Wilder Volatility Index - Average True Range

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Welles Wilder Jr introduced in his book 'New Concepts in Technical Trading Systems' several trading indicators including the Relative Strength Index (RSI), parabolic stops and the Average Directional Index (ADX).
He also introduced an indicator, based on the True Range (TR), which estimates the volatility of an asset or market volatility. The indicator is the Wilders Volatility Index.

The Wilders Volatility Index is also called Average True Range or ATR (Available in QuantShare under "ATR" name). The difference is that this indicator allows you to specify a constant value used in the internal calculation of this volatility measure.

The Wilders Volatility Index uses the true range (TRange), which is the highest of the following distances:
Distance between current high and previous low
Distance between current high and previous close
Distance between current low and previous close

The True Range is useful to avoid some errors in volatility estimation. Example: A stock with a low trading range, the daily high is near the daily low, is considered as a stock with low volatility. However, this is not the case when the daily high or low is far from the previous trading day's close.

The Wilders Volatility Index allows you to specify two parameters. The first is the period and is used to calculate the average true range values over the specified number of previous bars. The second parameter is a constant and it is used to multiply the previous values of the volatility index.
The default implementation of the Average True Range doesn't allow you to specify the constant parameter. It uses a default constant value of 13.

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