ATR (average true range)

Average True Range (ATR) quantifies market volatility by averaging the true range over a specific number of periods, typically 14. The true range for a single period is the largest of three values: the current high minus the current low, the absolute value of the current high minus the previous close, or the absolute value of the current low minus the previous close. This calculation provides a normalized measure of price fluctuation.

For a retail trader, ATR helps in dynamically setting stop-loss orders and determining position size based on current market volatility. If the ATR for EUR/USD is 50 pips, a trader might place a stop-loss 1.5 times this value, or 75 pips, from their entry. This approach allows risk management to adapt to varying market conditions, preventing fixed stops that are either too tight during high volatility or too loose during low volatility.