Average True Range Shift

This indicator builds on the idea of the Average True Range (ATR) as a way of measuring volatility . It uses two different ATRs to show a shift in market volatility .

It is mainly composed of two moving averages of ATR. One fast moving, which looks back at the previous 5 periods. One slow moving, which looks back at the previous 21 periods. Both ATRs have been normalized (show percentage instead of an absolute amount). The third component of this indicator is the histogram that is created by subtracting the slow moving average, from the fast moving average.

By having two ATRs of different lengths, traders can see how short term volatility compares to long term volatility , and how it is shifting over time. When the fast-moving crosses above the slow-moving, it will show a positive value on the histogram, meaning that short term volatility is increasing and higher than normal. When it crosses below, it will show a negative value on the histogram, meaning that short term volatility is decreasing, and lower than normal.

There are a variety of ways to utilize this indicator, and it will work in most markets. I find it is best to analyze macro market conditions on daily charts and above, rather than micro intraday moves.
Open-source script




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