ATR

What is ATR?

ATR (Average True Range) is J. Welles Wilder's volatility measure, introduced in his 1978 book New Concepts in Technical Trading Systems. It begins with each bar's true range: the largest of high minus low, the absolute distance from the high to the prior close, and the absolute distance from the low to the prior close. Anchoring to the previous close counts gaps that a plain high-minus-low range would miss. ATR is true range averaged over a lookback, 14 periods in Wilder's original, using his own RMA smoothing.

Two properties govern the read. ATR is direction-blind: it measures how much price moves, not which way, so it rises in panicked selloffs as readily as in strong rallies. And it is denominated in price units, so a reading only means something relative to the instrument itself; dividing by price gives NATR (ATR percent), which makes volatility comparable across markets and across an instrument's own history.

ATR matters because it is the working unit of volatility in trading system design. Stops set in ATR multiples breathe with conditions instead of using fixed ticks, position sizes scaled to ATR keep risk broadly comparable across instruments, and a large family of tools builds on it, including Keltner Channels, Supertrend, and the Chandelier Stop. None of that makes it predictive on its own: ATR describes recent movement, and volatility regimes can shift abruptly.

How to calculate ATR

Everything flows from the true range of a single bar; ATR is its smoothed average.

1. 1For each bar, compute true range: the greatest of high minus low, the absolute value of high minus the previous close, and the absolute value of low minus the previous close.
2. 2Average true range over the lookback. Wilder used 14 periods with his RMA smoothing: current ATR equals the prior ATR times 13, plus the newest true range, divided by 14.
3. 3Read the result in price units: an ATR of 2.50 on a 100-dollar stock means a typical bar's effective travel is about 2.5 percent of price.
4. 4Check the smoothing before comparing across platforms: an SMA or EMA of true range at the same length responds faster than Wilder's RMA and prints different values.

How traders use it

• For stop placement: setting initial and trailing stops a multiple of ATR beyond entry or structure scales the buffer to current conditions; the conventions live under ATR-based Stop Distance and the ATR Trailing Regime.
• For position sizing: fixing the cash risk per trade while the stop distance floats with ATR, the core of Volatility-targeted Sizing, makes a position in a quiet instrument and one in a wild instrument carry comparable practical risk.
• As a breakout filter: requiring a close beyond a level by a fraction of ATR, or a bar whose range exceeds an ATR multiple, screens out breakouts too small to distinguish from noise.
• As a regime gauge: rising versus falling ATR separates expansion from contraction phases (ATR Expansion/contraction), which adaptive systems use to switch parameters, widen targets, or stand aside.

ATR vs other volatility measures