am | Edited 8:21am
Very late to reply on this post..but still replying as there are certain things misleading here, you just can not take Std Devs or sigma and do Mean +/- 1SD or 2SD, or 3SD and say there is x% chance... there are multiple important factors here, especially distribution & confidence levels....unless you know the distribution & p levels, taking SD could be misleading. i don't want to lecture on stats or probability here...in short dont take anything blindly, general SD can help to understand the level of variance, in addition to any kind of avg (like ATR/ ADR)
0 traders viewing now