Ztrader – Volatility (1)


Volatility means trading opportunities. One of the famous indicator is Actual True Range, which is easy to construct and understand, for example, # 0777, consolidated for a while and up break the box to make a good advance:


The above chart showing two ATR. The ATRN is a normalized ATR with the SMA of the closing price. Because ATR is an absolution term, it means that you can’t compare one with another. For example, HSI ATR is usually a few hundred points; ATR of # 0777 is $0.5 to $1. ATRN can be used for comparison and for other trading algorithm’s building block.


Here is another example of box up break, where ATR shoot up shapely:




Among the various chart pattern, box breakout is one of the most powerful. ATR can be used as a building block to construct such indicators.



A collapsing example:



The ex-dividend effects on ATR indicator is none, if aastock’s old method is used. However, if you construct a normalized ATR, the effect is large in special cases, like 2088 this year:


Here is the old method:



The new method before and after the big dividend payout: Note that the normalized ATRN is not affected in the new method.



There are quite a few trading system based on volatility. Definitely ATR is a useful building block for those systems.


Volatility mean opportunities and risks at the same time. Another use of ATR is to control the bet sizes for future / options trading. Some recommend to use ATR for setting cut loss price points in options trades. It is also useful to measure the overall volatility of a portfolio. Will talk about it in portfolio management later.


7 thoughts on “Ztrader – Volatility (1)

  1. Hi clcheung,

    Thanks for your sharing. We can only do it manually stock by stock or is there any method could be used to monitor the whole market? Do we hv to consider the turnover at the same time?

    And if refering to profolio management, do u mean smaller bet for higher atr and vice versa in order to maintain the volatility of the whole profolio?

    1. of course you can do scanning if you have any proper software.
      Otherwise, you can write a simple program to grab the prices from Yahoo, and scan it automatically.

      Vol/turnover is always worth to consider and usually if confirm the direction of movement. Use together with ATR you can make a trading system already.

      Smaller bet on high ATR, you can say so. You can read on The Turtle’s way, which outline their bet management using ATR. For stock base long fund, I think there are better ways, but ATR measuring can also give you more idea about your portfolio too.

  2. Do you think simple is better? The system has alot of stuffs, and you’re putting all your forces into it, good one for resell, but for real trading, we don’t need a complex system. simple and automated trading system would be the future.

    by the way, i can no longer access your system(last time is like 2 years ago), anything change?

  3. I do trust all of the ideas you’ve presented in your post.

    They’re very convincing and will definitely work. Nonetheless, the posts are very short for starters.

    May you please extend them a bit from next time?
    Thanks for the post.

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