What is ATR?
Average True Range measures how far price moves in a typical bar. For each bar it takes the true range, the larger of the bar's own high-to-low span and any gap from the previous close, then averages that over Length bars. The line sits in its own pane, in price units, and rises when bars get bigger and falls when they shrink.
ATR measures the size of moves, not their direction. A rising ATR can come with a rally or a sell-off, and it does not predict where price will go next.
How to use ATR
- Rising ATR. Bars are getting larger. Volatility is picking up, whichever way price is moving.
- Falling or low ATR. Bars are getting smaller. The market is quietening, which often precedes a larger move.
- Stops and targets. Traders often set a stop a multiple of ATR away from entry, so the stop widens in volatile conditions and tightens in quiet ones rather than sitting at a fixed distance.
- Compare it with itself only. ATR is in price units, so a reading of 800 on BTC/USDT and 0.05 on a small coin can describe similar volatility. Judge it against its own history on the same chart.
These are ways to read volatility, not entry signals on their own.
Settings
| Setting | Default | What it changes |
|---|---|---|
| Length | 14 | Bars in the average. Shorter reacts sooner to a change in volatility; longer is steadier and later. Minimum 1. |
| Smoothing | RMA | How the true range is averaged. RMA is Wilder's smoothing and is the slowest to forget an outsized bar; SMA treats every bar in the window equally; EMA and WMA weight recent bars more heavily. |
Adjust the length and the smoothing method in the indicator settings.
Calculation
Each bar's true range is the largest of three distances, and ATR is the average of that over Length bars:
true range = max( high - low,
|high - previous close|,
|low - previous close| )
ATR = RMA(true range, 14)
RMA = (previous RMA * 13 + true range) / 14The two terms that use the previous close capture gaps, so a bar that opens well away from the prior close still counts its full move. On the very first bar there is no previous close, so its true range is simply high minus low.
The default RMA, Wilder's smoothing, is an exponential average whose weight on the newest bar is 1 / Length, about 0.071 at 14. That is gentler than an EMA of the same length, so a single large bar fades from the line more slowly. Switching Smoothing to SMA, EMA or WMA swaps that averaging step and leaves the true range itself unchanged.
Limitations
- No direction. ATR rises in rallies and sell-offs alike. It says how much price is moving, not which way.
- It is in price units. The level scales with price, so it cannot be compared between markets or across a large move on the same market.
- It lags. As an average, it reacts after volatility has already changed. The default RMA is the slowest of the four options to let go of a spike.
- The live candle moves. The current bar's high, low and true range can still change, so its value moves until that bar closes.
- It is not a strategy. ATR is a measuring tool. Stops and sizing built on it are your own rules, not something the indicator provides.
Frequently asked questions
ATR is the average size of a bar's true range, the larger of its high-to-low span and any gap from the previous close. It is a measure of volatility in price units and says nothing about direction.
Most often to size risk. A stop placed a multiple of ATR from entry adapts to current conditions, and dividing the amount you are willing to lose by that distance gives a position size. ATR is also read on its own as a gauge of whether the market is getting more or less active.
Yes. The indicator declares two inputs: Length, default 14 with a minimum of 1, and Smoothing, default RMA, with SMA, EMA and WMA as the alternatives. Open the indicator's settings on the chart to change them.
RMA, the default, is Wilder's original smoothing and the steadiest of the four. SMA gives every bar in the window equal weight and drops an old spike all at once when it leaves the window. EMA and WMA respond faster to a recent change. None is more correct; pick the one whose behaviour suits how you use the number, and keep it consistent.
Values on bars that have already closed are not revised. The current candle's ATR moves while that candle is live and settles when it closes. With RMA or EMA smoothing the average needs a starting point, so loading older history recalculates it and values near the very start of the loaded range can shift.
Use the Add to chart button at the top of this page. It opens BTC/USDT on Binance in the Altrady Charts terminal with the built-in Average True Range already applied. On any other market, open the indicator picker on the chart and choose Average True Range from the Volatility group.