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ATR (Average True Range)

The average size of a price's daily range, used to measure volatility.

Technical AnalysisIntermediate

Definition

ATR averages the true range, which is the largest of today's high minus low, high minus the prior close, and prior close minus the low. A 14-period average is the common default. It is expressed in price units, so it scales with the stock.

How it is used

Traders size positions and place stops using multiples of ATR so the distance fits the stock's normal movement.

Example

Hypothetical exampleIf a stock has an ATR of $2, a stop placed $0.50 away is inside its normal daily noise, while one 2x ATR away is $4 away.

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