Applicability To Futures Contracts Vs. Stocks
Since true range and ATR are calculated by subtracting prices, the volatility they compute does not change when historical prices are backadjusted by adding or subtracting a constant to every price. Backadjustments are often employed when splicing together individual monthly futures contracts to form a continuous futures contract spanning a long period of time. However the standard procedures used to compute volatility of stock prices, such as the standard deviation of logarithmic price ratios, are not invariant to (addition of a constant). Thus futures traders and analysts typically use one method (ATR) to calculate volatility, while stock traders and analysts typically use another (SD of log price ratios).
Read more about this topic: Average True Range
Famous quotes containing the words futures, contracts and/or stocks:
“One of the things that is most striking about the young generation is that they never talk about their own futures, there are no futures for this generation, not any of them and so naturally they never think of them. It is very striking, they do not live in the present they just live, as well as they can, and they do not plan. It is extraordinary that whole populations have no projects for a future, none at all.”
—Gertrude Stein (1874–1946)
“Bankers, nepotists, contracts and talkies: on four fingers one may count the leeches which have sucked a young and vigorous industry into paresis.”
—Dalton Trumbo (1905–1976)
“Or else I thought her supernatural;
As though a sterner eye looked through her eye
On this foul world in its decline and fall,
On gangling stocks grown great, great stocks run dry,
Ancestral pearls all pitched into a sty,
Heroic reverie mocked by clown and knave....”
—William Butler Yeats (1865–1939)