Average true range
How do traders measure a market's typical bar size, including the jumps between one bar's close and the next bar's open?
In plain words
Average true range (ATR) is the average size of price movement over a set of bars, counted from each bar's high to its low but widened when a bar opens far from the previous bar's close, so a gap counts as movement too. A higher ATR means a market that typically travels further each bar.
Why it matters
ATR is a yardstick for how much room a position needs. Stops, targets and position sizes are often set as multiples of it, because a market with a large ATR can travel well beyond a distance that would have been adequate when the ATR was small.
In a real week: ETH, week of 24 May 2021
In the week of 24 May 2021, ETH opened at 2096.63 and closed at 2385.98, a 13.8% rise, while the week's high-to-low span was 39.91%, from a low of 2079.94 on Monday at 01:00 UTC to a high of 2910.00 on Wednesday at 08:00 UTC. The largest single hour moved 5.22% on Friday at 12:00 UTC. The week's full range of 39.91% was close to three times the net weekly change of 13.8%.
A common mistake
Using the closing change as a stand-in for movement. A quiet-looking net change can sit inside very wide bars, and gaps between bars add distance that a simple high-low count misses.