Average True Range (ATR), invented by Welles Wilder, measures volatility. Like most of Wilder's indicators, ATR was designed with commodities and daily prices in mind. Commodities tend to be more volatile than stocks on a regular basis. They are frequently affected by gaps and limit moves, which occur when a commodity opens up or down to its maximum move for the session. Volatility from gaps or limit moves would not be considered in a formula that only considers the high-low range. Wilder developed the Average True Range to compensate for this "missing" volatility. The ATR doesn't indicate price direction, but only volatility.

The Average True Range (ATR) is a technical analysis indicator used to measure market volatility. Developed by J. Welles Wilder, ATR provides traders with insights into the potential price movement within a given financial instrument. Calculated as an average of true ranges over a specified period, the ATR accounts for gaps and limit moves, offering a more accurate representation of volatility than a simple percentage change.

Traders often use ATR to set stop-loss levels, as it reflects the current market conditions and helps gauge the appropriate distance for stop orders. Higher ATR values indicate increased volatility, influencing position sizing and risk management. While ATR does not provide directional signals, its dynamic nature adapts to market fluctuations, making it a valuable tool for assessing volatility and enhancing risk-aware trading strategies across various financial markets.