Forex glossary
Average True Range (ATR)
ATR smooths true range, which includes the candle's high–low range and distances from the previous close. It measures volatility in price units without identifying direction. Wilder's calculation commonly uses 14 periods, although platforms can offer different smoothing methods.
Illustrative example
How does it work in practice?
Assume a 14-period Wilder ATR previously reads 0.0020 and the new true range is 0.0034. The updated ATR is 0.0021, or 21 EUR/USD pips at 0.0001 per pip; it describes range.
A case to work through
Range after a gap
Hypothetically, EUR/USD high=1.0860, low=1.0820 and previous close=1.0800.
- High minus low is 40 pips; distances from the previous close are 60 and 20 pips.
- TR is their maximum: 60 pips.
What follows? Use 60 as one candle's TR input to the chosen ATR smoothing method.
Example boundary: This is not a completed ATR(14) or the direction of the next candle.
From range to ATR
Text description of the diagram
- Three distances: H−L, |H−previous C| and |L−previous C|.
- Maximum gives TR: Select the largest distance for one bar.
- Smooth the series: ATR needs multiple TR values and a selected method.
A useful distinction
Average True Range (ATR) / Average Directional Index (ADX)
ATR measures range volatility; ADX assesses directional trend strength within DMI.
Change an assumption, see the result
What changes if…?
Change the high, low and previous close to calculate one bar's TR. ATR requires smoothing a series of TR values.
TR = the maximum of High − Low, |High − previous Close| and |Low − previous Close|. EUR/USD, one pip = 0.0001. This is one True Range value, not ATR, which averages multiple bars using a specified method. Volatility does not give direction.
Check your understanding
Calculate TR when the previous close lies outside the candle.
Show the answer and explanation
60 pips
The distances are 30, 60 and 30 pips; take the largest.
Volatility and transformed data
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Related terms
Sources and documentation
- StockCharts – ATR
The three true-range distances, their maximum and Wilder ATR smoothing.
Document read: - MetaTrader 5 — Average True Range
The three True Range components and the distinction between one bar’s range and averaged ATR.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.