The Average True Range (ATR) is a technical indicator used to measure the volatility of an asset. It was developed by J. Welles Wilder Jr. and is calculated by taking the average of the true range (the greatest of the high-low, the absolute value of the high-previous close, or the absolute value of the low-previous close) over a set period of time.
The ATR is not meant to predict price direction but rather to indicate the level of volatility. It is considered a lagging indicator because it is based on past price action. However, it can be used in conjunction with other technical indicators to inform trading decisions. The ATR is commonly used in trend-following strategies to set stop-loss and take-profit levels based on the level of volatility. A higher ATR value indicates higher volatility, while a lower ATR value indicates lower volatility.