Saturday, March 03, 2007

Average True Range

Sometimes the simplest packages contain some of the finest results. This filter is viable but unless you have a set of fairly sophisticated filtering software you won't be able to duplicate - simply put it tests for the Average True Range less than the Average True Range 20-period simple moving average.

show stocks where close is between 15 and 35
and average volume(90) > 500000
and Average True Range(10) < CMA(average true range(10),20)

The ROI on this filter was 71.30% with a 63% win rate and a spectacular 2.25 risk/reward ratio.

Sometimes just to ensure that it isn't just luck and especially with these simple filters I reverse the premise - for this one I switched the ATR < to ATR > and reran the test.

The ROI was -1.44% with a 56% win ratio and a .98 risk/reward ratio.

Now I don't suggest that you use this filter or anything like it as a selector for your stock picking. What I am saying is if you are looking to invest in a stock then you should probably know where the ATR is in relation to the stock's history.

I write about the INDU ATR in my wraps and it is a fairly good indicator of changes in the near term trend. Currently the ATR is sky high and it shouldn't stay there for long.

You can do this with every stock that you invest in and perhaps give yourself a little extra edge. Remember - ATR is a reasonable proxy for volatility.

1 comment:


Great chart like it.