ATR (Average True Range)
Average True Range (ATR) is a volatility indicator that measures the average range of price movement over a specified period. It helps traders set appropriate stop-losses, identify volatility changes, and size positions based on market conditions.
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How ATR (Average True Range) Works
ATR calculates the 'true range' for each period (the greatest of: current high minus current low, absolute value of current high minus previous close, or absolute value of current low minus previous close). It then averages these values over the specified period (typically 14).
Key Features
Trading Signals
- →Rising ATR indicates increasing volatility
- →Falling ATR indicates decreasing volatility
- →Low ATR often precedes breakouts
- →High ATR may indicate exhaustion moves
- →Use ATR multiples for stop-loss placement
Best Used For
Limitations to Consider
- Doesn't indicate price direction
- Past volatility doesn't guarantee future volatility
- Different markets have different ATR characteristics
- Should be used with directional indicators
ATR (Average True Range) FAQs
Common questions about atr (average true range)
A common approach is to set stops at 1.5-2x ATR below entry for longs (or above for shorts). This gives your trade room to breathe based on the asset's normal volatility while protecting against significant adverse moves.
Rising ATR means volatility is increasing - price is moving more per period. This often occurs during breakouts, trending moves, or market stress. Wider stops may be needed.
Use ATR as a percentage of price (ATR ÷ Price × 100) to compare volatility across assets with different prices. A $10 ATR means different things for a $50 stock vs a $500 stock.
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Disclaimer: Wyck provides technical analysis for educational purposes only. This is not financial advice. All trading involves risk. Always consult a licensed financial professional before making investment decisions.
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