ATR (Average True Range) is a technical indicator that measures market volatility. Developed by J. Welles Wilder Jr., ATR quantifies the average amount a currency pair moves in a given period, regardless of price direction. Higher ATR values indicate more volatile price swings; lower values suggest a more stable market environment.
How ATR Is Calculated
ATR is the average of the "true range" calculated over a set period. For each period, true range is the maximum of three values: the current high minus current low, the absolute difference between the current high and previous close, or the absolute difference between the current low and previous close. This calculation captures gaps and overnight moves that a simple high-low range would miss.
Using ATR for Trading
Traders use ATR to adjust risk management rather than predict price direction. High ATR values signal large price swings, suggesting you need wider stop losses or smaller position sizes to avoid being stopped out by normal volatility. Low ATR values indicate a quiet market with smaller typical moves, allowing for tighter stops and larger positions. Since ATR measures volatility only and does not indicate whether price will move up or down, use it alongside other indicators to confirm direction and timing.
