Everything You Need To Know About Atr Calculation
The average true range indicator is an exceptional tool that helps you to master the forex trade. Therefore, it is essential to use such a tool to reduce the chances of getting losses. The atr indicate indicator uses two weeks (14 days) to calculate the average truth range. There are various methods for calculating atr.According to studies, three methods are the most widely used. Before knowing how to use those methods, you need to understand some terms such as true range, period employed, and many more. Here are some of the things you need to know about the atr indicator calculation. They include;
The formula for calculating atr
Before you calculate the atr, you need to find the series of true range values. The difference between the high price of the item and its lowest price is the price range. Mathematically we can define the atr as TR=Max [ (H-L), Abs(H-Cp), Ab. After evaluating the equation, we can simplify it to become; ATR = (1/n) multiplied by the summation of TR i from the values i= 1 to i=n where n is an integer. Therefore, the simplified formula above is the one used to calculate the atr.
Is it possible to calculate atr for a period offewerthan 14 days?
The answer to the above question is definitely yes. Some traders trade daily and therefore do atr calculation for less than two weeks. They can use a house for a few days to get the right atr value. According to research, a more extended period generates less trading signals. There are no manyin-depth details provided as compared to the atr values for short periods.
For instance, to calculate a five-day atr, one needs to find the maximum absolute value of the current high and less the current low, the absolute value of the current high less previous close, and the current low less previous close.
How to calculate atr indicator in excel?
Did you know that it is possible to calculate the average true range in excel? Studies indicate that many people do not know how to calculate the atr on excel. Below are some of the essential steps for atr indicator calculation in excel. Those steps include;
The first step to calculating the atr using excel is through opening the file from where you had saved open-high-low-close values.
Step 2. Create columns for atr indicator calculation.
Step 3. Write the daily range formula. In this step, you need to write the various formulas that you will use during the calculation.
Use the formulas;
• High -close.
• The low-close.
Lastly, average the true range excel formula and substitute the values to get the atr indicator.
By choosing any of the methods and formulas mentioned above, you will performthe atr indicator calculation.