Definition
Average True Range (ATR)
ATR measures average volatility by tracking the typical range a security moves over a period, including gaps.
ATR averages the 'true range' — the greatest of the current high-low, or the move from the prior close — over a chosen period, usually 14. A higher ATR means larger typical swings; a lower ATR means calmer markets. It measures volatility magnitude, not direction.
Indian traders use ATR on Nifty, Bank Nifty, and stocks to set volatility-based stop losses and position sizes, and it underlies indicators like Supertrend. Sizing stops in multiples of ATR keeps them proportional to current volatility instead of using a fixed point value.
Related terms
- VolatilityVolatility measures how much and how quickly a price moves up and down — higher volatility means bigger, faster swings.
- Bollinger BandsBollinger Bands plot a moving average with upper and lower bands set at standard deviations to show volatility and extremes.
- SupertrendSupertrend is a trend-following indicator that plots a line below price in uptrends and above price in downtrends, using ATR.
- Stop LossA stop loss is a pre-set order that triggers an automatic sell (or buy, for shorts) once a security hits a chosen price, capping your loss without you having to watch the screen.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.