ATR (Average True Range)

ATR, developed by J. Welles Wilder, is a volatility indicator measuring the magnitude of market price movements. Unlike other indicators, ATR doesn't indicate price direction but quantifies market volatility. Higher ATR values indicate more volatile markets; lower ATR values indicate calmer markets.

Types

ATR is most commonly used for setting stop losses, such as placing stops 2 ATR below entry price, dynamically adjusting stop distance based on market volatility. ATR is also used for position sizing, reducing position size in high volatility and increasing in low volatility. Many trend-following systems use ATR to identify breakout signals and set trailing stops. ATR can also help select appropriate timeframes and strategy types.