Average True Range
Volatility, ATR
- What it shows
ATR measures the average true range over the selected period. It describes price movement, not its direction.
- How it is built
True range is the largest of high minus low, the absolute difference between high and the previous close, and the absolute difference between low and the previous close. ATR is a smoothed average of it.
- How to use it
- A high value means a volatile market, a low value a quiet one.
- Often used to set stop distances and position size.
- Rises in sharp moves and falls in calm ones.
- History
Introduced in his book New Concepts in Technical Trading Systems (1978).
J. Welles Wilder Jr., 1978