How far does price range in a day?The ATR will roughly say.
A volatility indicator that averages the true range over a set number of periods, commonly 14.
The true range of a period is the distance from its high to its low, widened to include any jump from the previous close; ATR measures how much a price moves, not in which direction.
In plain words
The average true range, or ATR, measures how far a price typically travels in one period, such as a day. For each period it takes the true range, which is the distance from high to low, widened to include any jump from the previous close, and then averages those ranges over a set number of periods, commonly 14. It says how much the price moves, not in which direction.
See it move
Day 3: the largest here
Why it matters
Traders use ATR to compare how active a market is now with how active it has been. Some set the distance of a stop-loss as a multiple of ATR, so that the distance adapts to how much the market is moving.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
To keep the arithmetic short, take a three-day average with invented true ranges of 40, 60 and 80 pips.
- 1Sum = 40 + 60 + 80 = 180 pips
- 2ATR = 180 ÷ 3 = 60 pips
- 3A distance of 2 × ATR would be 2 × 60 = 120 pips
The three-day ATR is 60 pips; the standard indicator works the same way over 14 periods, with a smoothing step.
A common mistake
A rising ATR is sometimes read as a rising market. ATR has no direction: it rises in a sharp fall just as it does in a sharp rally.
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Educational information, not investment advice or a recommendation to trade.