Average True Range measures volatility without caring about direction. For each bar, it calculates the "true range": the greatest of current high minus current low, absolute value of current high minus previous close, or absolute value of current low minus previous close. That last part matters because it captures overnight gaps. Then it averages these values over N periods using Wilder's smoothing method.

The output is a single number in the same units as the stock price. If AAPL has an ATR of $3.50 on the daily chart, it means Apple typically moves about $3.50 per day. This is useful for sizing positions (wider ATR = more risk per share), setting stop losses (a stop tighter than 1x ATR will get triggered by normal noise), and comparing volatility across different stocks.

ATR doesn't tell you which direction the stock will move, just how much. A rising ATR means the market is getting more volatile, which often happens during selloffs or at the start of big moves. A falling ATR means the market is calming down, which can precede either a breakout or continued quiet consolidation.