Average True Range (ATR)

Average true range measures how much a security typically moves per bar, averaged over 14 periods by default. Each bar's true range is the largest of three values: high minus low, the absolute gap between the high and the prior close, and the absolute gap between the low and the prior close, so overnight gaps count toward the reading.

ATR is direction-blind: a stock grinding up 2 points a day and one falling 2 points a day print the same ATR. Its practical uses are sizing and stops. A stop placed 0.50 away from entry on a stock with a 2.50 ATR sits inside one day's random noise and will be hit by accident; scaling the stop to a multiple of ATR, commonly 1.5x to 2x, matches the exit to how the stock actually moves.

Comparing ATR to price normalizes it across names: a 2.50 ATR is violent on a 40 stock (6.3% daily range) and sleepy on a 400 stock (0.6%).