AVERAGE TRUE RANGE AND STANDAR DEVIATION

For the last 6 month I have a special interest to study Average True Range and Standar Deviation Indicator. Both are wonderful indicators. Both measure the volatily of market. Therefore those indicator did not show the current direction, but they can show current market activity. The general interpretation of both indicators that the higher the value of indicator, the higher the probability of trend change.

A commont use of Std Deviation and ATR
That’s true except term “higher” and “lower” can make confused to any trader. There is no a default value of both indicators. Term higher and lower could be vary from pair to another. An event, year by year, a range of any pair could be different. We can take EURUSD as simple case. Their move from August 2008 to January 2009 it’s more likely a move of GBPJPY the most volatile pair in Forex, beside GBPCHF.

Between August 2008 and January 2009 14 Period of Day Atr hit 376 pips range
Generally ATR that introduced by Welles Wilder measure current maximum and minimum, Using MQL4 Languange the formula is:
MathMax(currenthigh,prevclose)-MathMin(currentlow,prevclose)
They are summed at choosen period, usually 14 period, then we take their average as value of ATR. Therefore ATR is a Moving Average of True Range.

If ATR measure the range directly from price bar, then Standar Deviation measure the range relative to a Simple Moving Average. Both Average and Standar Deviaton are a common statistical tools. If we have a series of data, more likely our first interest is knowing ther Mean (Average). If we take one sample on those series data, may our interest is knowing how far this data from our Mean. A famous Bollinger Band indicator constructed using this Deviation and MA calculation.

Combine this two indicators, can show us current market speed. A good sample Indicator using both indicator as it’s measurement is Damiani_Volt. I can’t explain much more about this indicator, You can search this indicator using Google, and learn to use it by your self.