A volatility indicator that measures the average range between high and low prices over a look-back period, used to set stop distances and gauge market activity.
ATR was developed by J. Welles Wilder and published alongside RSI in his 1978 book. True Range is the greatest of three values: current high minus current low; current high minus previous close; or previous close minus current low. ATR averages the True Range over a period - typically 14 sessions.
ATR does not indicate direction, only magnitude. Its primary application is position sizing and stop placement: setting a stop at 1.5–2× ATR below entry ensures the stop is outside normal market 'noise' rather than arbitrarily placed.
During periods of high volatility (news events, breakouts) ATR rises, signalling that stop distances should widen to avoid premature exits. In quiet, range-bound markets ATR falls, suggesting tighter stops are appropriate.
ATR is also used to compare volatility across pairs: a higher ATR pair offers more pip opportunity per session but requires proportionally wider stops.
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