VolatilityIntermediate

ATR

Average True Range

ATR measures market volatility by calculating how much an asset moves on average over a given time period. It was introduced by J. Welles Wilder and is primarily used for position sizing and setting stop-losses.

How It Works

True Range is the greatest of three values: current high minus current low, absolute value of current high minus previous close, or absolute value of current low minus previous close. ATR is the moving average of True Range.

Formula

True Range = max(
  High - Low,
  |High - Prev Close|,
  |Low - Prev Close|
)
ATR = EMA(True Range, 14)

Signal Interpretation

Rising ATR

Increasing ATR means volatility is expanding — bigger price swings are happening.

Falling ATR

Decreasing ATR means volatility is contracting — market may be consolidating before a move.

Use Cases

▸Setting dynamic stop-loss levels (e.g., 1.5× ATR below entry)
▸Position sizing based on volatility
▸Detecting volatility expansions for breakout trades

Limitations

⚠Does not indicate direction
⚠Not useful as a standalone signal indicator
⚠Changes slowly due to averaging

💡

BazaarPulse Tip

A common stop-loss technique: place stop 1.5–2× ATR away from entry. This adapts automatically to each stock's natural volatility.

See ATR in Screener All Indicators