Average True Range (ATR) is a technical analysis indicator developed by J. Welles Wilder, based on trading ranges smoothed by an N-day exponential moving average.

The range of a day's trading is simply $mbox\{high\}\; -\; mbox\{low\}$. The true range extends it to yesterday's closing price if it was outside of today's range:

$mbox\{true\; range\}\; =\; \{max(mbox\{high\},\; mbox\{close\}\_mbox\{prev\})\; -\; min(mbox\{low\},\; mbox\{close\}\_mbox\{prev\})\}$

The average true range is then an N-day exponential moving average of the true range values. Wilder recommended a 14-period smoothing. Note this is by his reckoning of EMA periods (see the EMA article on that), meaning an α=1/14.

The idea of ranges is that they show the commitment or enthusiasm of traders. Large or increasing ranges suggest traders prepared to continue to bid up or sell down a stock through the course of the day. Decreasing range suggests waning interest.