Average True Range Indicator (ATR)

Average true range indicator is a volatility indicator. Volatility is the difference between High price and low price of a particular stock. Greater the difference, greater is the volatility of a particular stock. ATR is the average of 14- or 21-days volatility. It can be used to set up the stoploss for a particular trade. Traders can adjust the stops according to their time horizon i.e., during a short-term trade one can multiply ATR by 1.5/2 to reduce the risk of hefty losses similarly a trader with long term (2-3 months) can multiply ATR with multiple of 5.