Average True Range (ATR) is a technical analysis indicator that measures how much a cryptocurrency’s price typically moves over a given period, usually calculated over 14 candles. Developed by J. Welles Wilder, ATR takes the greatest of three values — the current high minus low, the high minus the previous close, or the low minus the previous close — and averages them over the chosen period. Unlike indicators such as RSI or moving averages, ATR says nothing about direction; it only measures volatility, expressed in the asset’s own price units.
How ATR is used: traders use ATR to size positions and set stops relative to how much an asset actually moves, rather than using a fixed dollar amount that might be too tight for a volatile coin or too loose for a stable one. Key concepts: Stop-loss placement — many traders set stops at 1.5x–3x ATR below entry, so normal volatility doesn’t trigger an early exit; Position sizing — risking a fixed percentage of capital per trade, then dividing by ATR to size the position appropriately; Volatility expansion — a rising ATR often precedes or accompanies a strong breakout, while a falling ATR suggests consolidation.
Example: Bitcoin has a 14-day ATR of $2,400. A trader entering a long position at $60,000 might place a stop at 2x ATR ($4,800) below entry, at $55,200 — wide enough to survive normal daily swings but tight enough to limit losses if the trade is wrong.
Learn more: Investopedia — Average True Range (ATR) Formula, What It Means, and How to Use It
