Question 1

What does a volatility indicator measure?

Accepted Answer

It measures how much price has been moving, not which way. A high reading means recent bars have been large or spread out. A low reading means price has been calm and tight. Volatility tools say nothing on their own about whether price will go up or down.

Question 2

What is the difference between ATR and Bollinger Bands?

Accepted Answer

ATR (Average True Range) reports volatility as a single number, the typical size of recent price moves including gaps. Bollinger Bands wrap a moving average in two bands set a number of standard deviations away, so they show volatility visually as the bands widen and tighten around price.

Question 3

Can ATR or Bollinger Bands predict a breakout?

Accepted Answer

No. A tight reading or a squeeze tells you volatility is low right now, not when or in which direction it will expand. These tools describe past and present movement; they do not forecast the next move.

Question 4

Why do traders use ATR for stops?

Accepted Answer

Because ATR scales a stop to current conditions. A fixed distance that is comfortable on a calm day can be far too tight on a volatile one. Sizing a stop as a multiple of ATR keeps it proportional to how much the market is actually moving.