What Is ATR (Average True Range)?
Average True Range, developed by J. Welles Wilder, measures volatility by averaging the True Range (the greatest of: current high minus current low, current high minus previous close, or current low minus previous close) over a chosen lookback period (typically 14 candles).
ATR does not signal direction — it only quantifies how much an asset typically moves. High ATR means wider price swings; low ATR means quiet, range-bound conditions.
Its most useful application is stop-loss placement. A common technique is to set stops at 1.5x to 3x ATR away from entry, ensuring stops aren't hit by normal noise. ATR also informs position sizing: traders who target consistent dollar risk per trade size positions inversely to ATR — bigger positions in low-volatility instruments, smaller in high-volatility.
Related terms
- Volatility — A statistical measure of how much an asset's price varies over a period.
- Stop Loss — A predefined exit price that limits losses if a trade moves against you.
- Bollinger Bands — Volatility bands plotted at standard deviations above and below a moving average.