# Normalized Average True Range (14)

### Introduction

The Normalized Average True Range (NATR) is a **percentage-based volatility** indicator that provides **cross-asset comparison** and **relative volatility analysis** for **both LONG and SHORT strategies**. This normalized version of ATR expresses volatility as a percentage of the closing price, making it possible to compare volatility across different cryptocurrencies and price levels effectively.

### How Normalized Average True Range Works

Normalized Average True Range (NATR) expresses ATR as a percentage of the closing price, making it possible to compare volatility across different cryptocurrencies. Calculation: NATR = (ATR / Close) × 100. This normalization is particularly valuable in crypto markets where prices vary dramatically.

• **Cross-asset comparison** - Compare volatility between different cryptocurrencies regardless of price\
• **Relative volatility** - Measure volatility relative to current price level\
• **Portfolio allocation** - Allocate positions based on relative volatility\
• **Risk assessment** - Assess risk across different price ranges\
• **Strategy selection** - Choose strategies based on relative volatility levels

{% hint style="info" %}
**Normalized Volatility Psychology:** NATR reveals the relative uncertainty in each asset regardless of price level. A $50,000 Bitcoin with 2% NATR has similar relative volatility to a $0.001 altcoin with 2% NATR. This makes NATR essential for portfolio management and cross-asset strategy selection.
{% endhint %}

#### Key Characteristics

| Attribute        | Details                                            |
| ---------------- | -------------------------------------------------- |
| **Category**     | Volatility Indicators                              |
| **Type**         | Normalized Volatility & Cross-Asset Comparison     |
| **Primary Use**  | Portfolio allocation, relative volatility analysis |
| **Timeframe**    | All timeframes supported (1m to 1M)                |
| **Confirmation** | Volume, price action, trend strength               |

### Strategy Applications

#### 🟢 LONG STRATEGY (Primary Use)

{% hint style="success" %}
NATR is excellent for LONG strategies by enabling cross-asset volatility comparison, optimal portfolio allocation, and relative risk assessment across different cryptocurrencies.
{% endhint %}

**Base Entry Order (LONG)**

```
Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 3

AND

First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H
```

**Additional Entry Orders (LONG)**

```
Additional Entry 1: Moderate volatility confirmation
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 2

AND

First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 6

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Low volatility breakout setup
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 1.5

AND

First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: High Price
Timeframe: 1H
```

**Take Profit Orders (LONG)**

```
Rule 1: Exit condition - High volatility warning
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 8

OR

Rule 2: Exit condition - Volatility normalization
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 2

AND

First Condition: RSI
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 70

OR

Rule 3: Exit condition - Relative volatility decline
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (10)
Timeframe: 1H
```

**Stop Loss Orders (LONG)**

```
Rule 1: Stop loss - Extreme volatility spike
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 12

OR

Rule 2: Stop loss - Relative volatility breakdown
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 4

OR

Rule 3: Stop loss - NATR-based adaptive stop
First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 0.97
```

#### 🔴 SHORT STRATEGY (Primary Use)

{% hint style="success" %}
NATR is equally effective for SHORT strategies by enabling cross-asset volatility comparison and relative risk assessment for bearish market conditions.
{% endhint %}

**Base Entry Order (SHORT)**

```
Trigger Type: Once per bar close
Bar TF: 1H
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 3

AND

First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H
```

**Additional Entry Orders (SHORT)**

```
Additional Entry 1: Moderate volatility confirmation
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 2

AND

First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 6

AND

First Condition: Volume
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (20)
Timeframe: 1H

OR

Additional Entry 2: Low volatility breakdown setup
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 1.5

AND

First Condition: Close Price
Timeframe: 1H
Operator: Less Than
Second Condition: Low Price
Timeframe: 1H
```

**Take Profit Orders (SHORT)**

```
Rule 1: Exit condition - High volatility warning
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 8

OR

Rule 2: Exit condition - Oversold with low volatility
First Condition: RSI
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 30

AND

First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Less Than
Second Condition: Value
Value: 2

OR

Rule 3: Exit condition - Relative volatility decline
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Cross Below
Second Condition: Simple Moving Average (10)
Timeframe: 1H
```

**Stop Loss Orders (SHORT)**

```
Rule 1: Stop loss - Extreme volatility spike
First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 12

OR

Rule 2: Stop loss - Relative volatility breakout
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Simple Moving Average (50)
Timeframe: 1H

AND

First Condition: Normalized Average True Range (14)
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 4

OR

Rule 3: Stop loss - NATR-based adaptive stop
First Condition: Close Price
Timeframe: 1H
Operator: Greater Than
Second Condition: Value
Value: 1.03
```

### Advanced Strategy Combinations

#### Cross-Asset Volatility Comparison

{% tabs %}
{% tab title="Setup" %}
**Portfolio Allocation Strategy:**

* **High NATR (>5%):** Reduce position size, increase stop distance
* **Medium NATR (2-5%):** Standard position size and stops
* **Low NATR (<2%):** Increase position size, tighter stops
* **Compare across assets:** Allocate more to lower NATR assets
  {% endtab %}

{% tab title="Execution" %}
**LONG Entry:** Select lowest NATR assets + trend confirmation\
**SHORT Entry:** Select moderate NATR assets + breakdown confirmation\
**Stop Loss:** NATR-based adaptive stops (2-3x NATR percentage)
{% endtab %}
{% endtabs %}

#### Volatility Regime Strategy

{% hint style="info" %}
**Setup Process:**

1. Classify market volatility regime using NATR
2. Low NATR (<2%): Mean reversion strategies
3. Medium NATR (2-5%): Trend following strategies
4. High NATR (>5%): Breakout/breakdown strategies

**Execution:**

* **Base Order:** NATR-based regime identification
* **Additional:** Volatility confirmation with volume
* **Take Profit:** NATR-based profit targets
* **Stop Loss:** NATR-based adaptive stops
  {% endhint %}

#### Multi-Asset NATR Strategy

{% tabs %}
{% tab title="Low Volatility Assets" %}
**NATR <2%:** Stable assets for conservative strategies\
**Strategy:** Mean reversion, range trading\
**Position Size:** Increased (125% of standard)\
**Stop Distance:** Tighter (1.5x NATR)
{% endtab %}

{% tab title="High Volatility Assets" %}
**NATR >5%:** Volatile assets for aggressive strategies\
**Strategy:** Trend following, breakout trading\
**Position Size:** Reduced (75% of standard)\
**Stop Distance:** Wider (3x NATR)
{% endtab %}
{% endtabs %}

### Risk Management Guidelines

#### NATR-Based Position Sizing

| NATR Level          | Position Size | Risk Level | Stop Distance |
| ------------------- | ------------- | ---------- | ------------- |
| **Very Low (<1%)**  | 150%          | Very Low   | 1.5x NATR     |
| **Low (1-2%)**      | 125%          | Low        | 2x NATR       |
| **Medium (2-5%)**   | 100%          | Medium     | 2.5x NATR     |
| **High (5-8%)**     | 75%           | High       | 3x NATR       |
| **Very High (>8%)** | 50%           | Very High  | 3.5x NATR     |

#### Cross-Asset Risk Assessment

{% tabs %}
{% tab title="Portfolio Diversification" %}
**Strategy:** Allocate across different NATR levels\
**Low NATR:** 40% allocation (stable base)\
**Medium NATR:** 40% allocation (balanced growth)\
**High NATR:** 20% allocation (high growth potential)
{% endtab %}

{% tab title="Risk Parity" %}
**Strategy:** Equal risk contribution across assets\
**Method:** Adjust position sizes inversely to NATR\
**Example:** 2% NATR = 100% size, 4% NATR = 50% size
{% endtab %}
{% endtabs %}

#### NATR Reliability Factors

{% tabs %}
{% tab title="High Reliability" %}
✅ Consistent NATR patterns across timeframes\
✅ NATR levels align with market conditions\
✅ Volume confirmation of NATR signals\
✅ Cross-asset NATR comparison makes sense
{% endtab %}

{% tab title="Low Reliability" %}
❌ Extreme NATR spikes from news events\
❌ NATR signals without volume confirmation\
❌ Inconsistent NATR across timeframes\
❌ NATR levels don't match market reality
{% endtab %}
{% endtabs %}

### Best Practices

#### For LONG Strategies

{% hint style="success" %}

1. **Asset selection** - Choose assets with appropriate NATR for strategy
2. **Position sizing** - Adjust size inversely to NATR level
3. **Stop placement** - Use NATR multiples for adaptive stops
4. **Portfolio balance** - Diversify across NATR levels
   {% endhint %}

#### For SHORT Strategies

{% hint style="success" %}

1. **Asset selection** - Choose assets with appropriate NATR for strategy
2. **Position sizing** - Adjust size inversely to NATR level
3. **Stop placement** - Use NATR multiples for adaptive stops
4. **Risk management** - Monitor NATR for volatility spikes
   {% endhint %}

#### Common Mistakes to Avoid

{% hint style="danger" %}

* **Ignoring normalization** - Using absolute ATR instead of NATR for comparison
* **Fixed sizing** - Not adjusting position size based on NATR
* **Wrong comparison** - Comparing NATR across different timeframes
* **News events** - Trading during artificial NATR spikes
  {% endhint %}

### Market Conditions Analysis

| Market Type            | LONG Strategy Effectiveness   | SHORT Strategy Effectiveness  |
| ---------------------- | ----------------------------- | ----------------------------- |
| **Low NATR (<2%)**     | 🟢 High (mean reversion)      | 🟢 High (mean reversion)      |
| **Medium NATR (2-5%)** | 🟢 High (trend following)     | 🟢 High (trend following)     |
| **High NATR (5-8%)**   | 🟡 Medium (breakout only)     | 🟡 Medium (breakdown only)    |
| **Extreme NATR (>8%)** | 🔴 Low (high risk)            | 🔴 Low (high risk)            |
| **Expanding NATR**     | 🟡 Medium (prepare for moves) | 🟡 Medium (prepare for moves) |

### Related Indicators

| Indicator              | Relationship                   | Link                                                                                                                                     |
| ---------------------- | ------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- |
| **Average True Range** | Absolute volatility version    | [Average True Range](https://docs.skyrexio.com/strategy-builder/built-in-conditions/volatility-indicators/average-true-range-14)         |
| **Standard Deviation** | Alternative volatility measure | [Standard Deviation](https://docs.skyrexio.com/strategy-builder/built-in-conditions/volatility-indicators/standard-deviation-20-1)       |
| **Bollinger Bands**    | Volatility-based bands         | [Bollinger Bands Upper](https://docs.skyrexio.com/strategy-builder/built-in-conditions/volatility-indicators/bollinger-bands-upper-20-2) |
| **Volume**             | Confirms volatility moves      | [Volume](https://docs.skyrexio.com/strategy-builder/built-in-conditions/volume-data/volume)                                              |

### Conclusion

{% hint style="info" %}
Normalized Average True Range is essential for cross-asset comparison and portfolio management in cryptocurrency markets. It enables fair comparison of volatility across different price levels and assets, making it crucial for professional portfolio allocation.
{% endhint %}

#### Key Takeaways

{% hint style="success" %}

* **PRIMARY USE**: Cross-asset volatility comparison and portfolio allocation
* **SECONDARY USE**: Relative risk assessment and strategy selection
* **ALWAYS**: Adjust position sizes based on NATR levels across assets
* **REMEMBER**: NATR enables fair comparison regardless of price level
  {% endhint %}

Success with Normalized Average True Range requires understanding that it's primarily a portfolio management and risk assessment tool. Use it to compare volatility across different cryptocurrencies and allocate positions appropriately based on relative risk levels.

{% hint style="info" %}
**Ready to Build Your Own Strategy?**

Try our free AI-powered Strategy Builder at [app.skyrexio.com](https://app.skyrexio.com) and start creating professional trading strategies today. No coding required!
{% endhint %}


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