A measure of volatility that captures the greatest of three values: the current high minus the current low, the absolute value of the current high minus the previous close, or the absolute value of the current low minus the previous close. True range accounts for overnight gaps that a simple high-minus-low calculation would miss, making it a more comprehensive volatility gauge. It serves as the foundation for the Average True Range (ATR) indicator widely used in position sizing and stop-loss placement.
Example
“After the earnings gap, the true range expanded to $4.50 even though the intraday range was only $2.00, because the stock opened $2.50 above the prior close.”