Average True Range (ATR)
Volatility measure averaging the greatest of: current high–low, current high–prior close, or current low–prior close over n periods (default 14).
True Range = max(High−Low, |High−Prev Close|, |Low−Prev Close|); ATR = RMA(True Range, n)
ATR captures the true daily range by accounting for overnight gaps. Each bar's True Range is the largest of: (High − Low), |High − Prior Close|, or |Low − Prior Close|. The ATR is a smoothed average of these values.
ATR itself gives no directional signal — it only measures volatility. Traders use it to size stops (e.g. stop = entry ± 2 × ATR), to detect volatility expansions before breakouts, and inside SuperTrend and Keltner Channel calculations. Rising ATR during a trend confirms participation; falling ATR suggests exhaustion or consolidation.
On the desk
Gold's 14-period ATR on the daily chart reads $28. A trend trader places a stop 2 × ATR ($56) below the entry price, ensuring the stop is wide enough to survive normal intraday volatility without being hit by random noise.