- Method 1: Current High less the current Low
- Method 2: Current High less the previous Close (absolute value)
- Method 3: Current Low less the previous Close (absolute value)
ATR can be used for trading to confirm price moves up or down. Powerful prices moves will result in increasing ATR. ATR can also be used to measure the strength of a reversal. It can be helpful to confirm the beginning of a downtrend.
The chart below shows SPY with the ATR volatility indicator below the price chart. Notice how ATR has been increasing since the middle of May and broke out at the beginning of June.