Recently, I posted the Top 10 and Bottom 10 Stocks in the S&P 500 average by daily Average True Range. Now, let’s look at the top and bottom stocks by factor of percentage of the ATR to the recent close - stocks with a higher percentage will be more volatile than those with lower percentages, and absolute ATR dollar value says little in terms of ranking stocks. Let’s get more precise.
Steven Geringer of the Trade Performance website advised me to look into a factor of percentages when comparing ATR values, as this would give a more accurate reading of volatility than the pure ATR value itself - he’s right. By the way, please check out the Trade Performance Website for active trader software that calculates a vast array of essential trading metrics that can help guide you to assess your results and measure your trading progress.
Steven provided the following code to sort stocks:
ATRPercent= (ATR(10)/EMA(Close,10))*100
This would be the 10 day ATR value then divided by the 10 day exponential moving average, all of which is then multipled by 100 to arrive at a percentage.
In TradeStation, Steven’s formula code would be (my coding interpretation here):
inputs:
ATR( 10 ),
Length ( 10 );
Value1 = (AvgTrueRange( ATR )/XAverage(Close, Length))*100 ;
Plot1( Value1, “Plot1? ) ;
For this chart, I used the following code which compares the 14 day Average True Range value to the most recent close; Steven’s formula would be more informative, especially if there was a recent price shock - moving averages would filter out extreme events better than viewing the recent close.
ATRPercent = (ATR(14)/last)*100
Specifically, the TradeStation code I used is the following:
inputs:
ATR( 14 );
Value1 = (AvgTrueRange( ATR )/last)*100 ;
Plot1( Value1, “Plot1? ) ;
Let’s look at the results:
Top 10:
When using the last close method, Freddie Mac and Fannie Mae rise to the top of the list with the current 14 day ATR value being over 30% of the most recent close! One can see how this finding can be useful for volatility considerations - while these clearly don’t offer the wild price swings of CME or GOOG, these stocks have very high daily fluctuations as a percentage of their price action.
Washington Mutual (WM) registers as #3 on the list, and Regions Financial (RF) registers as #8 - clearly financial stocks have been very volatile as of late.
Using this method, Chicago Mercantile Exchange (CME) - which has the highest S&P ATR value - registers at #84 in this ranking (with a daily percentage of 6.94%) and Google - #2 on the prior list - registers at #239 with a daily ATR percentage of 4.49%.
Which stocks have the smallest percent?
Bottom 10:
Perhaps surprisingly, these stocks have relatively moderate to high price values (ranging from $24 to $78), yet have very low daily Average True Range readings, thus resulting in a low percentage. Wrigley (WWY), which has a price value of almost $79, actually has the second lowest percentage, as its ATR value registers at $0.42.
Consider using either of these formulas to compare and rank stocks based on their volatility ranking as a function of Average True Range to daily close or 10 period EMA price.
(Thank you to Steven Geringer for this idea and for providing the forumla)
