Learn how you can become a Python programmer in just 12 weeks.

    We respect your privacy. Unsubscribe at anytime.

    How to Calculate Volatility as Average True Range (ATR) with Python DataFrames and NumPy

    What will we cover?

    In this tutorial we will learn about the volatility of a stock price measured with Average True Range. The Volatility of a stock is one measure of investment risk.

    The Average True Range was originally designed to calculate the volatility of commodities, but the technical indicator can also be used for stock prices, as we will do in this tutorial.

    We will get some stock price time series data and make the calculation using pandas DataFrames and NumPy.

    Watch lesson

    Step 1: Get historic stock price data

    To get started, we need some historic stock prices. This can be done as follows and is covered in Lesson 1.

    import numpy as np
    import pandas_datareader as pdr
    import datetime as dt
    import pandas as pd
    start = dt.datetime(2020, 1, 1)
    data = pdr.get_data_yahoo("NFLX", start)

    This reads the time series data of the historic stock prices of Netflix (ticker NFLX).

    Step 2: The formula of Average True Range (ATR)

    To calculate the Average True Range (ATR) we need a formula, which is given on investoperia.org.

    The Average True Range (ATR) is a moving average of the True Range (TR). And the TR is given by the maximum of the current high (H) minus current low (L), the absolute value of current high (H) minus previous close (Cp), and the absolute value of current low (L) and previous close (Cp).

    Sted 3: The calculations of Average True Range with DataFrames and NumPy

    The above formula can look intimidating at first, but don’t worry, this is where the power of Pandas DataFrames and Series come into the picture.

    It is always a good idea to make your calculations simple.

    high_low = data['High'] - data['Low']
    high_cp = np.abs(data['High'] - data['Close'].shift())
    low_cp = np.abs(data['Low'] - data['Close'].shift())

    Here we make a Series for each of the values needed. Notice, that we get the previous close by using shift() (data[‘Close’].shift()).

    Then a great way to get the maximum value of these is to create a DataFrame with all the values.

    df = pd.concat([high_low, high_cp, low_cp], axis=1)
    true_range = np.max(df, axis=1)

    Now that is nice.

    Then we get the ATR as the moving average of 14 days (14 days is the default).

    average_true_range = true_range.rolling(14).mean()

    Step 4: Visualize the result with Matplotlib

    Finally, let’s try to visualize it. Often visualization helps us understand it better.

    import matplotlib.pyplot as plt
    %matplotlib notebook
    fig, ax = plt.subplots()
    ax2 = data['Close'].plot(ax=ax, secondary_y=True, alpha=.3)

    Resulting in the following chart.

    Want to learn more?

    This is part of a 2.5-hour full video course in 8 parts about Risk and Return.

    In the next lesson you will learn how to Calculate Sharpe Ratio with Pandas and NumPy.

    12% Investment Solution

    Would you like to get 12% in return of your investments?

    D. A. Carter promises and shows how his simple investment strategy will deliver that in the book The 12% Solution. The book shows how to test this statement by using backtesting.

    Did Carter find a strategy that will consistently beat the market?

    Actually, it is not that hard to use Python to validate his calculations. But we can do better than that. If you want to work smarter than traditional investors then continue to read here.

    Python Circle

    Do you know what the 5 key success factors every programmer must have?

    How is it possible that some people become programmer so fast?

    While others struggle for years and still fail.

    Not only do they learn python 10 times faster they solve complex problems with ease.

    What separates them from the rest?

    I identified these 5 success factors that every programmer must have to succeed:

    1. Collaboration: sharing your work with others and receiving help with any questions or challenges you may have.
    2. Networking: the ability to connect with the right people and leverage their knowledge, experience, and resources.
    3. Support: receive feedback on your work and ask questions without feeling intimidated or judged.
    4. Accountability: stay motivated and accountable to your learning goals by surrounding yourself with others who are also committed to learning Python.
    5. Feedback from the instructor: receiving feedback and support from an instructor with years of experience in the field.

    I know how important these success factors are for growth and progress in mastering Python.

    That is why I want to make them available to anyone struggling to learn or who just wants to improve faster.

    With the Python Circle community, you can take advantage of 5 key success factors every programmer must have.

    Python Circle
    Python Circle

    Be part of something bigger and join the Python Circle community.

    Leave a Comment