GlossaryAverage True Range (ATR)

Average True Range (ATR)

The Average True Range measures how far the price moves per candle on average, including gaps from the previous candle. It says nothing about direction, only about the size of the moves, and is mainly used for stop distances and position sizes.

Calculation

$H_t$ , $L_t$ and $C_t$ are the high, low and close of a candle, $n$ is the ATR length.

1. True Range. The largest of three ranges: the candle itself and the distance from its high and its low to the previous close:

\mathrm{TR}_t = \max\left(H_t - L_t,\ \lvert H_t - C_{t-1} \rvert,\ \lvert L_t - C_{t-1} \rvert\right)

For the very first candle, which has no predecessor, $\mathrm{TR} = H - L$ .

2. Starting value: the simple mean of the first $n$ True Ranges, so it appears on candle $n$ .

3. Wilder smoothing with the factor $1/n$ :

\mathrm{ATR}_t = \frac{(n-1)\,\mathrm{ATR}_{t-1} + \mathrm{TR}_t}{n}

This is the same smoothing as in the RSI, not an EMA. The ATR is expressed in the symbol's price unit: if the symbol is quoted in US dollars, the ATR is a range in US dollars per candle.

How to read it

High or low: A high ATR means large candles and a restless market, a low ATR means calm phases. Long stretches of low ATR often come before larger moves.
Rising ATR: It rises on strong moves in either direction, including sharp drops. So it confirms that something is happening, not in which direction.
Stop distance: A stop set a multiple of the ATR away, such as 1.5 or 2 ATR, adapts to current volatility and is not triggered by normal noise.
Position size: Divide your planned risk by the stop distance in ATR and you get a position size that carries the same risk in calm and restless phases.

Settings

Setting	Default	Effect
ATR length	14	Length $n$ for the starting value and the smoothing (1–100). Shorter follows new volatility faster.

Limitations

The ATR is an absolute value. To compare symbols or price levels far apart, it is better to use the ATR as a percentage of the price.
As a smoothed average, it reacts with a delay. A sudden burst of volatility only shows in full over several candles.
Gaps count. For stocks, a gap over the weekend can make the ATR jump.