Trading glossary

What is ATR?

ATR measures the average range of recent candles, including gaps, usually over 14 periods, to show how much a market typically moves.

Average True Range, another indicator developed by J. Welles Wilder, takes the greatest of three distances for each candle: high to low, previous close to high, and previous close to low. It then averages that true range over a set period.

ATR says nothing about direction. It is mostly used to size stops and targets relative to how much the market normally moves.

How traders use it

Place invalidation beyond a level by a fraction of ATR so ordinary noise does not trigger it.
Compare current ATR with its recent history to judge whether conditions are quiet or volatile.
Use ATR to sanity-check targets: a target many ATRs away may take a long time.

Example

Gold's 14-day ATR is 28 dollars. A trader planning a long from support at 2,350 places the stop half an ATR below it, around 2,336, so normal daily swings are less likely to trigger it.

Frequently asked questions

What is a good ATR value?

There is none in general. ATR is in price units, so it only makes sense compared with the same market's history.

What period should ATR use?

14 is the common default.

Educational content only, not financial advice. Chart patterns describe probabilities, not certainties, and every pattern can fail. See our disclaimer.