Mike's ATR Expansion: The Market's Extended Reach
Within the VOLMIKE.COM system, while Volatility Mike and its indicators focus on the momentum of percentage change, we also rigorously assess the raw price volatility. Mike's ATR Expansion provides a powerful, direct measure of how much the market's reach (its typical trading range) is extending, acting as a crucial confirmation for the explosive nature of our "Marengo" setups.
What is ATR (Average True Range)?
Average True Range (ATR) is a widely recognized technical indicator that measures market volatility by quantifying the degree of price movement over a given period. It considers the true range of each bar, accounting for gaps.
In our system, we calculate ATR on the raw High, Low, and Close prices of the underlying asset (typically over a 14-period exponential moving average of the True Range). This provides a dollar-based measure of the asset's typical price fluctuations.
Detecting ATR Expansion: A Relative Surge
We are not just interested in ATR's absolute value, but in its expansion. Our system detects ATR Expansion by comparing the current ATR to its value from a previous period (a lookback of 5 periods ago).
- ATR_Lag: This is the ATR value from 5 periods in the past, serving as a historical baseline.
- ATR_Exp_Alert: An alert is triggered when the current ATR significantly exceeds its
ATR_Lag.- An alert is generated if
Current ATR >= 1.2 * ATR_Lag(current ATR is at least 20% higher than 5 periods ago). - A stronger alert is generated if
Current ATR >= 1.5 * ATR_Lag(current ATR is at least 50% higher than 5 periods ago).
- An alert is generated if
The Comet (☄️): Visualizing the Extended Reach
When ATR Expansion is detected, our charts display the "Comet" (☄️) emoji. This visual immediately signals that the market's range has significantly extended, indicating a powerful surge in volatility.
- The "Comet" (☄️) appears for both the 1.2x and 1.5x expansion thresholds, signifying that a substantial increase in price range has occurred relative to recent history. It's a visual cue that the market is "stretching its wings" with force.
Why This Matters: The Power of Price Range
ATR Expansion offers distinct insights compared to other volatility measures:
- Quantifies Price Reach: Unlike BBW (which focuses on the width of momentum bands) or STD (which focuses on the dispersion of momentum), ATR quantifies the actual average range of price movement.
- Confirms Wide-Ranging Moves: The Comet (☄️) confirms that the current bar's (or recent bars') price action is covering a significantly larger range than usual, often indicative of strong directional conviction and high participation.
- Complements Momentum: While Mike tells us about the velocity of percentage change, ATR Expansion confirms that this velocity is translating into substantial absolute price ranges, crucial for options premium expansion.
Importance for Marengo Setups
Mike's ATR Expansion is a powerful layer of confirmation for our "Marengo" setups. When a "Marengo" signal occurs, and it's accompanied by the "Comet" (☄️) emoji, it provides exceptionally high conviction that the underlying move is not only high-velocity but also spanning a significantly larger-than-average price range. This combination helps us identify the most powerful and sustained high-conviction opportunities, where options premiums are likely to expand aggressively.