ATR Deviation Ranking

#volatility #dispersion #ratio

Creator: Definedge

The ATR Deviation Ranking compares short-term volatility dispersion against long-term volatility dispersion. It calculates the ratio of the 50-day standard deviation of the 5-day ATR divided by the 200-day standard deviation of the 5-day ATR. The resulting green ADR line is plotted alongside a red SMA average line.

Default period: 50/200 (5-day ATR base)

Useful readings:

– ADR above 1.0: short-term volatility dispersion exceeds the long-term baseline, volatility is expanding

– ADR below 1.0: short-term volatility dispersion is below the long-term baseline, volatility is contracting

– Rising ADR: volatility dispersion is accelerating, potential breakout regime ahead

– Falling ADR: volatility dispersion is decelerating, potential consolidation regime ahead

– ADR crossing above SMA: volatility expansion turning on, early regime change signal

– ADR crossing below SMA: volatility contraction turning on, early regime change signal

– ADR above SMA and rising: strong volatility expansion phase, favorable for breakout/momentum strategies

– ADR below SMA and falling: strong volatility contraction phase, favorable for mean-reversion/range strategies

– ADR peak then reversal: volatility dispersion exhaustion, prepare for regime shift

– Divergence between ADR and price: volatility structure diverging from price action, potential reversal warning

What makes it unique:

It measures the volatility of volatility – how scattered ATR itself has become – which ordinary volatility tools ignore. That makes it an early regime-change detector rather than a simple volatility gauge.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.