ATR (Average True Range)
The reference indicator for measuring volatility: it tells you how much an asset moves per candle on average, saying nothing about direction.
The ATR (Average True Range) was introduced in 1978 by J. Welles Wilder, also the creator of the RSI and the ADX. Unlike most indicators, it does not try to predict price direction: it only measures the average magnitude of moves : in other words, volatility.
It is an essential risk-management tool: it helps place stops at a sensible distance, size positions, and compare how agitated different assets or periods are.
How it's calculated
For each candle, the "True Range" is computed first: the largest of three distances : between the candle's high and low, between the high and the previous close, and between the low and the previous close. This definition captures opening gaps, which a simple high-low range would miss. The ATR is then the smoothed average of these true ranges over N candles : 14 by default in Screener.Trading, Wilder's chosen value.
The ATR is expressed in the asset's price units: an ATR of 500 on Bitcoin means the price moves by an average of $500 per candle on the timeframe in question.
How to read it
- High ATR: agitated market, wide moves : wider stops and smaller positions are warranted.
- Low ATR: quiet market, often consolidating : low-ATR phases frequently precede volatility expansions.
- ATR-multiple stops: placing a stop 1.5 or 2 ATRs away from the entry price is a widespread practice to give the position room to breathe.
- Comparison over time: a rising ATR during a decline reflects growing panic; a shrinking ATR within a trend signals a move that is settling down.
Two limitations to keep in mind: the ATR is absolute, not relative : a €2 ATR on a €20 stock represents 10% volatility, but 0.2% on a €1,000 stock. Comparing assets therefore requires dividing the ATR by price. And since it looks backward, it does not predict volatility shocks : it records them.
In the screener
Rule examples you can build in Screener.Trading: "ATR above a static value on D1" to keep only assets volatile enough for your trading style; "ATR below its value 10 candles ago" to detect the volatility compressions that often precede breakouts. The ATR can be compared to a static value, to its own past values, or to other indicators.
Across timeframes, the ATR also works as a context filter: for example, look for H1 entry signals only on assets whose daily ATR remains contained, to avoid names in the middle of a storm. It is an excellent complement to directional screeners built on RSI, MACD or moving averages.
Use the ATR to calibrate your stops rather than to hunt for signals: a stop 1.5-2 ATRs below the entry adapts automatically to each asset's volatility.
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