Jump to content
  • 0

Calculation of Average True Range (ATR)



2 answers to this question

Recommended Posts

  • 0
14 hours ago, REKandler said:


How is IG's Average True Range (ATR) figure averaged over the relevant period?

For instance, is it a simple average, a running average, a weighted average ... or something else?

Many thanks

Hi @REKandler



It is typically derived from the simple moving average of a series of true range indicators.


All the best - MongiIG

Link to comment
  • 0

Hi MongiIG,

I know about 10 months has passed since this original thread, but seeing as I am greatly interested in the answer to the original question of the poster, I am posting this late comment.

MongiIG, in answering REKandler's question about how IG's ATR figure is averaged over the relevant period, you have stated "It is typically derived from the simple moving average of a series of true range indicators." This arguably in a sense may be true, for some platforms and traders, but this general statement unfortunately sheds no light on the actual question that was asked, which was essentially how does IG Trading arrive at their figure on their platform?

As a qualified mathematician I can confirm to all that the ATR(14) figure that IG gives for any graph on their platform is not a simple moving average (SMA) of the last 14 true range indicators (TRs), as one could construe is your suggestion. This is why I say the user's question has not been answered.

Any user can confirm the following with their own calculations. IG uses the common "smoothing formula" for ATRs, which is that the ATR at time "t" is:

ATR_{t}={{ATR_{{t-1}}\times (n-1)+TR_{t}} \over n}

So in layman's language: For a 14 period ATR (i.e. n = 14) the most recent ATR is calculated by multiplying the previous ATR value by 13 and then adding it to the newest True Range (TR) and then dividing the whole result by 14.

The problem is that in using this "smoothing formula", and not a simple SMA of the last 14 TRs, the ATR value can be quite different depending on how far back in one's data that the formula starts being used.

The "ghost" of the artificial initial values you create for both the first TR (which is simply the High minus Low as there is no previous candle) and the first ATR (which is indeed a simple moving average of the last 14 TRs once you have that many), these 'hang around' in the ATR value for quite some time.

It does not appear to be like the formula for Heiken-Ashi Candles, when the effect of the initial candle (calculated also by irregular means) quickly dissipates or becomes vanishingly small after about 10 or so periods (I can't remember the exact estimate that is often given for Heiken-Ashi candles before they become "as they should be", comparable/equivalent to anyone else's figures).

Because of the nature of the above ATR formula, all values you see for an ATR on any web platform, using the same period (i.e. ATR(14)), for the exact same data, such figures may vary considerably, depending on how far back in the data the ATR first starts being calculated. I have heard that some platforms use 250 periods back, to ensure that the effect of the artificial initial values has somewhat been "nullified".

I have no idea how many periods back that the IG trading platform starts to calculate an ATR(14). It can't be infinite, but I can tell you one thing for a certainty that it is far far greater than 14 periods.

If anyone from IG could tell me the exact number of periods used (even if it is 1000+) I would greatly appreciate it.



  • Thanks 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 29/01/23 11:39
  • Posts

    • Does anybody know the BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) equivalent with a GBP currency hedge? I want the interest yield but I don't want the currency risk.
    • Capital, win loss ratio. If you have a trading edge and you can consistently win 50% of your trades, so your winning 5 trades out of 10. So if your risking 1% of your capital per trade, out of your 10 trades 5 would be losers, so that’s 5% loss and realistically out of the 5 winning trades, some would make small profits, some break even and 1, 2 or 3 could run nicely IF you can let your profits run, basically your making money out of 2 trades out of the 10 trades (80/20 Rule Pareto principle) So a $20,000 acct risking 1% is $200 per trade, this will keep the trader with his trade risk based on being able to win 50% of his trades. A long term trend trader can win with 30% wining trade. Basically you need to know your numbers. Rgds Pete
    • Investing in stocks can be a great way to grow your wealth over time. However, there are different approaches that investors can take when choosing which stocks to buy. Two of the most popular approaches are growth investing and value investing. Growth Investing Growth investing is an investment strategy that focuses on buying stocks of companies that are expected to grow at a faster rate than the overall market. These companies are often in industries that are growing quickly, such as technology or healthcare. Investors who use this approach believe that these companies will be able to generate higher profits in the future, which will lead to higher stock prices. One of the main advantages of growth investing is that it can potentially provide higher returns than the overall market. However, it is also riskier than other investment strategies, as these companies often have higher valuations and more volatile stock prices. Value Investing Value investing is an investment strategy that focuses on buying stocks of companies that are undervalued by the market. These companies may be in industries that are out of favour or have recently experienced challenges, but they have strong fundamentals and a history of profitability. Investors who use this approach believe that these companies are undervalued and that their true value will be recognized in the future, leading to higher stock prices. One of the main advantages of value investing is that it can potentially provide lower risk than growth investing. However, it may also provide lower returns in the long run, as these companies may not have the same growth potential as companies in the growth investing category. Comparing Growth and Value Investing Growth and value investing are two different approaches to stock investing, each with its own advantages and disadvantages. Growth investing can potentially provide higher returns but is riskier, while value investing can provide lower risk but potentially lower returns. An investor may choose one approach or a combination of both. A portfolio that contains a mix of growth and value stocks can provide a balance of potential returns and risk. Conclusion Both growth investing and value investing can be effective ways to invest in stocks. The key is to understand the potential risks and rewards of each approach and to choose the one that aligns with your investment goals and risk tolerance. Analyst Peter Mathers TradingLounge™ 
  • Create New...