What is the ATR Indicator?

The Average True Range (ATR) is a technical indicator that measures the average range of price movement over a specified number of periods. It measures volatility (not price direction) by using the True Range (TR) for each period. TR is the greatest of:

• Current high or current low
• Absolute value of current high or previous close
• Absolute value of current low or previous close

The ATR is then calculated as an average of these True Range values, commonly over 14 periods. As per general market understanding, a higher ATR indicates larger price movements, while a lower ATR indicates smaller price movements.

What is the ATR Trading Strategy for Stop Loss?

An ATR trading strategy for stop loss uses the ATR indicator to set a stop distance according to the asset’s recent volatility. Generally, the formula used to determine this stop distance is:

• Stop-Loss Distance = ATR × Chosen Multiplier

Let’s understand better through an example:

• Suppose a stock trades at ₹500 and its ATR is ₹10.
• Now, a trader using 2 × ATR could place a stop approximately ₹20 below the entry price for a long position.

Use ATR for Volatility Analysis With Trade246

ATR measures the average range of price movement and can be used to assess recent market volatility. Trade246 gives you access to 100+ technical indicators through advanced TradingView charts to analyse price movements and volatility.

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