This indicator of volatility measures selling pressure and buying pressure. When the ATR rises there is more and more pressure and a strong volatility of the stock.
When the ATR decreases there is less and less pressure and a low volatility.
True range is the highest data in absolute value among:
(Today’s high - today’s low)
(Today’s high - yesterday’s close)
(Today’s low - yesterday’s close)
The last two possibilities usually arise when the previous close is greater than the current high (signaling a potential gap down or limit move) or the previous close is lower than the current low (signaling a potential gap up or limit move).
To ensure positive numbers, absolute values were applied to differences.
True Range is the greatest of the following three values:
• Difference between the current maximum and minimum (high and low).
• Difference between the previous closing price and the current maximum.
• Difference between the previous closing price and the current minimum.
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