Average True Range (ATR) is a technical indicator that measures market volatility over a specified period, typically 14 days. For example, if the ATR for a stock is $2.50, it suggests the stock typically moves up or down by about $2.50 in a given day. ATR is calculated as the moving average of 'True Ranges,' where a True Range is the greatest of the current high minus the current low, the absolute value of the current high minus the previous close, or the absolute value of the current low minus the previous close. A higher ATR indicates higher volatility, meaning larger price swings, while a lower ATR suggests lower volatility and smaller price movements. For instance, if a stock has an ATR of $3.00, a trader might consider placing a stop-loss $6.00 (2x ATR) below their entry price to account for normal daily fluctuations and avoid being stopped out by typical market noise. This helps in adapting trading strategies to current market conditions.