Average True Range (ATR)
Average True Range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price for that period.
Dynamic Chart Demo
* This chart uses synthetic data to demonstrate the indicator's behavior in typical market conditions.
Core Usage
Advantages
- Objective measure of market volatility
- Universal across all assets and timeframes
- Commonly used to size positions against volatility
Limitations
- Does not indicate price direction
- Can be distorted by extreme price gaps
- Purely a volatility measure, not a signal generator
Calculation Logic
Understanding the mathematical logic behind indicators helps you interpret signals more accurately and avoid misuse in unsuitable market environments.
Common Trading Strategies
ATR Trailing Stop
Set stop losses at 2x or 3x ATR distance from entry.
ATR Breakout Filter
Only take breakout trades when ATR is expanding (volatility increasing).
Best For
"Risk management and volatility-adjusted trading."
Note: Technical indicators are mathematical calculations based on historical price and volume. They should be used as part of a comprehensive trading system, not as a standalone entry signal.