What is ATR? Average True Range in plain English
By SendPay Business · · 2 min read
The Average True Range (ATR) is a chart indicator, introduced by J. Welles Wilder in 1978, that measures how much a price typically moves in one period. It says nothing about direction, only about the size of the moves.
True range
- Take the largest of three numbers: today's high minus today's low, the gap between today's high and yesterday's close, and the gap between today's low and yesterday's close.
- Counting the gaps from yesterday's close means overnight jumps are included, not just the range within the day.
Average True Range
The first ATR is the plain average of the first 14 true ranges (14 is the usual setting). After that Wilder smoothed it: new ATR = (previous ATR × 13 + today's true range) ÷ 14. The result is in price units, such as pips or dollars, not a percentage.
How people use it
Because ATR shows a market's normal daily swing, some people set stop-loss distances as a multiple of it, such as 1.5 or 2 times ATR, so normal noise is less likely to trigger them. Others use a rising ATR as a sign that volatility is picking up.
The limits
ATR describes past moves and doesn't predict the next one or its direction. Its value depends on the price level, so compare ATR across markets as a share of price rather than as a raw number.
Where SendPay fits
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.