ATR (average true range)
ATR, or average true range, is an indicator that measures how much a share typically moves in one period, in rupees, including any gaps between days.
True range = the largest of (High − Low), (High − Previous close), (Previous close − Low); ATR = average of true range, commonly over 14 periods
What it is
ATR was developed by J. Welles Wilder. It starts with the true range for each day: the biggest of today’s high minus low, the gap from yesterday’s close up to today’s high, or the gap from yesterday’s close down to today’s low. Including gaps means a share that opens far from yesterday’s close is measured fairly.
ATR is a smoothed average of those true ranges, usually over 14 days. The result is in rupees: an ATR of ₹12 means the share has typically moved about ₹12 a day lately.
How to read it
ATR shows size, not direction. A rising ATR means daily swings are getting bigger, often near big news or during sharp falls. A falling ATR means the share is calming down.
Because ATR is in rupees, compare shares using ATR as a percentage of price. An ATR of ₹20 on a ₹2,000 share (1%) is calmer than an ATR of ₹6 on a ₹100 share (6%).
How traders use it
The most common use is placing a stop-loss outside normal noise, for example 1.5 or 2 times ATR below the entry. The Supertrend indicator is built on exactly this idea, drawing its line a multiple of ATR away from price.
ATR also helps with position sizing. A wider stop based on ATR means fewer shares for the same rupee risk.
An ATR-based stop
A share trades at ₹640 and its 14-day ATR is ₹16. A trader places a stop-loss two ATRs below entry: ₹640 − ₹32 = ₹608. They want to risk no more than ₹3,200 on this trade, so they buy ₹3,200 ÷ ₹32 = 100 shares.
Common mistakes
- Reading a rising ATR as a bullish signal. It only means bigger moves, in either direction.
- Comparing ATR in rupees between shares with very different prices.
- Setting stops tighter than one ATR and getting stopped out by normal noise.
Yesterday’s close was ₹100. Today’s high is ₹108 and low is ₹103. What is today’s true range?
- ₹8
- ₹5
- ₹3
Show the answer
₹8. High − low is ₹5, but high − previous close is ₹8, and that is the largest. The gap up from ₹100 counts as part of the move.
Common questions
What is a good ATR value?
There is no good or bad ATR. It simply tells you how much a share usually moves. Use it to set realistic stops and position sizes.
What period is used for ATR?
14 periods is the common default, as in Wilder’s original work. Shorter periods react faster; longer ones are smoother.
Does ATR show trend direction?
No. ATR only measures the size of moves. Use moving averages, ADX or Supertrend for direction and trend strength.
Practise reading charts, free
Short chapters, then real calls graded on your reasoning, not luck. No money involved.