Vyreon LabsMarket Measurements

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ATR (Average True Range): True Range, Wilder's Formula and ATR %

ATR measures how much a security typically moves in a day, gaps included. True range, Wilder's 14-session formula, and ATR as a percent of price.

Reviewed · Sources at the end · How Vyreon measures
Vyreon's per-security reports are not live yet; this page describes what they will measure. Examples are illustrative.

Average True Range (ATR) measures how much a security typically moves in a day, including overnight gaps. It is an average of each session's "true range", smoothed with Welles Wilder's method over 14 sessions. ATR is in dollars, so Vyreon also shows it as a percentage of the price, which makes it comparable between securities.

What Is True Range?

A plain daily range (high minus low) misses moves that happen between sessions. True range closes that gap by taking the largest of three distances:

  • today's high minus today's low
  • the absolute distance from the previous close to today's high
  • the absolute distance from the previous close to today's low

If a stock gaps up at the open, the true range stretches back to the previous close, so the gap counts as movement.

Illustrative example: the previous close was 49, today's high is 52 and today's low is 50. The high–low range is 2, but the true range is 3 (52 − 49).

ATR Formula (Wilder, 14)

Wilder's ATR starts as the simple average of the first 14 true ranges. After that, each session updates it:

ATR today = ATR yesterday + (TR today − ATR yesterday) ÷ 14

This is the same as (13 × yesterday's ATR + today's TR) ÷ 14. Each new day gets a weight of 1/14, so ATR responds gradually rather than jumping with one unusual session.

ATR As A Percentage Of Price

ATR % = ATR ÷ latest close

Illustrative example: an ATR of 2.40 on a stock closing at 60 is 4.0% of the price. A stock at 600 with the same 2.40 ATR would be moving only 0.4% a day.

How Vyreon Calculates It

Vyreon computes ATR(14) and ATR % every session from daily bars adjusted for splits and dividends, so a split or an ex-dividend drop does not appear as a giant range. The smoothing runs over the full daily history Vyreon holds for the security. The same true range also feeds the ADX and the Keltner channel.

What ATR Does Not Tell You

  • It has no direction. A falling stock and a rising stock can have the same ATR.
  • It describes recent movement, not tomorrow's. Volatility tends to cluster, but ATR is not a forecast.
  • Multiples of ATR are sometimes used to place stops or size positions. That is a trading convention, not part of the measurement.

Related: realized volatility · ADX · price channels · Bollinger Bands

Sources

  • J. Welles Wilder Jr., New Concepts in Technical Trading Systems (1978): true range and the Average True Range with Wilder smoothing.
  • Benoit Mandelbrot, "The Variation of Certain Speculative Prices", Journal of Business (1963): large price changes tend to be followed by large changes, small by small (volatility clustering).
  • Robert F. Engle, "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation", Econometrica (1982): the ARCH model of volatility that changes over time and clusters.