Trading glossaryReviewed 16 July 2026
Definition
Average true range is a technical indicator that smooths recent trading ranges, including gaps, to estimate how much an instrument typically moves.
In market context
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.
Risk context
Using an ATR-based stop does not cap losses when the market gaps through the stop level or execution is unavailable.
Source
Use the primary source for fuller regulatory or market context.