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The Average True Range (ATR) is a technical indicator used in financial markets to measure the volatility of an asset’s price. It provides traders and investors with insights into the expected price range of an asset over a specific period.

The ATR is calculated by taking the average of the true range values, which are derived from the differences between the current high and low prices and the previous closing price. The true range represents the greatest of the following values: the current high minus the current low, the absolute value of the current high minus the previous close, or the absolute value of the current low minus the previous close.

A higher ATR value indicates higher volatility, suggesting larger price movements, while a lower ATR value suggests lower volatility and smaller price swings. Traders often use ATR to set stop-loss levels, determine position sizing, or identify potential breakout points.

By incorporating historical price data and measuring volatility, the ATR helps traders assess risk and adjust their trading strategies accordingly. It provides a useful tool for understanding the potential price range and making informed decisions in the financial markets.