🧠 What is ATR?
The ATR (Average True Range) is a popular volatility indicator developed by J. Welles Wilder.
👉 It measures:
- Market volatility ⚡
- Price movement strength 📈📉
- Average trading range
⚠️ ATR does NOT show trend direction.
It only shows how much price is moving.
📐 ATR Formula
True Range (TR)
TR=max[(High−Low),∣High−Previous Close∣,∣Low−Previous Close∣]
Average True Range
ATR=n∑TR
Where:
- TR = True Range
- n = Number of periods (commonly 14)
📊 How ATR Works
🔥 High ATR
- High volatility
- Strong price movement
- Big candles
❄️ Low ATR
- Low volatility
- Slow market
- Small candles
📈 Trading Uses
✅ Volatility Analysis
- Identify active vs quiet markets
✅ Stop-Loss Placement
- ATR helps set dynamic stop-loss levels
✅ Breakout Trading
- Rising ATR may signal strong breakout ⚡
🎯 Trading Strategy
Buy Setup 🚀
- Price breakout + rising ATR
- Strong momentum confirmation
Sell Setup 📉
- Breakdown + rising ATR
- Increased bearish volatility
📊 ATR Stop-Loss Example
Dynamic Stop-Loss
Stop Loss=Entry Price−(ATR×Multiplier)
👉 Helps avoid tight stop-loss exits.
⚠️ Important Tips
✔ ATR measures volatility only
✔ Rising ATR = stronger movement
✔ Falling ATR = weaker movement
Combine With:
- ADX
- Supertrend
- Moving Averages
- Price Action
🧠 Key Takeaway
👉 ATR = Market Volatility Meter
👉 Great for:
- Stop-loss placement
- Breakout trading
- Risk management