Indicator
Average True Range (ATR)
Average True Range measures typical movement per bar. True range is the largest of three distances — high minus low, high minus previous close, and low minus previous close — and ATR is the average of that value over N bars.
Bars averaged. Shorter reacts faster to volatility changes.
Chart runs on a generated sample series, not live or historical exchange data. Values are computed with the same functions CernoQuant uses to run backtests.
How it is calculated
How to read it
- ATR is expressed in the price units of the instrument, so an ATR of 120 on an index means the typical bar has covered about 120 points.
- It is directionless. A rising ATR means bars are covering more ground, whether price is climbing or falling.
- Because it accounts for gaps between the previous close and the current bar, it reflects overnight moves that a plain high-minus-low would miss.
What it does not tell you
- It says nothing about direction, so it cannot be read as bullish or bearish.
- Values are not comparable between instruments without normalising, since ATR carries the units of the underlying price.
- It is an average, so a single violent bar is diluted across the lookback window.
Common settings
A 14-period lookback is Wilder’s original convention. ATR is frequently used to express stop distance in units of recent movement rather than as a fixed number of points.
Frequently asked questions
What is ATR used for?
It expresses how much an instrument typically moves per bar. Traders commonly use it to set stop distances in proportion to recent movement, so that a stop is not unrealistically tight during volatile conditions.
Does a high ATR mean price is going up?
No. ATR is directionless. A high reading means bars are large, which occurs in sharp declines just as much as in advances.
How does ATR handle gaps?
True range compares the current bar to the previous close as well as to its own high and low, so an opening gap is captured rather than ignored.
Related
- Volatility: What It Measures and What It Does Not — Concept
- Bollinger Bands — Indicator
- Position Sizing Basics — Strategy
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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