✔️ Information reviewed and updated in December 2023 by Eduardo López
Designed to help us make better financial decisions, indicators like Average True Range are a crucial part of decision making. Without the proper financial indicators, our analysis would simply not have support or guidance.. In addition, the indicators turn out to be very important in determining trends and changes in the market.
The Average True Range indicator is thinking to help us make better financial decisions when investing in cryptocurrencies and other assets. That is why here we will talk about what the Average True Range is, how it is obtained and how you can use it.
➡The definition of Average True Range
Known as ATR or True Mean Range, this indicator was created by J. Welles Wilder Jr in 1978. The objective of this indicator is to analyze volatility, since it is responsible for the analysis of volatility in different types of financial and investment assets.
This indicator emerged from the union of other indicators, yes, the Average True Range is a hybrid of the Relative Strength Index (RSI), the Parabolic SAR indicator and the Average Directional Index. Thus, the ATR manages to determine how volatile an asset is according to the range in which they are located.
➡What is the Average True Range for?
According to its creator, the Average True Range is made to determine the volatility of an asset and thus, give us a perspective on how risky an investment is. Based on the calculated value, the asset falls within a given range.
When a range is large, this means that the asset has high volatility while, if the range is small, the volatility turns out to be low. We can translate this into how safe it is to invest in an asset, as well as the potential benefits it can generate.
➡How is it calculated?
Although the ATR uses the difference between the lowest price and the highest daily price of an asset, it is calculated using the True Range. Said True Range allows the creation of maximum and minimum prices, which is supported by the accounting of the GAP.
Once we obtain these data, the ATR is calculated which can be set as a kind of exponential moving average set in the true range. The calculation can be done in short and long terms, being that the longest are the slowest and those that carry the least trading volumes while the shorter ones carry more volumes.
➡How can we use it?
The ATR is very useful in determining whether an asset is volatile or not Well, according to volatility, it is the risk that we find in your investment. Remember that the more volatile, the more likely it will rise and fall in price abruptly.
You can use the Average True Range as a way to determine how volatile that asset is and thus decide if it is worth investing. In this way, you can have greater security and better returns when trading.