Nifty : ATR & ADX

The true range indicator is the greatest of the following: 
-current high less the current low. 
-the absolute value of the current high less the previous close. 
-the absolute value of the current low less the previous close. 

The average true range is a moving average (generally 14-days) of the true ranges. Simply put, a stock experiencing a high level of volatility will have a higher ATR, and a low volatility stock will have a lower ATR.

Nilesh Deshpande won the "Expiry contest" in "JustNifty" & explain the basis on which he had 'figure' it as follows:

"ATR works on most days, but not on all days.

My formula is simple.

PC-ATR*.80 to PC-ATR*0.50 Buy Zone

PC+ATR*0.50 to PC+ATR*0.80 Sell Zone

where PC is previous day's close.

Bears get weak near PC-ATR*0.50 to PC-ATR*0.75, but get charged up below PC-ATR*0.80 for a target of DH-1.5*ATR

Bulls get weak near PC+ATR*0.50 to PC+ATR*0.75, but get charged up above PC+ATR*0.80 for a target of DL+1.5ATR

where DH & DL are current days High & Low respectively.

Gives out better results when used with ADX for determining whether this is a trending or a sideways market."