In plain English
What Average true range means
True range is the largest of three distances: current high minus low, current high minus previous close, or previous close minus current low. ATR smooths those ranges over time. A rising ATR means bigger typical price swings; a falling ATR means smaller swings.
Why it matters
ATR is useful for sizing stops, comparing volatility across markets, and deciding whether a move is unusually large. It helps describe movement, but it does not say whether price will rise or fall next.
Example
If a forex pair has daily true ranges of 0.0060, 0.0045, and 0.0055 over three days, a 3-day ATR would be 0.0053 in simplified terms. On a chart, that might mean the pair typically moves about 53 pips per day.
Quick answers
Common questions
What does ATR measure?+
ATR measures volatility by summarizing the typical size of price movement over a chosen period.
Does ATR show trend direction?+
No. ATR shows how much price moves, not whether it moves up or down.
Sources