A Directional Volatility Indicator Using Lagged Average True Range

Summary

This indicator separates bars into upward and downward volatility readings according to whether the close is above or at or below the prior close. For the selected direction, it uses the prior bar’s average true range plus half the difference between the prior and second-prior average true ranges. The other directional output is set to zero, so the result is intended to show volatility on the side of the market associated with that bar’s close-to-close move.

The author suggests that it may be used on different timeframes and markets, with a preference for higher timeframe forex charts, and says its threshold should be adapted to the instrument’s price precision. The supplied formula exposes a threshold value but does not use it in the calculation, and it does not specify a trading entry, exit, or risk rule. No tests or performance evidence are given, so the indicator is a descriptive volatility tool whose predictive or trading value remains unestablished.

Key ideas

• The indicator assigns a volatility value to either the upward or downward output based on the sign of the close-to-close change.
• Its value combines lagged average true range with half the recent change in that measure.
• The author favors higher timeframe forex use but suggests adapting it to other markets and timeframes.
• A threshold parameter is displayed but does not appear in the supplied calculation.
• The document provides no backtest or complete trading rules to establish profitability.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.