Is ATR a good way to measure volatility?

Discussion in 'Technical Analysis' started by flyingforget, Sep 6, 2008.

  1. Thank you
  2. atr for google will be ALOT more than ATR for say amd because one stock is $400 while the other is 5$ so no, maybe if u express volatility as atr as a percentage of price.
  3. :D
  4. That is a given. Who would compare the volatility of GOOG and AMD without first calculating both in percentual terms?

    To the OP, the only hitch with ATR as I see it is that it is a indicator of past volatility. The stock may act more or less volatile in the future.
  5. ATR is the accepted measure of volatility for swing trading. It's great for setting stops in trend following systems.

    Well-known traders/writers/bloggers like it as well.

    Van Tharp

    The list goes on and on.
  6. You could plot the slope of ATR. Incr slope, incr vol, decr slope, decr vol. Trade accordingly.
  7. dima777


    ATR is best used as an input into the stops...
  8. kut2k2


    "Is ATR a good way to measure volatility?"

    No, ATR is a stupid finish to a smart start. Like staffpro said, you have to normalize it.

    Here's how. For each bar, divide the true range by the average of the high, the low, the close and the previous close. (For the first bar, divide the ordinary range by the average of the high, the low, the close and the open.) If you now average this quantity, you have something much more meaningful than ATR.

    Let's call it KVM (Kut's Volatility Measure). :D j/k
  9. Depends greatly on the trading instrument and what the trader wants to do with the volatility info of his/her trading instrument to determine if the ATR, any other volatility measuring indicator, or none indicator is the best solution.

    Some folks use ATR, some use Bollinger Bands, some use High minus Low, some use volatility indices, some use correlation with other trading instruments, some use option info, some use seasonality stats, some use annualized standard deviation calculations and some use other stuff.

    Therefore, its tough to say if ATR is best or not until there's a discussion about the specific trading instrument and what the trader wants to do with the volatility information.

    P.S. kut2k2, why did you re-open a 5 year old thread by those no longer posting at ET ?

    The thread starter flyingforget has not posted here at ET in 5 years and the only remaining active member in this thread prior to your post was stevegee58,
  10. I once tested ATR as a means of setting stop distance, and found it to be inferior to just a fine tuned exit signal based on a moving average. I'm not sure if it was due to its lagging nature or something else, but moving averages (not all are equal, some are pretty lousy) came out on top during testing, after trying every indicator I could think of.

    Now while trading manually I just use the range and price action inside it as my volatility indicator, defined by horizontal or trend lines. One of my favorite patterns has low volatility to the downside, huge spikes up (I call it the "popcorn" pattern). It works, but you need nutz to buy the bottom of the range and wait in the hot seat, considering the "game" these days seems to be to spike the price beyond the obvious buy zone to kill the stops of leveraged traders. Market makers get paid for a reason - they stabilize the price action by averaging up and down, all day long. They get paid, and so can you.

    #10     Dec 10, 2013