Min-Max Normalization of ATR for Volatility Extremes

Summary

This indicator concept applies min-max normalization to Average True Range, a commonly used measure of market volatility. ATR itself is unbounded, so its raw value does not provide a fixed scale for deciding whether volatility is near a relative high or low.

The proposed normalization bounds ATR values and is intended to provide a criterion for identifying possible volatility extremes. This could make the indicator easier to interpret across a defined range, but the document gives no formula, lookback period, parameter guidance, chart example, or empirical evaluation. It therefore introduces an idea rather than a fully specified trading rule. A normalized extreme alone does not establish whether price will reverse, continue, or offer a trade; those uses would require additional rules and testing.

Key ideas

• ATR is used to assess market volatility, but its raw values are unbounded.
• Min-max normalization is proposed to bound ATR and help flag relative highs or lows.
• The document does not specify the normalization window or provide evidence of trading performance.

Tags

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