Average True Range (ATR)
Volatility measure averaging the greatest of: current high–low, current high–prior close, or current low–prior close over n periods (default 14).
Formula
True Range = max(High−Low, |High−Prev Close|, |Low−Prev Close|); ATR = RMA(True Range, n)
ATR captures the true daily range by accounting for overnight gaps. Each bar's True Range is the largest of: (High − Low), |High − Prior Close|, or |Low − Prior Close|. The ATR is a smoothed average of these values.
ATR itself gives no directional signal — it only measures volatility. Traders use it to size stops (e.g. stop = entry ± 2 × ATR), to detect volatility expansions before breakouts, and inside SuperTrend and Keltner Channel calculations. Rising ATR during a trend confirms participation; falling ATR suggests exhaustion or consolidation.
Example
Gold's 14-period ATR on the daily chart reads $28. A trend trader places a stop 2 × ATR ($56) below the entry price, ensuring the stop is wide enough to survive normal intraday volatility without being hit by random noise.
Related Terms
Bollinger Bands
Volatility envelope drawn 2 standard deviations above and below a 20-period SMA; bands widen in volatile markets and contract during consolidation.
BeginnerBollinger Bandwidth
Measures the percentage width of Bollinger Bands relative to the middle band; extreme lows signal a volatility squeeze preceding a large move.
IntermediateChoppiness Index
Measures whether a market is trending (low values near 38.2) or range-bound / choppy (high values near 61.8) using ATR and the highest-high/lowest-low range.
IntermediateDirectional Movement Index (DMI)
System of +DI and −DI lines measuring upward and downward price movement; the gap between them, normalised as ADX, quantifies trend strength.
AdvancedDonchian Channel
Breakout envelope plotting the highest high and lowest low over the past n periods (typically 20); the midline is their average.
IntermediateKeltner Channel
Volatility envelope using a 20-period EMA as midline and ATR multiples (typically 2×) as upper and lower bands.
IntermediateParabolic SAR
Trend-following stop-and-reverse indicator that plots dots above (downtrend) or below (uptrend) price, accelerating as the trend matures.
IntermediateStandard Deviation
Statistical measure of price dispersion around a mean; rising values indicate increasing volatility, falling values a tightening range.
IntermediateSuperTrend
ATR-based trailing stop-and-trend indicator that flips above or below price to define bull and bear regimes; clean, actionable signals.
Intermediate