Expresses Average True Range as a percentage of price, allowing volatility comparison across different instruments. Helps traders adjust position sizes, set stops, and time entries based on current volatility.
Description
Average True Range Percent (ATRP) expresses the Average True Range (ATR) indicator as a percentage of a bar’s closing price.
The Percentage Average True Range (PATR) indicator is a variation of the Average True Range (ATR) indicator that measures the volatility of a financial instrument as a percentage of its price. It is calculated by dividing the ATR by the instrument’s price and then multiplying the result by 100.
The PATR indicator can be useful for various purposes in trading and investment:
1. Identifying volatility changes: The PATR indicator allows traders to observe changes in volatility relative to the instrument’s price. An increasing PATR value signifies increasing volatility, while a decreasing PATR value indicates decreasing volatility.
2. Comparing volatility across instruments: The PATR indicator can be used to compare the volatility of different financial instruments, regardless of their price levels. This helps traders and investors to identify the instruments that suit their risk tolerance and trading style.
3. Adjusting position sizes: The PATR can be used to adjust position sizes based on the volatility of the instrument. For example, a trader might take smaller positions in instruments with high PATR values (higher volatility) and larger positions in instruments with low PATR values (lower volatility) to manage risk more effectively.
4. Setting stop-loss and take-profit levels: The PATR indicator can help traders set appropriate stop-loss and take-profit levels based on the instrument’s current volatility. In a high volatility environment, wider stops may be needed to avoid being stopped out prematurely. Conversely, in a low volatility environment, tighter stops can be used to protect profits.
5. Timing entries and exits: The PATR can be used in conjunction with other technical indicators and price action analysis to identify potential entry and exit points based on the market’s volatility. For instance, traders might look for periods of low PATR values as an opportunity to enter trades, expecting that volatility will eventually increase.
6. Risk management: By understanding the market’s volatility through the PATR, traders can manage their risk more effectively. They can adjust their position sizes and use appropriate risk management techniques based on the market’s current volatility.
It’s important to note that the PATR indicator should not be used in isolation but rather in combination with other technical analysis tools and indicators to improve the overall effectiveness of a trading strategy.
How this indicator works
• ATRP is used to measure volatility just as the Average True Range (ATR) indicator is. ATRP allows securities to be compared, where ATR does not.
• ATR measures volatility at an absolute level, meaning lower priced stock will have lower ATR values than higher price stocks. ATRP displays the indicator as a percentage, to allow for securities trading at different prices per share to be compared.
Calculation
ATRP = (Average True Range / Close) * 100
This indicator works for MT4/MT5 Multicharts and Tradestation.
