ATR (Average True Range)
ATR (Average True Range) is a volatility measure that summarises how much an instrument's price has moved, on average, over a chosen lookback period (commonly 14 periods). It is built from the "true range" of each bar, which captures the full extent of a move including any overnight or pre-open gap between sessions. ATR is expressed in the price units of the instrument (for example, points for a stock or index), not as a percentage, so a higher ATR simply reflects larger recent price swings.
Also called: Average True Range, ATR, Avg True Range, Average True Range indicator, ATR indicator, true range average
Formula
True Range (TR) = max[ (High - Low), |High - Previous Close|, |Low - Previous Close| ]. ATR is the moving average of TR over N periods (typically N = 14). The original Wilder version uses a smoothed average: ATR_today = ((ATR_prev x (N - 1)) + TR_today) / N, with the first ATR taken as the simple average of the first N true ranges.
How it is read
ATR is commonly read as a gauge of recent volatility: a rising ATR indicates that bar-to-bar ranges are widening, while a falling ATR indicates ranges are contracting. Because it includes the gap from the previous close, it is often used to compare how "active" different stocks or expiries are, or to normalise distances on a chart (for example, sizing a band as a multiple of ATR). It is typically treated as context about the current price environment rather than as a directional or timing input on its own.
What it does not tell you
ATR is non-directional: it measures the size of moves, not whether price is going up or down, so a large ATR does not indicate which way price will go next. It is a lagging, average-based figure that reflects past bars and can change sharply around events, expiry, or news; it does not predict future range. Because it is in absolute price units, ATR values are not directly comparable across instruments with very different price levels unless first normalised (for example, ATR as a percentage of price). It also says nothing by itself about trend, liquidity, or option premium, and is not a buy/sell signal.
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