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ATR Bands by Gordon Gustafson for Metastock
Average true range (ATR) is a technical analysis volatility indicator originally developed by J. Welles Wilder, Jr. for commodities. The indicator does not provide an indication of price trend, simply the degree of price volatility. The average true range is an N-day smoothed moving average (SMMA) of the true range values. Wilder recommended a 14-period smoothing. Source Wikipedia
When using the ATR indicator as a trailing stop loss there is a problem. In an uptrend the stop moves downwards as the ATR widens instead of upwards with the trend. Average True Range Bands try to address this weakness. Stops only move in the direction of the trend and do not assume that the trend has reversed when price crosses the stop level. ATR Bands should be used as follows:
- If in a long position exit when the price crosses below the lower Average True Range Band.
- If in a short position exit when the price crosses above the upper Average True Range Band.
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Indicator / Formula
stdha := Mov(C,20,E)+2*(ATR(20)); stdla := Mov(C,20,E)-2*(ATR(20)); stdha; stdla
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