Balanced ATR: Normalizing True Range by the Previous Close

Summary

This indicator adapts Average True Range for comparing stocks with different share prices. Standard ATR is expressed in price units, so equal ATR readings can represent different relative moves for securities trading at different prices. The proposed calculation divides the day’s range and the gaps from the previous close to the current high and low by the previous close, takes the largest of those values, and expresses it as a percentage. It then averages this normalized true range using configurable period and smoothing settings.

The example uses a 14-period setting and a smoothing parameter of 3. The document explains the motivation and provides an implementation, but it does not report tests, comparative results, or a formal evaluation against standard ATR. The normalized measure can aid relative volatility comparisons, though the choice of averaging method and parameters may affect interpretation. It is an indicator definition, not a complete entry, exit, or risk-management strategy.

Key ideas

• Price-unit ATR readings can be difficult to compare across securities with different share prices.\nThe proposed measure scales the daily range and gaps by the previous close.\nIt takes the largest normalized range component and reports it as a percentage.\nThe example uses a 14-period calculation with a smoothing parameter of 3.\nThe document provides no empirical comparison or trading results.

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