Transcript

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Lets take a look at each stock's daily range. That is to say, how much does it move in a single day. There are several ways to look at this. Lets start with the Average True Range. The Average True Range is one way to describe the volatility of a stock. Notice the difference between these two stock charts. They both moved the same total amount in a three week period. But the one on the right moved more each day. So it would have a higher Average True Range. Let's take a closer look at the formula for the Average True Range. We start by focusing on the 14 most recent candles, excluding today. First we talk about the range of the candle. That gives you an idea of how much the stock price changes every day. But it's not perfect because it doesn't cover these big gaps. Let's extend this line to include the distance to the close from the previous candle. This new measurement is called the True Range. Let's look at a couple more example examples. For this candle we're gong to make the true range go all the way from the low of this candle to the previous candle's close. For this candle the previous close was between the high and the low. So in this case the true range is the same as the range. The true range is never smaller than the range. Using these rules we compute the true range of each of these fourteen candles. Then we determine the average height of these ranges. Now continue with the original. That's the average true range of the stock. That's a simple estimate of how much the stock moves during the day. You can filter stocks based on their average true range. Look for this icon, or search for the word true in TI Pro. Next, let's look at todays range. Notice that we have two versions of this one. The first one is measured in dollars. This is the simple formula that we showed you before. It's the high minus the low. We only look at today's candle and we only look at official prints, so this filter is not available before the open. And it won't change much after the close. We can also compare today's range to the average true range. In this case today's range was about twice the average true range. If you want to see stuff like this in Trade-Ideas, look for stocks near 200 percent. In this case the range for today is about half the average true range. To see stocks like this, you'd punch 50 percent into TI Pro. If this number is low, then the stock is moving a lot less than normal. A value close to 100% would mean that the stock has moved about as much as normal. If you were watching carefully you noticed another use of the average true range. This also compares today's candle to the average true range. But this filter looks at the body of the candle, not the entire range for the day. The formula is simple. We subtract the open from the current price and we divide by the average true range. If this number is large, the chart pattern is called a wide range bar. Notice that we have other ways to look for for the wide range bar or WRB chart pattern. However, those alerts are looking at shorter time frames. This lesson is focused on daily candles.