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# Average True Range

Discussion in 'Options' started by union1411, Aug 2, 2005.

1. ### union1411

Any of you look at ATR for decisionmaking? Seems like a relevant indicator for options, yet I never see it discussed on here.

What is it ?

3. ### JackR

The thread is entitled " Average True Range" Thus, "ATR".

If you mean what is ATR, it is the average of the true range (TR) of the maximum difference between the high and low per day. Some include the previous day's close in the TR calculation, e.g., the maximum between the previous day's close and the following day's high or low, whichever is greater.

These TR values are averaged over time, 14 days being the standard, yielding the ATR.

I personally use it as a factor in decision making expression, but not as a "system" per se.

4. ### kut2k2

You have to include the previous close, or it isn't the so-called "true" range, it's just plain real range.

True range is defined as the greatest of the high minus the low, the high minus the previous close, or the previous close minus the low.

It would be nice if the OP stated what he had in mind. It isn't obvious how to apply ATRs to options.

5. ### union1411

Let's say I want to buy options. I notice that HV is looking good for my time frame. But then i check the ATR and it appears that on average the stock only moves 5 cents or so when it is volatile. So the ATR would indicate to me that I might be better off not buying.

Of course, one school of thought is that when the ATR is low on a given stock (in proportion to the stock's price), then it might mean that the stock is ready to breakout.

6. ### Profitaker

Any chance you could provide a worked example ?

Why not use a daily range probability given an assumed volatility in the underlying ?

e.g. Using a xx% vol, a 1 StDev range will be xx, 1.5 StDev range will be... and so on ?

7. ### union1411

NFI. Has hit HV of 90 and 70 in past 4 months. The HV chart looks like a heartbeat. Yet the ATR is only from about .9 to 1.5.

ATR is less work

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