Average True Range (ATR), introduced by Wilder in 1978, measures volatility by averaging the 'true range' over a window (default 14). True range is the largest of: today's high − today's low; |today's high − previous close|; |today's low − previous close|. The previous-close legs handle overnight gaps.
ATR has the unit of price, not percent, so it scales naturally to whatever instrument you trade. It is the standard input to volatility-based stops: a 'chandelier exit' at 3 × ATR below the swing high adapts the stop distance to current market conditions instead of using a fixed-tick or fixed-percent stop.
Wilder's smoothing is a recursive EMA with α = 1/N, not the standard α = 2/(N+1). Some implementations use a simple moving average of TR instead — values can differ by a few percent.
Formula
TR_t = max(H_t − L_t, |H_t − C_{t-1}|, |L_t − C_{t-1}|)
ATR_t = ((N − 1) · ATR_{t-1} + TR_t) / NExample
Yesterday's ATR(14) = 200. Today: high 50,100, low 49,700, prev close 50,000 → TR = max(400, 100, 300) = 400. New ATR = (13·200 + 400) / 14 ≈ 214.3.
How Noon Barbari uses Average true range (ATR)
Every concept here is implemented in the platform. Open the relevant docs or tool to see it in action.
See the indicators reference →Related terms
- Indicators
Bollinger Bands
A moving average flanked by ±k standard deviations of price. k = 2 by default.
- Statistics
Standard deviation
Square root of variance — the most common volatility measure in trading.
- Risk
Stop loss
A pre-committed exit level that caps the maximum loss on a trade.
- Risk
Trailing stop
A stop that ratchets in the trade's favor and never moves against it.