Market Movement

"The True Range Indicator
is a measure of market movement."

Commodity traders use indicators like the True Range to allow them to formulate rules that can be applied generally across different markets.

All markets have their own character and price movement 'habits'. Traders generally wish to trade all commodities in a like manner with the same system and therefore need to find 'common denominators' to describe their markets.

One way of describing the movement of a market is to calculate the price range it has covered in a period of time (usually a market trading day).

The difference between the lowest and highest prices reached naturally springs to mind but this doesn't always work out. Markets can 'gap' by opening higher or lower than the closing price of the previous period.

The True Range calculation overcomes this problem by adding any gapping to the highest-lowest price range being measured.

This indicator is frequently used in trading systems, usually as a calculated average of several time periods, when it is referred to as an Average True Range or ATR indicator.

The True Range Indicator is a useful measure of market movement which allows the character of different markets to be expressed in the same common terms.

 

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Copyright David Bromley 2006
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