Average true range

Average true range (ATR) is a technical analysis volatility indicator originally developed by J. Welles Wilder, Jr. for commodities.

Large or increasing ranges suggest traders prepared to continue to bid up or sell down a stock through the course of the day.

Apart from being a trend strength gauge, ATR serves as an element of position sizing in financial trading.

Current ATR value (or a multiple of it) can be used as the size of the potential adverse movement (stop-loss distance) when calculating the trade volume based on trader's risk tolerance.

In this case, ATR provides a self-adjusting risk limit dependent on the market volatility for strategies without a fixed stop-loss placement.