ATR and Momentum. Who cares?

18 nov 2019

ATR and Momentum are built in indicators that are not indicators. In other words, they are *not* lagging simplifications of a process (ex. stochastics) and they don't give approximate readings between 0 and 100 that require further interpretation. Instead they give precise real-time measurements of price change in dollars and cents (or other units) without any upper limit (Range is allays positive....like your height)

ATR measures the average candle length, the change from top to bottom (high-low). For example ATR(5) takes the lengths of the last 5 candles, sums them and divides by 5.
Momentum measures change over several candles, typically using the close of each candle. For example MOM(5) take this periods close and subtracts the close from 5 candles ago. The candles in between (2, 3, 4) are ignored.
[caveat- why not calculate the mom just like the ATR and take the average of 5 one-period momentum's. I dont know, so feel free to share if you do know!]

The relationship between Range (ATR) and Momentum (MOM) can reveal price trends without even looking at the price chart itself.

See what happens when we track ATR and MOM in addition to Price and Volume:

ATR and MOM have a positive correlation? - GREEN boxes on the left. Price goes up.
ATR and MOM have little or no correlation? - YELLOW in the middle. Price goes sideways.
ATR and MOM have a negative correlation? - RED boxes on the right. Price goes down.

Bottom line: ATR and MOM matter.

Hopefully this gives you enough to start answering related questions like:
- What happens when ATR goes down?
- What about volume?

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