What is ATR?
Measures market volatility by decomposing the entire range of an asset price for that period.
Think of it like this
Like measuring the average height of waves in the ocean - it tells you how rough the waters are, not which direction the tide flows.
Formula
ATR = Average of True Range values over N periods- True Range: Greatest of: High-Low, |High-Prev Close|, |Low-Prev Close|
- ATR: Smoothed average of True Ranges (typically 14 periods)
Why it matters
- Measures volatility without direction
- Helps set stop-loss levels
- Used for position sizing
- Rising ATR = increased volatility
What's a good value?
Low ATR
Low Volatility
Calm market, tighter stops possible
Rising ATR
Increasing Volatility
Market becoming more active
High ATR
High Volatility
Wider stops needed, bigger moves
Falling ATR
Decreasing Volatility
Market calming down
Real-world example
If ATR is $2 and stock is at $50, a 2×ATR stop would be at $46, accounting for normal volatility.
Evaluate this indicator on 8,000+ US stocks
Download Signal Screener