The Average True Range (ATR) is a technical indicator developed by J. Welles Wilder that measures how much a price moves on average over a period of time. It focuses on volatility, not direction.

A higher ATR means prices are moving more (high volatility), while a lower ATR means prices are relatively stable (low volatility).

ATR is built using the True Range (TR), which takes the largest of:
• Current high − current low
• Absolute value of (current high − previous close)
• Absolute value of (current low − previous close)

The ATR is then calculated as a moving average of this True Range, usually over 14 periods.

In practice, traders use ATR to:
• Set stop-loss levels (wider in high volatility, tighter in low volatility)
• Decide position size based on risk
• Understand whether the market is calm or highly active

It is important to note that ATR does not tell direction—only how much the price is likely to move.

In May 2023, Reliance Industries was trading in a relatively narrow range between ₹2,350 and ₹2,500. During this phase, the ATR hovered around 20, indicating moderate and stable volatility.

In early June, after the company announced its quarterly results, the stock saw sharp price movements, swinging between ₹2,480 and ₹2,600 within a few sessions. As a result, the ATR rose from around 20 to nearly 35, reflecting a clear increase in volatility.

Traders used this rise in ATR to adjust their strategies—setting wider stop-loss levels and reducing position sizes to manage risk. In the following weeks, as price movement stabilized around ₹2,550, the ATR gradually declined toward 22, signaling that volatility was cooling down.

• 1978 – Introduction by J. Welles Wilder
The ATR was introduced by J. Welles Wilder in his book .

• Early Use in Commodities
It was originally designed for commodity and futures markets, where price gaps and volatility were common.

• Present Use
Today, ATR is widely used across stocks, forex, and crypto markets as a standard tool for measuring volatility and managing risk.