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Daily Range

 

Tracking the daily range of any tradable gives a sense of the enthusiasm of buyers and sellers, the variety of valuation beliefs, and helps to identify reasonable price projections based on the volatility that the tradable has exhibited in the past.  Daily range is the difference between the high and low in one trading day.  An increase in daily range invites speculation as to the reasons behind the increase and contributes to forecasts of what is possible near term.  It is an important input into the valuation forecasts of options and other derivative products in the form of volatility measures.

One indicator developed to track the range in daily prices for a tradable is the Average True Range.  This indicator was developed by J Welles Wilder and is defined to be the greatest of the following for each period:

 

 The distance from today's high to today's low.         
  The distance from yesterday's close to today's high.
The distance from yesterday's close to today's low.

 

Average True Range can help identify price projections given both the trend of the indicator and trend in price.  If the security being charted has a high correlation to the major indices and supporting evidence of a reversal of the trend is present, Average True Range can help to identify possible initial price projections for a security in a short term trade.