The greatest of the current bar's high-low span, the distance from the prior close to the high, and the distance from the prior close to the low.
Welles Wilder defined true range so that gaps would be counted. A bar that opens far above the previous close and then trades quietly has a small high-low range but a large true range, which is the honest description of how far the market actually moved.
It is a pure measurement with no interpretation attached. A large true range tells you movement was large; it says nothing about direction or about what comes next. That neutrality is why it is a better sizing input than any directional indicator.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.
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