Normalized Average True Range (N-ATR)
The Volatility Gauge That Lets You Compare Any Asset Fairly
Wilder's classic Average True Range (ATR) is fantastic for measuring volatility, but it's in raw price dollars โ meaning $3 ATR feels huge on a $30 stock but tiny on a $300 one. Normalized ATR (N-ATR) fixes that by rescaling ATR as a percentage of price (or another reference), putting every ticker, sector, or timeframe on the same volatility scale. Suddenly you can spot true 'hot' vs 'calm' markets apples-to-apples, size positions consistently, and filter setups without getting fooled by absolute price levels. It's the smart trader's volatility equalizer.
Core Normalization Flavors
Popular ways to normalize:
- ATR % of Price (most common): ATR / Close ร 100 โ simple daily volatility %.
- ATR % of SMA: ATR / SMA(Close, N) ร 100 โ smooths out gaps and spikes.
- ATR Z-Score: (Current ATR โ Mean ATR) / ฯ_ATR โ deviations from historical norm.
- ATR Ratio: Current ATR / Long-term ATR baseline โ regime change detector.
All turn raw dollars into comparable relative units.
Reading N-ATR % (Daily Examples)
Rough volatility moods (adjust per asset class):
- <1%: Quiet squeeze โ low vol, anticipate breakout or range plays.
- 1โ2%: Normal drift โ business as usual, standard sizing.
- >3%: Hot expansion โ widen stops, reduce size, momentum strategies shine.
- Spike then drop: Exhaustion โ potential mean reversion or consolidation.
Backtest your own bands โ stocks, forex, crypto all have different 'normal' ranges.
Pro Trading Applications
Powerful uses:
- Consistent sizing: Risk fixed % of account regardless of price/volatility.
- Regime filter: Only run trend systems when N-ATR >1.2% + ADX rising.
- Breakout validation: Breakout + rising N-ATR = expanding volatility confirmation.
- Options gauge: Compare N-ATR % to implied vol โ spot mispricing opportunities.
Multi-asset scans become meaningful โ rank volatility fairly across everything.
Parameter and Design Tweaks
Key knobs:
- ATR Length (N): 7โ10 intraday (fast), 14โ21 daily (classic), 30+ weekly (smooth).
- Divisor: Close (responsive) vs SMA (gap-resistant).
- Z-Score Window: 50โ100 bars for stable baseline.
- Thresholds: 1%/3% typical equities; higher for crypto/FX.
Smart Combinations
Pair for edge:
- Trend tools (ADX/MA): Direction + N-ATR expansion = high-conviction trend.
- Volume: Volatility rise + volume = real move.
- Momentum (RSI/MACD): N-ATR squeeze + oscillator extreme = breakout setup.
Strengths and Realistic Caveats
The Wins
- True cross-asset volatility comparison.
- Consistent risk and position sizing.
- Early flags for squeezes and expansions.
- Simple to implement and interpret.
The Gotchas
- Still lagging โ based on past ATR.
- Divisor choice affects readings โ stay consistent.
- Directionless โ needs trend filter.
- Shocks/news can spike beyond historical norms.
Your N-ATR Launch Checklist
- Compute standard ATR(14) first.
- Normalize by Close or SMA โ pick one and stick.
- Plot percentage with custom bands.
- Backtest thresholds and regime filters.
- Layer direction and volume confirmation.
- Review quarterly โ volatility evolves.
Key Takeaways
N-ATR rescales raw ATR into percentage units โ fair volatility comparison across anything.
<1% = squeeze, 1โ2% = normal, >3% = hot expansion.
Essential for consistent sizing, regime filtering, and breakout validation.
Simple upgrade to classic ATR โ makes multi-asset work effortless.
Tune divisor and bands, add direction โ and volatility becomes your edge. Stay normalized and trade calibrated!
Normalized Average True Range (N-ATR)
The Volatility Gauge That Lets You Compare Any Asset Fairly
Wilder's classic Average True Range (ATR) is fantastic for measuring volatility, but it's in raw price dollars โ meaning $3 ATR feels huge on a $30 stock but tiny on a $300 one. Normalized ATR (N-ATR) fixes that by rescaling ATR as a percentage of price (or another reference), putting every ticker, sector, or timeframe on the same volatility scale. Suddenly you can spot true 'hot' vs 'calm' markets apples-to-apples, size positions consistently, and filter setups without getting fooled by absolute price levels. It's the smart trader's volatility equalizer.
Table of Contents
Core Normalization Flavors
Popular ways to normalize:
- ATR % of Price (most common): ATR / Close ร 100 โ simple daily volatility %.
- ATR % of SMA: ATR / SMA(Close, N) ร 100 โ smooths out gaps and spikes.
- ATR Z-Score: (Current ATR โ Mean ATR) / ฯ_ATR โ deviations from historical norm.
- ATR Ratio: Current ATR / Long-term ATR baseline โ regime change detector.
All turn raw dollars into comparable relative units.
Reading N-ATR % (Daily Examples)
Rough volatility moods (adjust per asset class):
- <1%: Quiet squeeze โ low vol, anticipate breakout or range plays.
- 1โ2%: Normal drift โ business as usual, standard sizing.
- >3%: Hot expansion โ widen stops, reduce size, momentum strategies shine.
- Spike then drop: Exhaustion โ potential mean reversion or consolidation.
Backtest your own bands โ stocks, forex, crypto all have different 'normal' ranges.
Pro Trading Applications
Powerful uses:
- Consistent sizing: Risk fixed % of account regardless of price/volatility.
- Regime filter: Only run trend systems when N-ATR >1.2% + ADX rising.
- Breakout validation: Breakout + rising N-ATR = expanding volatility confirmation.
- Options gauge: Compare N-ATR % to implied vol โ spot mispricing opportunities.
Multi-asset scans become meaningful โ rank volatility fairly across everything.
Parameter and Design Tweaks
Key knobs:
- ATR Length (N): 7โ10 intraday (fast), 14โ21 daily (classic), 30+ weekly (smooth).
- Divisor: Close (responsive) vs SMA (gap-resistant).
- Z-Score Window: 50โ100 bars for stable baseline.
- Thresholds: 1%/3% typical equities; higher for crypto/FX.
Smart Combinations
Pair for edge:
- Trend tools (ADX/MA): Direction + N-ATR expansion = high-conviction trend.
- Volume: Volatility rise + volume = real move.
- Momentum (RSI/MACD): N-ATR squeeze + oscillator extreme = breakout setup.
Strengths and Realistic Caveats
The Wins
- True cross-asset volatility comparison.
- Consistent risk and position sizing.
- Early flags for squeezes and expansions.
- Simple to implement and interpret.
The Gotchas
- Still lagging โ based on past ATR.
- Divisor choice affects readings โ stay consistent.
- Directionless โ needs trend filter.
- Shocks/news can spike beyond historical norms.
Your N-ATR Launch Checklist
- Compute standard ATR(14) first.
- Normalize by Close or SMA โ pick one and stick.
- Plot percentage with custom bands.
- Backtest thresholds and regime filters.
- Layer direction and volume confirmation.
- Review quarterly โ volatility evolves.
Key Takeaways
N-ATR rescales raw ATR into percentage units โ fair volatility comparison across anything.
<1% = squeeze, 1โ2% = normal, >3% = hot expansion.
Essential for consistent sizing, regime filtering, and breakout validation.
Simple upgrade to classic ATR โ makes multi-asset work effortless.
Tune divisor and bands, add direction โ and volatility becomes your edge. Stay normalized and trade calibrated!
Related Terms
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