How to calculate ATR

The Average True Range (ATR) of an asset is a historical volatility indicator that calculates the average of a number of previous True Range values. The True Range (TR) of an asset can be defined as follows:

ATRx = (TRt + … + TRt-x) / Opent-x

Where: ATRx – Rolling x-day Average True Range
TRt – True Range in period t
Opent – Open price in period t


The ATR and TR values allow us to understand historical volatilities; and when we compare these values across various periods we can gauge how volatility of an asset has changed with time. By understanding ATR as a historical volatility indicator we can use is to appreciate the trading opportunities inherit in the asset and the risk that come with it.
In this example we calculate rolling one day ATRs for the S&P500, and compare averages of these rolling ATRs over different periods in time.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: