Average True Range % (ATR%)
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Definition
ATR measures average volatility using True Range (the greatest of high-low, high-prior close, low-prior close) smoothed over a lookback (default 14). ATR% expresses that as a percentage of price so volatility is comparable across instruments.
How to read it
ATR is a pure volatility gauge - it has no directional meaning. A rising ATR/ATR% means the instrument is moving more per bar (expanding volatility); a falling value means calmer, contracting conditions. Expressing it as a percent of price lets you compare a $20 stock and a $2,000 stock on the same scale. High ATR% environments demand wider stops and smaller position sizes; low ATR% often precedes expansion (a volatility squeeze analog).
How practitioners use it
Used as context among multiple indicators — never as a standalone signal to act.
Less common professional uses
ATR is not annualized or directional; misreading a high ATR as 'bullish momentum' is a category error - it only tells you how much, not which way. ATR-based stops can be gamed by using a lookback contaminated by a single gap/earnings bar; smoothing choice and excluding event bars matter for robust sizing. Volatility clusters and mean-reverts, so ATR% extremes are informative: very low ATR% rarely persists (expansion likely) and very high ATR% rarely persists (contraction likely) - useful as a regime input, not a timing trigger.
Sources & provenance
Wilder 1978
This page is educational content published by Pachira Aquatica Global LLC. It is not investment advice and not a recommendation.