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11.3 True Range

True range is simply the day’s trading range (high to low) extended to include the previous day’s close, should that close be above the high or below the low.

true range = max(high, prev close) - min(low, prev close)

The effect is to include any “gap” left between yesterday’s close and today’s range. Quite often there’s no gap, but when overnight news makes prices jump it can be desirable in some algorithms to include that distance.

When a stock doesn’t have high/low values (some indexes for instance), then just close-to-close changes are used for true range, which may or may not be particularly useful.

Raw true range values are generally uninteresting, they’re merely used in other indicators. Wilder’s average true range (see Average True Range) uses smoothed true range values. Setting N=0 for the smoothing period can show the raw true range values if desired.


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