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Average True Range

Average True Range (ATR) is a key technical analysis tool that measures market volatility. It was originally invented by J. Welles Wilder Jr. in the 1970s for commodity markets, where gaps and limit moves occur frequently. However, today, it is widely used in all investment markets, including stocks and forex.

ATR calculates the average of true price ranges over a specified period. True range primarily focuses on value changes from one period to another, considering factors like the high & low of the current period and the close of the previous period.

A higher ATR denotes higher market volatility, meaning price values fluctuate quite drastically. On the other hand, a low ATR indicates a less volatile market with relatively stable price movements.

It’s vital to note that while ATR helps gauge market volatility, it does not provide any indication of price direction. Therefore, ATR is generally used in conjunction with other technical analysis tools or strategies to generate effective trading signals.

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