Average True Range

The Average True Range is a measure of market volatility. So a useful indicator I use as a guide to set Stop Losses, instead of using a fixed Stop Loss for all market conditions. My rule of thumb is to take the ATR at 3 time frames (higher) away my trading chart.

True Range is the greatest of the following three values:

1. Difference between the current maximum and minimum (high and low); when the last closing price is within the current max. & min.

2. Difference between the previous closing price and the current maximum; when the current minimum is higher than the last closing price.

3. Difference between the previous closing price and the current minimum; when the current max. is lower than the last closing price.

Default setting Average True Range (14) means a MA of 14 periods.
Plot of MA(14)










Another interpretation of the ATR as volatility indicator is:
The higher the value of the indicator, the higher the probability of a trend change; the lower the indicator’s value, the weaker the trend’s movement is.