Average True Range (ATR)

Average True Range (ATR) is a technical indicator developed by J. Welles Wilder that measures the average range of price movement in a security over a specified period, accounting for gaps between sessions. The True Range for each period is the greatest of: 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. ATR is then the moving average of these True Range values — typically over 14 periods. ATR does not indicate price direction but measures volatility — a rising ATR indicates increasing price volatility, while a falling ATR indicates consolidation. In Indian equity and F&O markets, ATR is widely used for position sizing (risking a fixed multiple of ATR per trade), setting stop-loss distances proportionate to market volatility, and confirming breakouts — a breakout on high ATR is more likely to be genuine than one occurring during low-ATR consolidation.