ATR: true range, Wilder smoothing and price units
Average True Range measures the size of recent price movement, including gaps relative to the previous close.
Before this lesson
These lessons provide background; you can still read this page now.
What the indicator measures
Average True Range measures the size of recent price movement, including gaps relative to the previous close. It does not encode bullish or bearish direction. A rising ATR can accompany either a rally or a decline, and it does not itself measure the probability or maximum size of the next move.
Calculation and units
True range is max(high−low, absolute(high−previous close), absolute(low−previous close)). After an initial average, Wilder smoothing updates ATR as (previous ATR × (N−1) + new TR)/N. ATR is in the instrument’s price units; comparing raw ATR across assets with different price levels can mislead.
Worked educational example
With high 105, low 99 and previous close 100, true range is 6. If the previous close were 95 with the same high and low, it would be 10. That second example explains why true range is not always equal to the current candle’s high minus low.
Reading it without overclaiming
A larger value describes larger recent ranges, not necessarily a new trend. Multiplying ATR creates a distance assumption rather than a guaranteed protective boundary. Historical ranges do not include every future gap, slippage event or liquidation condition. State the timeframe before comparing two ATR observations.
How TradingHub implements it
The native default is 14. It seeds from true ranges at indexes 1–14 and first outputs at index 14. Studio’s ATR template includes the first bar’s high−low and first outputs at index 13. Both use Wilder recurrence afterwards, but the seed convention can produce early differences.
Comparisons that matter
SuperTrend and Keltner Channels incorporate ATR, while Bollinger Bands use closing-price dispersion. These measures answer different questions. Match contract, interval, history and seed before attributing a changed value to market conditions; a viewport change also restarts native calculations.
A reproducible chart review
Open the existing Trading chart and choose the same market, interval and closed observation time as your comparison. Record every calculation parameter before changing one at a time. Match source fields, history length and the bar window. Native indicators calculate from the supplied visible slice; Indicator Studio calculates from its available chart snapshot. A difference after panning may therefore be a window or warmup effect rather than a new market event.
Limits and next lesson
The illustration uses constructed candles, not a dated market observation or a backtest. A live candle can change until it closes. Missing history, volume units and implementation conventions limit comparisons. No indicator guarantees a direction, an execution price or protection from loss. Use the related lessons to separate definitions, observed values and possible explanations; a correct quiz records learning progress, not trading competence.
Knowledge check
Does a rising ATR identify an upward price trend?
- No; ATR measures range size, not direction
- Yes; ATR above zero always means bullish
- Yes; it predicts the next candle high
Show explanation
True ranges are nonnegative magnitudes. Direction must be studied separately.
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Primary sources and scope
Educational scenarios are not execution guarantees, forecasts or personal recommendations. Check current product rules at their source.
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