The Average True Range measuresmarket volatility. High ATR values may signal market bottoms, and low ATRvalues may signal neutral markets. The True Range measures market volatility.
High values indicate that pricesare changing a large amount during the period. Low values indicate that pricesare staying relatively constant. Note that both trending and level prices canhave high or low volatility.
The value is typically smoothedwith a moving average. High volatility levels can sometimes be used to timetrend reversals, such as market tops and bottoms. Low volatility levels cansometimes be used to time the beginning of new upward price trends followingperiods of consolidation.
The True Range is a measure ofvolatility. Major tops are typically accompanied by high volatility during theblow-off phase of a market, as traders become more and more nervous and readyto take profits. Major bottoms are usually calmer, with low volatility, as thehopes for quick profits have faded. The idea is to replace the high - lowinterval for the given period, as the high-low does not take into considerationgaps and limit moves.
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