ATR (Average True Range)
Volatility indicator measuring the average range of price movement over a period
What is ATR?
Average True Range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset's price for that period. Developed by J. Welles Wilder Jr. in 1978 (the same creator of RSI), ATR is one of the most reliable volatility indicators.
ATR calculates the "true range" which accounts for gaps between periods: ā¢ Current High minus Current Low ā¢ Current High minus Previous Close (absolute value) ā¢ Current Low minus Previous Close (absolute value)
The ATR is typically a 14-period moving average of these true range values. Key characteristics: ā¢ ATR does NOT indicate price direction - only volatility ā¢ Higher ATR = more volatile/active market ā¢ Lower ATR = quieter/consolidating market ā¢ ATR is expressed in price units (e.g., $500 for Bitcoin)
Formula
True Range = Max[(High - Low), |High - Previous Close|, |Low - Previous Close|] ATR = 14-period Moving Average of True Range
š” Example
If Bitcoin has an ATR of $2,000, you can expect average daily price swings of around $2,000. This helps set appropriate stop-loss levels - placing stops too tight (under 1 ATR) often results in being stopped out by normal volatility.
How to Use ATR
- 1Setting stop-loss orders at 1.5-2x ATR to avoid noise
- 2Determining position size based on volatility
- 3Identifying breakout potential when ATR expands after contraction
- 4Comparing volatility across different cryptocurrencies
ā” Pro Tips
- ā¢Use ATR to set stop-losses: 1.5-2x ATR below entry is a common approach
- ā¢Low ATR often precedes big moves - watch for volatility compression
- ā¢ATR helps normalize comparisons: a $1 move means different things for different coins
- ā¢Combine ATR with trend indicators - high ATR in trend direction confirms momentum
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