- Average True Range
**Average True Range**(**ATR**) is atechnical analysis indicator developed byJ. Welles Wilder , based on trading ranges smoothed by an N-day exponential moving average.The range of a day's trading is simply $mbox\{high\}\; -\; mbox\{low\}$. The

**true range**extends it to yesterday's closing price if it was outside of today's range:: $mbox\{true\; range\}\; =\; \{max(mbox\{high\},\; mbox\{close\}\_mbox\{prev\})\; -\; min(mbox\{low\},\; mbox\{close\}\_mbox\{prev\})\}$

The average true range is then an N-day exponential moving average of the "true range" values. Wilder recommended a 14-period smoothing. Note this is by his reckoning of EMA periods (see the EMA article on that), meaning an α=1/14.

The idea of ranges is that they show the commitment or enthusiasm of traders. Large or increasing ranges suggest traders prepared to continue to bid up or sell down a stock through the course of the day. Decreasing range suggests waning interest.

**Further reading***

J. Welles Wilder , "New Concepts in Technical Trading Systems", Trend Research,1978 , ISBN 0-89459-027-8http://www.meta-formula.com/average-true-range.html

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