Average True Range (ATR)

A technical indicator developed by J. Welles Wilder Jr. that measures market volatility by calculating the average range between each period's high and low, accounting for gaps. A 14-day ATR of $2.50 means the stock moves about $2.50 per day on average. Traders use ATR to set stop-loss distances and position sizes -- a wider ATR calls for a wider stop and smaller position to keep risk constant.