What is Average True Range (ATR)?

The Average True Range (ATR) indicator is an analytical tool that calculates the average volatility of price fluctuations over a specific period, rather than indicating price direction.

The ATR indicator can help you determine an asset's volatility so you can adjust your strategy and trade size to protect yourself. It's also useful when setting stop-loss levels so your trades don't close prematurely due to significant price fluctuations. When volatility is high, a volatile price spike that doesn't indicate a breakout could trigger a Stop Loss that doesn't take the volatility into account, when actually the price is not likely to continue in that direction.

A rising ATR suggests increasing volatility, while a falling ATR indicates a calmer market environment.