A volatility indicator that calculates the average range between high and low prices over a specified number of periods, accounting for gaps. Used for setting stop-losses and determining position size, the ATR adapts to changing market conditions. A higher ATR value suggests wider stops and smaller position sizes, while a lower ATR allows for tighter stops and larger positions relative to account size.
Example
“With the Average True Range at $2.50 on the daily chart, I set my stop-loss $5.00 below my entry to allow for two ATR units of room.”