ATR (Average True Range)
ATR is the average of the candles' true range; it shows how much price typically moves in one candle, in price units. The default setting is 14 periods with Wilder smoothing. ATR measures the size of moves, not their direction.
Which question does ATR answer?
ATR answers this question: over the last 14 candles, how much did price move in a typical candle? The result is in price units. For example, if the daily ATR is 1,200, price has typically moved about 1,200 units a day over the last 14 days.
ATR is independent of direction. A sharp fall and a sharp rise both push ATR up in the same way. So a rising ATR does not mean price is rising; it means the candles are getting wider.
How it is calculated
- Find each candle's true range. The true range (TR) is the largest of three values: high − low; |high − previous close|; |low − previous close|.
- Why three values? If there is a gap between the previous close and this candle's open, high minus low alone misses part of the move. The last two values take that gap into account.
- Take the first average. The simple average of the first 14 true ranges is the first ATR value.
- Smooth it with Wilder's method. For each later candle: ATR = (previous ATR × 13 + this candle's TR) ÷ 14. A new value carries only 1/14 of the weight, so ATR changes slowly.
Price units or percent?
Because ATR is calculated in price units, it depends on the price level. An asset priced at 60,000 might have an ATR of 1,200 and one priced at 2 an ATR of 0.04; the two numbers cannot be compared directly. Even for the same asset, ATR often grows when price doubles.
That is why ATR is often divided by price: ATR ÷ close × 100. In both examples above the result is 2%, so both assets typically move about 2% of their price in a candle. Percentage ATR makes it easier to compare different assets and different price periods.
What it is commonly used for
- Comparing periods: setting today's ATR against the ATR of months ago shows whether the market is quiet or active right now.
- Comparing assets: percentage ATR shows which asset moves more.
- Sizing a move: dividing a single candle's range by ATR tells you whether that candle is ordinary or unusual. A candle three times the ATR is clearly wide for that period.
- Expressing distances: the distance of price from a zone can be stated in ATR terms, such as "1.5 ATR". The distance is then read together with the volatility of the period.
All of these uses are descriptive: ATR tells you how much price has moved so far, not how much it will move next.
What it shows, what it does not prove
What it shows
- How much price has typically moved per candle over the last 14 candles, in price units
- That volatility is rising or falling
- How large a single candle or move is compared with the usual variability of the period
What it does not prove
- Which way price will go; ATR is independent of direction
- That volatility will stay high or low
- That assets at different price levels can be compared directly; that needs a conversion to percent
The MarketLevelMap view
How it relates to zones
ATR puts how wide a support or resistance zone looks into context. A band much thinner than one ATR can easily be crossed within a single ordinary candle; a band several ATRs wide is an area price can move back and forth in for several candles.
In the same way, how far beyond a zone a close came can be expressed in ATR. A close only a small fraction of an ATR beyond the far edge stays within the usual variability of the period. This lets you read the distance when judging a breakout against the market's current volatility rather than as a fixed number.
Often confused with
For general information only. Not investment advice.Last updated: