What it measures
Average True Range, introduced by J. Welles Wilder Jr., starts from each bar's true range: the largest of the bar's high minus low, the distance from the previous close to the high, and the distance from the previous close to the low. Using the previous close means overnight gaps count as movement. ATR smooths the true range with Wilder's method over period bars (14 by default).
ATR is in the stock's price units, so a $500 stock naturally has a larger ATR than a $20 one. To compare across stocks, divide by price (the atrp scan function gives ATR as a percentage of the close).
How to read it
- Sizing stops. Many traders place stops a multiple of ATR away from entry (for example 1.5× to 3×) so the stop fits the stock's normal movement.
- Volatility regime. ATR rises when the latest true range exceeds the current average, so a sustained rise means bars are wider than usual; a sustained fall means the stock is quieting down, which often happens before a breakout.
- Direction-neutral. ATR says nothing about direction, only range.
Common mistakes
- Comparing raw ATR between stocks. Use a percentage of price instead.
- Ignoring gaps. ATR includes them, so a stock that gaps often has a higher ATR than its intraday ranges suggest.
Use it in a scan
Stocks whose 14-day ATR is between 1.5% and 4% of the close:
atrp(14) > 1.5 and atrp(14) < 4Inputs
| Input | Type | Default | Range |
|---|---|---|---|
period | integer | 14 | 2 – 300 |
Outputs
value