Calculation of Average True Range (ATR)

Average True Range (ATR) is a Technical Indicator that measures Market Volatiity. This indicator was developed by Welles Wilder

From Statistics , we know that Range in Trading refers to the (High - Low) for the timeperiod/candlestick in concern. Wilder has started a Concept caled True Range which is defined as the Greater of the following:

• Current High minus the current Low
• Absolute Value of Current High minus the previous Close
• Absolute Value of Current Low minus the previous Close

For more details on ATR, check out Investopedia

Welles Wilder used the Absolute Values as he was interested in measuring the distance between two points, not the direction.

Take a look at the Google Sheet for Calculation of ATR. I have used GOOGLEFINANCE function to retreive the OHLCV of NIFTY for the first quarter of 2019. The GOOGLEFINANCE function is actually what makes Google Sheets such a compelling use. In due course I intend to publish a post to retreive OHLCV data for 1 minute candlestick from Google Sheets , on that can be used with Pandas DataFrame. In my opinion, once we create such an API, it is a better alternative to Quandl or Alpha Vantage or Quantra Blueshift or Twelve Data API for Backtesting. It also gives us the opportunity to do Live Testing of a Trading System with Live Data , but without risking actual Money. But more on that later on .... Here is the Google Sheet for now :

https://docs.google.com/spreadsheets/d/13pKpTZuDgPlb7jqH2Pyp8ypo7G97NKgV1YIgJ4j4toI/edit#gid=1308165568

The calculation in the above google sheet is based on the standards as per StockCharts

Now lets copy the Values in the Excel We can copy the OHLCV data from the above google sheet and calculate the rest of the data. If you do it n a Excel spreadsheet, you will see that the ATR obtained from the excel is the same as the ATR obtained from Google Sheet. Now let us convert the excel to csv and use this csv file as the Input for our Python program.