Average True Range (ATR) is a technical analysis indicator that helps traders understand how much a stock usually moves in a day. It shows the stock's volatility. A high ATR means the stock moves a lot, while a low ATR means it moves less. This helps traders decide entry and exit points based on risk and price movements.

What is ATR in Stock Market?

ATR stands for Average True Range. It is a technical tool used to measure how much a stock price moves on average during a specific time period. It helps traders understand the volatility of the stock. ATR does not tell the direction of the move but tells how strong the movement is.

Why is ATR Important for Traders?

ATR is important because it helps traders understand the daily price range of a stock. This is useful to set stop-loss and target levels. If ATR is high, traders may keep wider stop-loss. If ATR is low, they can set tighter stops. It helps in managing risk better and making smart trading decisions.

How is ATR Calculated?

ATR is calculated by taking the average of the True Range over a set period, usually 14 days. True Range is the greatest of these three: current high minus current low, absolute value of current high minus previous close, or absolute value of current low minus previous close. This average gives the ATR value.

How to Use ATR in Stock Trading?

You can use ATR to place your stop-loss based on the stock’s normal price movement. For example, you may place stop-loss at 1.5 times the ATR below the entry price. It also helps to filter out low-volatility stocks and focus on the ones that show active movement. This helps in identifying better trading opportunities.

What is a Good ATR Value in Stocks?

There is no fixed “good” ATR value. It depends on the price of the stock. A ₹100 stock with ₹2 ATR is more volatile than a ₹1000 stock with ₹10 ATR. So, always compare ATR as a percentage of the stock price. A 2% to 5% ATR is usually considered moderate and manageable for many traders.

Can ATR Be Used for Long-Term Investing?

ATR is mainly used for short-term trading, but it can also help long-term investors to identify volatile stocks. A stock with very high ATR may not be suitable for conservative long-term investing. Investors can use ATR to understand price stability over time before entering long-term positions.