volatility Indicator
What Is Average True Range (ATR)?
ATR measures market volatility by calculating the average range between high and low prices over a period.
Quick Answer
ATR measures market volatility by calculating the average range between high and low prices over a period.
What Does ATR Measure?
The Average True Range (ATR) was developed by J. Welles Wilder Jr. It measures volatility by taking 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. ATR is used for position sizing, stop-loss placement, and identifying volatile conditions.
Formula:
True Range = max(High - Low, |High - Previous Close|, |Low - Previous Close|); ATR = Average of TR over n periodsHow to Read ATR
- 1Higher ATR indicates increased volatility
- 2Lower ATR indicates decreased volatility
- 3ATR expansion often follows breakouts
- 4ATR helps set appropriate stop-loss levels
How to Use ATR in Trading
✓Calculate position sizes based on volatility
✓Set stop-loss levels using ATR multiples
✓Identify volatility regimes
✓Filter trades based on volatility conditions
ATR Settings
| Setting | Default | Description |
|---|---|---|
| Period | 14 | Number of periods for ATR calculation |
Common Mistakes to Avoid
✕Using ATR as a directional indicator
✕Setting stops too tight relative to ATR
✕Not adjusting ATR period for timeframe
✕Ignoring ATR changes during position holding
Use ATR in VaultCharts
VaultCharts includes Average True Range with customizable settings. Combine it with our automated pattern detection and trade signals for better analysis.