ATR: the volatility ruler behind the levels

The naive measure of a day's movement is high minus low. True range improves on it by also considering the gap from the previous close — taking the largest of: today's high minus today's low, today's high minus yesterday's close, and yesterday's close minus today's low.

That third and second case matter on gap days. A stock that gaps up 5% overnight and then trades in a narrow band has had a large day, and high-minus-low alone would report it as a quiet one. ATR is the average of true range over a lookback window.

ATR is purely a magnitude. A rising ATR means moves are getting bigger; it says nothing about whether they are up or down. Volatility expands in both directions, and it often expands fastest during declines.

So ATR never appears as a bullish or bearish reading on this site. It is infrastructure.

ATR sets the tolerance for two things in the support/resistance engine: how close two swing points must be before they are treated as the same level, and how close price must be to a level before it counts as 'at' that level.

Using ATR rather than a fixed percentage is what lets one set of rules work across a placid consumer-staples stock and a volatile semiconductor without retuning. A fixed 2% band would merge unrelated levels on the quiet stock and split a single genuine level into three on the volatile one.