LEARN · VOLATILITY

What Is ATR (Average True Range)?

Every stock has a normal daily "breathing range" — how far it typically travels between its high and low. Average True Range puts a number on that range. It is one of the oldest indicators in technical analysis and still the standard yardstick professionals use to separate ordinary noise from meaningful movement.

The definition and the math

ATR, introduced by J. Welles Wilder in 1978, is the moving average of the True Range over a lookback window (14 or 20 days are standard). The True Range for each day is the greatest of three values: today's high minus today's low; the absolute distance from yesterday's close to today's high; and the absolute distance from yesterday's close to today's low. Including yesterday's close means overnight gaps count as movement — which a simple high-minus-low calculation would miss.

ATR is expressed in price units. A $100 stock with a $3 ATR normally travels about $3 per day. Dividing ATR by price gives ATR% — the more comparable figure: that stock moves about 3% daily, making it three times as volatile as a stock with a 1% ATR, regardless of share price.

What ATR is used for

  • Comparing volatility across stocks — ATR% ranks how "fast" different names are on a common scale.
  • Judging whether a move is meaningful — a 2% drop in a stock with a 4% ATR is a normal breath; the same drop in a 1% ATR stock is a statement.
  • Sizing risk distances — because ATR defines normal daily noise, any exit or alert placed inside one ATR of price is likely to be touched by randomness rather than by a genuine change in trend.
  • Position sizing — volatility-based sizing allocates fewer shares to high-ATR names so each holding contributes similar risk to the portfolio.

Reading ATR changes over time

ATR trends carry information of their own. Expanding ATR means daily ranges are widening — typical of stress, news shocks or trend accelerations. Contracting ATR means ranges are compressing, which often precedes strong directional moves once the compression resolves. Many practitioners track ATR as a percentile of its own one-year history: an ATR in its 90th percentile is a very different environment from the 10th, even at the same absolute level.

Try it on any ticker

Our free ATR calculator fetches a stock's 20-day ATR and shows its normal daily range and volatility-scaled reference levels — no signup required. It is the same arithmetic our research desk uses when assessing whether a headline move is actually unusual.

Frequently asked questions

What is a good ATR value?

There is no universally "good" value — ATR describes, it does not judge. As ATR%, large-cap indices average roughly 1%, mega-cap tech 2–3%, and speculative names 5% or more. What matters is whether current ATR is high or low relative to the stock's own history.

What is the difference between ATR and volatility?

ATR is one specific volatility measure, based on daily ranges including gaps, expressed in price units. Statistical volatility (standard deviation of returns) and implied volatility (from options) measure the same phenomenon differently. ATR's strength is its simplicity and its direct translation into "dollars of normal daily movement."

Is 14-day or 20-day ATR better?

Both are common. Shorter windows react faster to volatility changes; longer windows are steadier. The choice matters less than consistency — compare a stock against itself using the same window.

Does ATR indicate direction?

No. ATR is direction-blind: it measures the size of movement, not its sign. A stock can have identical ATR in a strong uptrend and a strong downtrend. Direction comes from trend analysis; ATR tells you how violent the ride is.

Keep learning

Free ATR calculator Position size calculator What is a market regime?

Educational content from Assets Bulletin, an independent financial publication. Not investment advice.