Average True Range

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The Average True Range (ATR) is a volatility indicator that calculates the typical range of price changes for an asset over a certain amount of time. It is frequently used in technical analysis of stocks, currencies, commodities, and other financial instruments to determine how volatile an asset's price will be.

An asset's true range is averaged across a predetermined number of periods, such as 14 or 21, to provide the ATR. The true range is the greatest of the following three values:

1. The difference between the current high and the current low
2. The absolute value of the current high minus the previous close
3. The absolute value of the current low minus the previous close

The ATR offers a prediction of the typical daily range of price fluctuations for an asset by averaging these values over a predetermined time period. A single value is often used to represent the ATR, with a larger value denoting higher volatility and a smaller one denoting lesser volatility.

The ATR is frequently used in technical analysis to assist traders and investors in determining an asset's volatility and helping them make educated decisions on their trades and investments. The ATR can be used by traders, for instance, to determine position sizes or stop-loss orders depending on an asset's volatility. Investors can analyze the volatility of various assets to see whether one could be a better fit for their portfolio by using the ATR to evaluate the risk involved in a potential investment or to examine the volatility of individual assets.