Average True Range (ATR)
A pure volatility measure, averaging an asset's true trading range over a period, with no directional information included.
Average True Range (ATR), developed by J. Welles Wilder, averages an asset's "true range" — the greatest of the current period's high-low range, the gap from the prior close to the current high, or the gap from the prior close to the current low — over a set period.
ATR is a pure volatility measure with no directional component at all — a high ATR means large price swings are occurring, without saying whether price is trending up, down, or sideways. It's also a building block for several other indicators, including Keltner Channels and the Supertrend indicator. See Kaavon's dedicated ATR article for the full calculation.
Examples
- ATR is commonly used to size a stop-loss relative to an asset's actual recent volatility, rather than using an arbitrary fixed percentage.
- ATR says nothing about price direction — a rising ATR during a sharp drop looks identical to a rising ATR during a sharp rally.