What is average true range

The average true range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price over a period. It is calculated as a moving average of the true ranges, where the true range for a period is the greatest of the following:

1. The current high less the current low
2. The absolute value of the current high less the previous close
3. The absolute value of the current low less the previous close.

The ATR is used to measure volatility and is not directional, meaning it does not provide an indication of price trend but rather the degree of price movement. An expanding ATR indicates increasing volatility, while a low ATR value indicates a series of periods with small ranges (quiet days). It is a useful indicator for setting stop-loss orders and managing risk in trading, as it adapts to changes in volatility and can trigger abnormal price movements.