Define: True Range

UK Accounting Glossary

Definition: True Range



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Full Definition of True Range


The daily price Range (High – Low) is often used as the basis for volatility indicators. However, there is an issue with using the price Range in that there can be a significant gap between the daily close and next open price that is not reflected in the calculation. The True Range overcomes this problem by incorporating the gap into the calculation.

Calculation

The True Range is the difference between the True Range High and True Range Low.

True Range = True Range High – True Range Low
where:

  • True Range High is the greater of today’s High and yesterday’s Close
  • True Range Low is the lesser of today’s Low and yesterday’s Close

The average of the True Range, referred to as the Average True Range (ATR) is used to represent volatility in some trading strategies i.e. entry or exit (protective stops).


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Definition Sources


Definitions for True Range are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 25th March 2020.