Enter Profitable Territory With Average True Range

Enter Profitable Territory With Average True Range

The indicator known as average true range (ATR) can be used to develop a complete trading system or be used for entry or exit signals as part of a strategy. Professionals have used this volatility indicator for decades to improve their trading results. Find out how to use it and why you should give it a try.

What Is ATR?
The average true range is a volatility indicator. Volatility measures the strength of the price action, and is often overlooked for clues on market direction. A better known volatility indicator is Bollinger bands. In "Bollinger on Bollinger Bands" (2002), John Bollinger writes that "high volatility begets low, and low volatility begets high." Figure 1, below, focuses solely on volatility, omitting price so that we can see that volatility follows a clear cycle.