Glossary / Risk

Average true range (ATR)

Also called: ATR

Average true range is the average size of a security's daily trading range over a recent window, where the range is defined to include any overnight gap. It expresses typical daily movement in the security's own price units.

How it is measured

How is average true range measured?

True range for a session is the largest of three quantities: the session's high minus its low, the high minus the previous close, and the previous close minus the low. Including the previous close is what captures a gap. Averaging true range across a window — fourteen sessions is the conventional choice — gives ATR.

Why it matters

Why does average true range matter to a swing trader?

ATR is the practical answer to 'how much does this security normally move in a day', which is the quantity that makes distances on a chart comparable between securities at different prices and volatility levels. It is quoted in dollars rather than as a percentage, so comparing ATR across securities requires dividing by price first — a step that is easy to skip and produces nonsense when it is.

Related

See this in the product

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Related terms

Volatility
Volatility measures how much a security's price varies around its own average over a period.
Drawdown
Drawdown is the decline from a peak value to the lowest point reached before a new peak, expressed as a share of that peak.
Gap
A gap is a discontinuity between one session's closing price and the next session's opening price, where the market reopens at a level with no trading in between.
Position sizing
Position sizing is the decision of how much capital to commit to any single holding.

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General information about market vocabulary, written to be descriptive rather than prescriptive. Not investment advice — see the risk disclosure.