Skip to main content

ATR (Average True Range)

In short

Average daily price range — measures market volatility

ATR tells you how much a stock typically moves in a day. If a $100 stock has ATR of $3, it moves about 3% daily. High ATR means volatile; low ATR means calm. Useful for setting stop-loss distances.

ATR measures market volatility by decomposing the entire range of an asset price. It doesn't indicate direction, only volatility. ATR is used to set stop-loss levels (e.g., 2×ATR below entry) and position sizing.

Formula

ATR = SMA(14) of True Range; TR = max(High-Low, |High-Prev Close|, |Low-Prev Close|)

Related concepts

  • Bollinger Bands — Three lines around a stock's price: a middle average and two outer bands. When the price touches the upper band, it might be overbought. Touch the lower band, possibly oversold. When the bands squeeze together, a big move is coming.
  • ADX (Average Directional Index) — ADX tells you how strong a trend is on a scale of 0–100. Above 25 means there's a real trend happening. Below 20 means the market is choppy with no clear direction.
  • Supertrend — Supertrend draws a line that flips above or below the price to show the trend. When price is above the line (green), you're in an uptrend. When price falls below (red), the trend has reversed.
  • Keltner Channels — Similar to Bollinger Bands but uses ATR instead of standard deviation. Three lines: middle EMA and upper/lower channels. Price outside the channels suggests a strong trend. Inside = normal trading range.