Agreed with what Suruchi is saying. Bollinger Bands and Average True Range (ATR) are two excellent indicators to gauge the volatility of an underlying instrument.

Bollinger Bands measure standard deviation around a central moving average. The default reading for standard deviation is ±2, while that for the central moving average is 20-period.

Meanwhile, ATR measures volatility based on the Trading Range (TR) of each bar/candle. The default reading for ATR is 14-periods.

While Bollinger Bands are plotted on the price itself, ATR is typically plotted in a separate panel.

As Suruchi said, Bollinger bands measure both volatility and direction. Bollinger bands rise when price is rising, and vice versa. Meanwhile, volatility is measured by the distance between bands. Periods when volatility is high are accompanied by bands that are far apart from each other and the central moving average; while periods when volatility is low are accompanied by bands that are closer to each other and the central moving average.

On the other hand, ATR is trend neutral and focuses exclusively on Volatility. A low, stagnating ATR reading means low volatility; whereas, a low, but rising ATR reading means volatility is low but is starting to pick up. At the other extreme, a high, rising ATR reading means volatility is high and is continuing to rise; whereas, a high, but falling ATR reading means volatility is high but is decelerating.

To read more about Bollinger Band on FYERS School of Stocks platform, click here

To read more about ATR on FYERS School of Stocks platform, click here

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