Nagpur Investment：Comparison between Average True Range (ATR), Average Day Range (ADR), and Intraday Range (IR)

Average True Range (ATR), Average Day Range (ADR), and Intraday Range (IR) are all measures of how much an asset moves. They use different formulas, and therefore one may be better suited to a particular style of trading than another.

For example, I find ATR useful for swing trading, and I prefer using IR for day trading.

In this article, I’ll go over each of these indicators, how they are calculated, and how they can be used.

Please note that none of these indicators reflect price direction. These are volatility indicators, which look at how much price moves, whether up or down.

Average True Range is one of the most commonly used indicators for determining how much an asset moves. It was created by J. Welles Wilder.

It’s typically calculated in dollars, not percent, so ATR shows how much an asset moves in dollar terms.

One of the main things to know about ATR is that it calculates how much the price moves between the high and low of the candle, as well as any gaps.

This is because ATR calculates True Range (A for Average comes later) as the greater of:

The TR is recorded for each price bar. Then an average can be calculated.

Wilder used a 14-period average, but there’s no reason to assume this is better than a different number of periods. 14 is commonly used and is the default in most charting software.Nagpur Investment

For the first calculation, add up the 14 TRs, and then divide by 14 to get the ATR. Once that first ATR is calculated, then Wilder used a slightly different formula.

ATR = [(Prior ATR x 13) + Current TR] / 14

ATR is useful for measuring the price movement of whatever time frame is being analyzed.

If using a 1-minute chart, ATR shows the typical dollar movement per 1-minute price bar.

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The above chart uses 14 periods in the ATR calculation. TradingView provides some variations (in the indicator’s settings), such as using a simple moving average or an exponential moving average (among others) to calculate the average. This chart uses an SMAGuoabong Wealth Management. There is no perfect answer as to which is better.

ATR typically only shows the average over time, not the individual TR (true range) values that the average is composed of.

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Average Day Range (ADR) only looks at how much the price moves between the high and low on a given day. This is the Day Range or DR, which is when averaged to create ADR.

Day Range (DR) = Daily High – Daily Low

If using an average of the last 14 days, the ADR is…

Average Day Range (ADR)= Sum of the last 14 DR values / 14

With most ADR indicators, only the average is shown, not the individual Daily Range values it is composed of.

ADR is a dollar figure.

It does not include gaps. If you notice on this chart, ADR is not affected by the gap higher in February. If you scroll back to the ATR chart above, ATR starts moving up on that gap higher, because ATR includes the gap in daily movement. ADR does not.

Intraday Range percent or IR% is an indicator I published on TradingView that measures the difference between the high and low of each price bar, expressed as a percentage of the open priceMumbai Stock Exchange. In Tradingview, under indicators, you can search “IR%” to find it and add it to your chart.

Intraday Range % (IR%) = [(High – Low) * 100 / Open]

It does not include any price gaps which makes it different than ATR.

It also does not inherently average, which means we get to see the percent range of every price bar.

A moving average can be applied to the indicator to get the Average Intraday Range (AIR).

Average Intraday Range % (AIR%) = The sum of the last N IR% values / N

For example, if using the last 14 periods, then N=14.

In TradingView, hover over the indicator name, and click the three dots. Choose “Add Indicator” and add a moving average (simple) to see an average of the data.

If using a daily chart, then the intraday range is calculated.

If using a different time frame, then the intra-bar range is calculated. A 1-minute chart will show the total movement between high and low for that one-minute candle.

In the settings for the indicator, there is the option to convert the range to dollars ($) instead of a percent (%).

The formula for the intraday range in dollars is:

Intraday Range $ (IR$) = High – Low

Some people may prefer to monitor movement in dollars, while others prefer using percentages.

I prefer percentages because then volatility/movement is comparable across all prices and assets.

An IR$ of $5 may seem like a lot of movement, but on a $500 stock it is only 1%. On a $50 stock, that is 10%. Big difference, but same dollar amount.

An IR% of 5% means a $100 stock tends to move $5 on average, a $1000 stock will move $50, or a $10 stock will move $0.50 per price bar, on average. No matter the price, the percentage moves are comparable.

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The chart lays out the difference between Average True Range, Average Day Range, and Intraday Range.

One indicator isn’t necessarily better than another.

IR is more detailed than ADR, but they are basically showing the same thing. IR shows volatility data for each price bar, with the option to add an average (AIR). With most ADR indicators only the average is shown.

I want to see each price bar’s data, not only an average. A stock moving about 5% every day (which creates an average of 5% per day) is very different than a stock that moves 1% most days, and then has random days where it moves 15%…which could also average out to 5%/day. I like to see the data the average is composed of.

ATR is useful for people who want to include gaps in their volatility calculations, such as swing traders or anyone holding positions overnight.

A common use for ATR is to use a multiple of ATR as a stop loss or a trailing stop loss.

Say you enter a stock at $100 and the ATR for the stock is $2.

A 2 x ATR stop loss ($4) means a stop loss is placed at $96.

A 3 x ATR stop loss ($6) means the stop loss is placed at $94.

In other words, the stop loss has been placed below two or three days of typical movement. I use a 1.5x to 2x ATR trailing stop loss on my Earnings Play trades and TATR strategy.

Which multiple you use is up to you, and may vary based on the asset you are trading. A multiple between 1.5 and 3 is common.

The same concept can be used for a trailing stop loss. Whatever the current price is, deduct the ATR x Multiplier from the price and that is where the stop loss moves to for a long position. The trailing stop loss can only move up, never back down.

ATR Stops is an indicator that calculates ATR-based stop levels for you.

If you are long, set the ATR multiplier. The stop loss moves up as the price moves up letting you know where your stop loss level is. If I use a stop loss, this is what I use.

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I use IR and Average IR (AIR) for day trading.

The calculation is used to scan for stocks that have big movement intraday. Those stocks are then placed on the Best Stocks for Day Trading list, which is updated weekly.

If you want to find stocks that move a lot (high price to low price), on average most days, then look for stocks that have AIR% of 5% or more.

If you prefer lower volatility stocks, focus on stocks with lower AIR% values, such as 2% or less.

I don’t find ATR useful as a day trader because it includes gaps. Since day traders don’t hold overnight, indicators that include gaps are not accurate and/or don’t identify the volatility that actually occurs while the day trader is trading.

ATR is more useful for swing trading, since gaps occur overnight, and swing trading positions are also held overnight.

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By Cory Mitchell, CMT

Guoabong Wealth Management