For further information see Technical Analysis of Stocks & Commodities, June 2009, Sylvain Vervoort - Average True Range Trailing Stops. The article can be downloaded from STOCKS & COMMODITIES Magazine.
The following 14 users say Thank You to Fat Tails for this post:
ATR is another arrow in your quiver. How you use it depends on your strategy.
Are you buying pullbacks at support? You know the market may not bounce right at support, so you can use the ATR so you can buy as close to support as possible but are not stopped out by run of the mill, everyday volatility.
Some people use it as a trailing stop. I think most people use it as their initial stop. 2 times ATR or 2.5 times ATR etc.
The Turtles moved up their ATR stops as they laddered into positions, like a trailing stop only they set one after the last position was entered and never moved it up again. When they had a full position and the price moved far enough in their favor they used different exit strategies to give price a little more room.
I believe Van Tharp's book "Trade Your Way to Financial Freedom" discusses using volatility stops to find your position size. It's a pretty dense book but worth a read. Fat tails advice on reading Svylvain Vervoort's work is a great suggestion. I think he came up with an alternative to ATR that takes more factors into consideration when calculating.
This is more of a trend following/position trading answer. Mean-reverters would look at it differently, like using channels etc. That was a mouthful, I hope it helped.
The following 3 users say Thank You to maxmorrow for this post:
Totally agree with that. ATR is so simple, so old and so widely implemented across all platforms that I think people don't notice its true potential. People are often searching the binary supermegaindicator "all in one" and miss the exposed treasures like ATR.
Personally, I usually use ATR when setting STOPS and Profit Targets. It gives to the strategies some self-adjust capacity.
Have fun!
Sergio
The following 2 users say Thank You to SerCava for this post:
ADR is the average daily range over the last N days. The indicator that you used calculates a simple moving average (SMA) of the daily range of the last 10 days and the last 20 days.
ATR as shown on your daily chart is the average true range of the last 14 days. The average true range will differ from the average daily range for many reasons:
(1) Data input: your daily data may be different (full or regular session data) when compared to intraday data. This would be particularly true if you use a false session template such as 24/7 for your intraday chart.
(2) Difference between range and true range: When price gaps up or down, the gap is included with the true range but not with the range. Please make sure that you understand the difference between true range and simple range.
(3) Different moving averages used for smoothing: The average daily range is smoothed with a simple moving average, the average true range uses exponential smoothing.
(4) Wilder's definition of the smoothing period of an exponential moving average. The average true range uses a smoothing constant of 1/k. With k = 14 this is equivalent to n = 27, as 1/14 = 2/(1+ 27). The ATR(14) is therefore the same as an EMA(TR, 27), where TR is the true range and ATR is the average true range.
(5) Finally you used different nominal periods for the ADR and the ATR.
I hope that answers your question.
The following 5 users say Thank You to Fat Tails for this post:
All you are seeing there is that during "active" market hours the price moves around more. In the "off" hours, there is not as much trading, and the range contracts.
I don't think a 1 minute ATR tells you anything you don't already know: higher volume times usually mean bigger ranges.
The following user says Thank You to kevinkdog for this post:
how would you use 
