What Is Average True Range (ATR)? - Camo Crypto Chronicle

Average True Range (ATR) is a technical analysis indicator that measures market volatility. Developed by J. Welles Wilder Jr. in his book "New Concepts in Technical Trading Systems," ATR shows how much an asset moves on average during a specified time frame, helping traders confirm entry points and set stop-loss orders.

Key Features of ATR

Volatility Measurement: Calculates the average range between high and low prices over 14 periods (adjustable).
Flexible Timeframes: Applicable to intraday, daily, weekly, or monthly data.
Trade Validation: Confirms the strength of price moves or breakouts (e.g., bullish reversals with rising ATR indicate strong buying pressure).

Calculating ATR

Formula:

Current ATR = [(Prior ATR × 13) + Current True Range (TR)] / 14

Steps:

True Range (TR): High minus Low for the first period.
Initial 14-Day ATR: Average of daily TR values over 14 days.
Subsequent ATR: Update using the formula above.

Period Adjustments:

Short-term volatility: Use 2–10 periods.
Long-term volatility: Use 20–50 periods.

Practical Applications

1. Trade Confirmation

Bullish Signal: Rising ATR during a reversal suggests strong buying interest.
Bearish Signal: Increasing ATR during a support break indicates strong selling pressure.

2. Stop-Loss Placement

ATR helps set dynamic stop-loss levels based on current volatility.

👉 Master ATR strategies for smarter trading

FAQ Section

How is ATR calculated?

ATR averages the True Range (High – Low) over 14 periods, updated with each new TR value.

What does ATR indicate?

It measures market volatility, accounting for gaps in price movements.

Can ATR predict price direction?

No—it quantifies volatility, not trend direction.

Pro Tip

Combine ATR with other indicators (e.g., moving averages) for robust trading strategies.

👉 Explore advanced volatility tools

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