Matt H. responded to the post on predictive columns and asked about ATR. (Posting with permission)
Matt H.
Is there a NEXT level of standardization of a column of ATR vs. security’s typical ATR? Or is that a step too far vs. computing power?
If you allow yourself, you can conjure up a fancy, complex metric to describe anything.
But the K.I.S.S. principle is best here.
Simpler is typically better.
The volatility of a stock is probably the most important aspect to capture in your backtest.
It provides the basis for several other important columns in my column library, which I add to every backtest I run.
I’ve used two different metrics over the years for “how much a stock typically moves.”
I mostly use ATR now because it’s so easily and widely available across most trading platforms.
Another one worth considering is the Trade-Ideas Volatility metric, which is the average height of a 15-minute bar over the last several trading days.
If you think about it, this is highly correlated with ATR, but not perfectly.
It doesn’t matter so much which one you choose, but pick one, keep it simple, and be consistent.
Thanks for the question, Matt!
-Dave
P.S. If you use Amibroker for backtesting and are interested in the code I use to simulate the Trade-Ideas Volatility, hit reply and let me know.
