Ask Colin

How is Average True Range calculated?

True range is the greatest of three measurements:

1. The price difference between today's high and today's low
2. The price difference between today's high and yesterday's close
3. The price difference between today's low and yesterday's close

To understand this, think that when a stock gaps at the open and moves away from yesterday's close, the True Range for the day includes the gap.

Once you have the True Range for each day, you can calculate the Average True Range. You select the number of days for your moving average. You can also calculate a moving average of the daily True Range numbers.

 

 

Keywords: