The Average True Range (ATR) is a technical indicator that measure volatility. It is developed by J. Welles Wilder. He designed ATR with commodities and daily prices in mind. Usually, commodities are more volatile than stocks. They are frequently a subject to gaps and limit moves that occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. It is good to know that this indicator does not provide an indication of price direction.
If we summarize the use of ATR it could be concluded that is follows:
-current high less the current low.
-the absolute value of the current high less the previous close.
-the absolute value of the current low less the previous close.
The average true range is a moving average (usually 14-days) of the true ranges.