Average True Range
period = 14 (5–50) Overview
The Average True Range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price for a specific period. Developed by J. Welles Wilder Jr., ATR captures the true market volatility by accounting for gaps and limit moves that simple range calculations miss.
What makes ATR unique is its non-directional nature - it measures only volatility, not price direction. This pure volatility measurement makes it invaluable for adaptive trading strategies, as higher ATR values indicate increased volatility while lower values suggest quieter market conditions. The standard 14-period setting provides a balanced view of volatility across different timeframes.
Interpretation & Trading Signals
Volatility Analysis:
- High ATR: Increased volatility - markets moving dramatically, wider stops needed
- Low ATR: Decreased volatility - consolidation phase or quiet market
- Rising ATR: Volatility expanding - potential breakout or trend acceleration
- Falling ATR: Volatility contracting - possible trend exhaustion or range formation
Stop Loss & Risk Management:
- Dynamic Stops: Use ATR multiples (1.5x, 2x, 3x) for adaptive stop placement
- Position Sizing: Trade Size = Risk Amount ÷ (ATR × Multiplier)
- Trailing Stops: Adjust stops based on current ATR to protect profits
- Entry Timing: Low ATR periods often precede significant breakouts
Trading Applications:
- Breakout Confirmation: ATR surge confirms genuine breakout vs false move
- Market Comparison: Compare ATR across assets to find most volatile opportunities
- Time Frame Selection: Higher timeframe ATR for position trades, lower for day trading
- Profit Targets: Set targets at ATR multiples for realistic expectations
Example Usage
Code examples will be available once the Rust implementation is complete.