Meaning of ATR

[cpatte7372]

Hello,

As some of you may know, I have been trying to fully understand ATR and I think I'm pretty ofae with it. By the definition, the ATR measures a securities volatility.

Anyhoo, I wonder if someone would agree with me on the following.

On the attached image you'll see a14 day ATR of 3.7131. Does that mean that over the next 14 days the price of that security can fluctuate +- 3.7131? The same for the following ATR of 3.7537? And so on....

If you're not sure please say you're not sure if you respond - I really do take the advice you guys provide on this forum.

I keenly await your response.

Cheers

Carlton

[cpatte7372]

I think I have it.

The figures mentioned are absolute numbers. And a figure of 3 or more means the security is very volatile.

Am I correct?

Thanks

Carlton

[marginman]

Great question...I am no expert but do possess deductions from observations...eager to see what others think.

True range - is a measure of the maximum amount of money that can be made or lost from one bar's close to the next. It is proportional to volatility. Many TA books tout the use of a fixed factor*True range to establish stops. Usually 3*true range.

if u employ such a stop, As Average true range increases so do your stops and vice versa.

As for your question,

Does that mean that over the next 14 days the price of that security can fluctuate +- 3.7131?

The answer is no. It is closer to that there is a greater probability that the underlying will fluctuate within 3.7131 or whatever from just one bar to the next and not 14 days or bars.

Like I said, I am no expert

[cpatte7372]

Hi marginman,

Thanks for your insights. Like you I'm interested to hear the views of others.

BTW, I guy called Duane mentioned that I should look up the work carried out by Chuck LeBeau on ATR.

Cheers

Carlton