The average true range (ATR) is a technical analysis indicator that measures market volatility by plotting the current low, previous close, and an absolute value of a 14-day moving average.”

Key Takeaways:

  • The average true range (ATR) is a market volatility indicator commonly used in technical analysis.
  • While originally developed for commodities markets, the ATR is now widely applied to all types of securities.

What Does the Average True Range (ATR) Tell You?

A stock with high volatility will have a higher ATR, while a low-volatility stock will have a lower ATR.

The ATR can be used to time entry and exit points for trades and is a valuable tool to incorporate into a trading system.

The indicator does not predict price direction; instead, it primarily measures volatility resulting from gaps and limit moves.

Limitations of the Average True Range (ATR)

There are two main limitations;

  1. The ATR is a subjective measure, meaning it is open to interpretation. There is no single ATR value that can definitively indicate whether a trend is about to reverse.
  2. The ATR only measures volatility and not the direction of an asset’s price.

  • How to find where the indicators are and add them to charts?

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You can download the offline guide here Average True Range Indicator Guide

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