ATR (Average True Range)
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ATR, or Average True Range, measures the average distance a market travels over a chosen number of periods, including gaps. It is a pure volatility reading with no directional bias. Traders use ATR to set stop distances that respect normal noise, to size positions consistently, and to judge whether current conditions are unusually quiet or unusually fast.
Full explanation
ATR is typically calculated over 14 periods on the timeframe being traded. Common applications are a stop set at a multiple of ATR beyond the entry structure, targets expressed in ATR multiples, and position size derived from account risk divided by the ATR-based stop distance. Rising ATR signals expanding ranges and often trend activity; falling ATR signals compression that frequently precedes a breakout.
Why traders watch it
Stops placed without reference to ATR are guesses. Sizing to ATR keeps risk per trade steady whether the market is calm or turbulent.
Related indicators
Bearish candle
A candle that closes below its open — sellers finished the period in control.
Bollinger Bands
Bollinger Bands are a volatility indicator made up of a moving average with upper and lower bands that expand and contract as market volatility changes. They help traders judge whether price is becoming stretched, identify volatility changes, and support both trend-following and mean reversion analysis.
Breakout
A breakout occurs when price moves decisively beyond a defined level such as a range high, trendline or consolidation boundary. It signals that the balance between buyers and sellers has shifted and can start a sustained move. Breakouts also fail often, so traders look for confirmation through follow-through, expanding range and a successful retest of the broken level.
Bullish candle
A candle that closes above its open — buyers finished the period in control.
Candle
A single bar on a candlestick chart showing the open, high, low and close for one period.
Candle close
The price at which a candle finishes its period — the standard evidence that a move is genuine, not a spike.