Average True Range - ATR

DEFINITION of 'Average True Range - ATR'

A measure of volatility introduced by Welles Wilder in his book: New Concepts in Technical Trading Systems.

The true range indicator is the greatest of the following:
-current high less the current low.
-the absolute value of the current high less the previous close.
-the absolute value of the current low less the previous close.

The average true range is a moving average (generally 14-days) of the true ranges.

BREAKING DOWN 'Average True Range - ATR'

Wilder originally developed the ATR for commodities but the indicator can also be used for stocks and indexes. Simply put, a stock experiencing a high level of volatility will have a higher ATR, and a low volatility stock will have a lower ATR.

RELATED TERMS
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Wide-Ranging Days

    A description of the price range of a stock on a particularly ...
  3. Outside Days

    A term employed by market technicians and day traders. Outside ...
  4. Inside Days

    A charting term used by technical analysts and day traders. Inside ...
  5. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  6. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
Related Articles
  1. Trading Strategies

    Using Compound Indicators To Predict Market Fluctuations

    Learn how to combine average true range, simple moving average and Bollinger band indicators to gauge market volatility.
  2. Active Trading

    Range Bar Charts: A Different View Of The Markets

    While range bars are not a type of technical indicator, traders can employ this useful tool to identify trends and interpret volatility.
  3. Forex Education

    Range Trade Forex With Non-U.S. Dollar Pairs

    If you are following a range-trading strategy, you're better off with pairs that do not include the U.S. dollar. Find out why.
  4. Options & Futures

    Measure Volatility With Average True Range

    Find more profitable entry and exit locations with this standard indicator.
  5. Mutual Funds & ETFs

    Surf's Up With Filtered Waves

    With an appropriate filter, you can ride the waters to rising profits.
  6. Active Trading

    Enter Profitable Territory With Average True Range

    Find entry or exit signals or develop a complete system based on this versatile tool.
  7. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  8. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  9. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  10. Investing News

    Is It Time To Sell Technology Stocks? (LNKD, AAPL)

    Technology stocks have taken a drubbing in recent days. Is it time to sell them?
RELATED FAQS
  1. What is a common strategy traders implement when using the Volatility Ratio?

    The volatility ratio is a tool that a trader can use to identify whether the price of a stock has been trading out of its ... Read Full Answer >>
  2. How do I use Volatility Ratio for creating a forex trading strategy?

    The volatility ratio can be used when analyzing currency pairs in much the same way as stocks. A forex trader can use it ... Read Full Answer >>
  3. What is a common strategy traders implement when using STARC Bands?

    Stoller Average Range Channels (or STARC), Bands were created by Manning Stoller in the 1980s to help generate trading signals ... Read Full Answer >>
  4. Why are STARC Bands important for traders and analysts?

    STARC bands, or Stoller average range channels, provide traders and market analysts with indications of the level of volatility ... Read Full Answer >>
  5. What are the main differences between STARC Bands & Bollinger Bands®?

    STARC Bands and Bollinger Bands have very similar analytical goals but vary in their method of achieving them. Both STARC ... Read Full Answer >>
  6. Who developed the relative strength index (RSI)?

    J. Welles Wilder, Jr. created the relative strength index (RSI) following a career in mechanical engineering and real estate. ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center