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What does the Average True Range (ATR) indicator measure?

Price momentum

Market sentiment

Volatility

The Average True Range (ATR) indicator is specifically designed to measure market volatility. It calculates the average range between the high and low prices over a specified period, taking into account gaps from one trading session to another. By focusing on the range of price movement, ATR provides a clear indication of how much the price of a security is expected to change over time, thus capturing the underlying volatility in the market.

While other metrics like price momentum or market sentiment might reflect different aspects of trading behavior or investor psychology, they do not directly address the concept of volatility in the same way that ATR does. Similarly, while trading volume can indicate how actively a security is traded, it is not a direct measure of price volatility. Understanding ATR is essential for traders looking to assess risk and devise strategies based on expected price fluctuations.

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