What is ATR good for?

The Average True Range (ATR) is a technical analysis indicator that has gained popularity among market technicians. This tool serves as a valuable addition to any trading system, offering traders a precise measurement of an asset's daily volatility.

The ATR is designed to capture the true range of an asset's price movement over a specific period, typically one day. It does so by considering the highest high, lowest low, and the difference between the current close and the previous close.

By utilizing simple calculations, traders can easily determine the ATR value for any given asset. This metric then becomes a reference point for assessing the level of market volatility and potential price movements.

Market technicians often employ the ATR to identify entry and exit points for trades. For instance, a trader might use the ATR to set stop-loss orders or determine the size of their position based on the asset's volatility.

Additionally, the ATR can help traders to identify potential breakouts or trend reversals. By monitoring changes in the ATR, traders can gauge whether an asset's volatility is increasing or decreasing, which can signal impending market movements.