Average True Range (ATR)

Average true range is a technical indicator that smooths recent trading ranges, including gaps, to estimate how much an instrument typically moves.

ATR measures movement magnitude rather than direction, so a rising value indicates expanding ranges without saying whether price should rise or fall. Traders may use it to compare current volatility with recent conditions or to scale position and stop distances. Its value depends on the chosen lookback and timeframe, and it reacts to historical prices rather than predicting future volatility.

Using an ATR-based stop does not cap losses when the market gaps through the stop level or execution is unavailable.