Trading with DATR

If you are an active trader in the stock, commodities or forex markets, you would have often come across the acronyms such as DATR, RSI, EMA, MACD, etc.

May 21, 2017 03:05 IST India Infoline News Service

If you are an active trader in the stock, commodities or forex markets, you would have often come across the acronyms such as DATR, RSI, EMA, MACD, etc. If you are not familiar with these acronyms, you might probably wondered what these stand for and what is their relevance for trading purpose. We cannot look at all of these terms at one go, so we will try to understand what DATR stands for and what is its relevance for a trader.

DATR stands for Daily Average True Range and it provides a measure of the volatility of a stock, commodity or currency on a daily basis. The Average True Range (ATR) was developed by J Welles Wilder before the dawn of the computer age, but his indicators such as ATR, RSI (Relative Strength Index), among others, are extremely popular among traders and have stood the test of time.

The Average True Range (ATR) measures the volatility of a stock, commodity or currency typically for 14 periods. The periods could be hourly, daily, weekly or monthly. The DATR calculates the true range of the stock commodity or currency on a daily basis. Thus, DATR is the average true range for the last 14 days.

The DATR is calculated based on daily highs and lows of the scrip, commodity or currency. Note that ATR provides a measure of volatility in absolute terms, i.e. absolute value of the change in the price of the stock (commodity or currency, as the case may be) over the previous close and not a percentage of the previous closing price. As a result, a low priced scrip will have a lower DATR and a high priced stock will have a higher DATR. Also, ATR is not a directional indicator as in the case of RSI or MACD, but it is an indicator of interest or disinterest of the investors in a stock. Hence, strong moves in either direction lead to a higher ATR. Bullish move with higher ATR indicates buying pressure, whereas bearish move with higher ATR indicates selling pressure.

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