Average true range (ATR)


    The average true range (ATR) is an indicator that measures the volatility of the market. Compared to other indicators that focus on volatility, the ATR will show it as an absolute number instead of a percentage.

    If the ATR is rising, volatility is increasing; when it is falling, the volatility is decreasing.

    ATR is a valuable tool to identify stop loss levels. This can be done by adding or subtracting (multiples) of the ATR to the entry price.

    It is based on the true range, or TR, which is defined as the largest of the following:

    • Difference between the largest high and the largest low
    • The absolute value of the current high minus the latest close
    • The absolute value of the current low minus the latest close

    In the standard setting, the average of 14 periods of the TR is now used to derive the ATR.