What Are ATR Bands? An indicator based on volatility, ATR Bands plot bands above and below the underlying price's moving average. ATR Bands, which build upon J. Welles Wilder's Average True Range (ATR) concept, provide a visual depiction of price volatility around its central moving average. How to Interpret ATR Bands ATR Bands can be used in a variety of ways to improve your trading strategies or evaluate a market.Here are some suggestions regarding how to use and interpret them. Analyzing Volatility ATR Bands are used by most traders to measure market volatility.Through the visual projection of volatility levels surrounding a stock's price, the bands can assist you in evaluating the state of the market and then modifying your tactics accordingly. Setting Stop-Loss and Take-Profit Levels Setting stop-loss and takeprofit levels is another popular application for ATR Bands. You can allow your trades to vary without being prematurel stopped out by setting stop-loss orders a specific multiple of the ATR below the entry price. In a similar manner, to match profit objectives with market volatility, take-profit levels can be established by multiplying the ATR above the entry price. Position Sizing ATR Bands can be used to help in position size. You can calculate the right trade size in relation to the asset's volatility by evaluating the ATR value. While lower volatility might permit larger positions, higher volatility (shown by a higher ATR) might recommend smaller position sizes to mitigate …
