What Is Average True Range (ATR)?

ATR was introduced by J. Welles Wilder Jr. in 1978. It measures volatility, meaning the size of price movement, and it ignores direction: a large down bar and a large up bar both raise it. Because it is expressed in price units, the ATR of one instrument cannot be compared directly with the ATR of another that trades at a different price level.

Each bar's true range is the greatest of three distances: the high minus the low, the distance from the high to the previous close and the distance from the low to the previous close. Including the previous close captures gaps between sessions that a simple high-low range would miss. The ATR is then a Wilder-smoothed average of the true range, normally over 14 bars.

ATR describes the typical size of a move, for example to compare how active an instrument is now with how active it was earlier. A rising ATR says that bars are getting larger; it does not say which way the price will move. Dividing the ATR by the price expresses it as a share of the price, which makes instruments at different price levels comparable. Wilder smoothing gives recent bars slightly more weight than old ones without discarding them, so a single very large bar fades out of the average gradually.