Realized volatility and ATR: what they are and how to read them
Updated 2026-07-05
Realized volatility measures how much price actually moved in the recent past, computed from returns and annualized. It is backward-looking, unlike implied volatility, which is derived forward-looking from option prices. Average True Range (ATR) is a companion measure: the typical distance price travels in a single bar, used to size stops and positions. MarketTrace surfaces both — rv_24h_pct and atr_1h_pct — in the feed's price block.
Realized versus implied volatility
Realized volatility (RV) is a statistical summary of past returns. You take the log return of each bar (say each minute), compute the standard deviation of those returns over a window, then annualize by multiplying by the square root of the number of periods in a year. For minute bars that factor is the square root of 525,600. The result is a single percentage: the annualized magnitude of typical moves.
Implied volatility runs in the opposite direction of time. It is not measured from history at all; it is backed out of option prices as the volatility number that makes an option-pricing model return the traded premium. It is the market's forward-looking guess. When implied sits far above realized, options are pricing in more movement than has actually occurred — often ahead of a known catalyst.
The two are complementary. Realized tells you what the asset has been doing; implied tells you what the options market expects next. A large gap in either direction is itself a signal.
Average True Range (ATR)
ATR answers a simpler, more tactical question: how far does price typically travel in one bar? True Range for a bar is the greatest of three distances — high minus low, high minus the previous close, and previous close minus low — so it captures gaps as well as the intrabar range. ATR is the moving average of True Range, conventionally over 14 bars: ATR(14).
Because ATR is denominated in price, MarketTrace normalizes it to a percentage of price (atr_1h_pct = ATR(14) on hourly bars divided by price). That makes it comparable across assets and across time: a 0.4% hourly ATR on BTC and on a smaller-cap alt describe the same relative choppiness even though the dollar figures differ by orders of magnitude.
Using RV and ATR in practice
Stop placement: a stop set inside one ATR of entry will be hit by ordinary noise. Sizing the stop as a multiple of ATR (commonly 1.5 to 3 times) puts it beyond the bar-to-bar range so only a genuine move against the position triggers it. When ATR expands, the same multiple automatically widens the stop.
Position sizing: risk-based sizing fixes the dollar loss at the stop, then solves for size. If you risk a fixed fraction of capital and your stop is N times ATR away, position size falls as ATR rises — you hold less in volatile regimes and more in calm ones, keeping risk per trade constant.
Regime read: rising RV and ATR mark an expanding, trending, or stressed market; falling values mark compression that often precedes a breakout. Reading them alongside funding and order flow separates a calm drift from the coil before a move.
Related
Frequently asked questions
What is the difference between realized and implied volatility?
Realized volatility is measured from past price returns — the annualized standard deviation of how much price has already moved. Implied volatility is the opposite: it is backed out of current option prices and represents the market's forward-looking expectation of future movement. Realized is history; implied is a forecast. A wide gap between them (implied far above realized) usually means the options market is pricing a catalyst that has not shown up in spot yet.
How is realized volatility calculated?
Take the log return of each bar over your window, compute the standard deviation of those returns, then annualize by multiplying by the square root of the number of bars in a year. MarketTrace's rv_24h_pct uses minute returns over a trailing 24 hours and annualizes with the square root of the minutes in a year, so the output is directly comparable to an annualized implied-vol quote.
What does ATR(14) mean?
ATR(14) is the 14-period average of True Range. True Range for each bar is the largest of: high minus low, high minus previous close, and previous close minus low — which captures overnight or inter-bar gaps, not just the visible bar range. Averaging over 14 bars smooths single-bar spikes into a stable measure of typical movement. MarketTrace reports atr_1h_pct: ATR(14) on hourly bars divided by price, so it reads as a percentage.
How do traders use ATR to set stops?
ATR sizes the stop to current volatility. A stop placed within one ATR of entry sits inside normal noise and gets hit at random; a stop at 1.5 to 3 times ATR sits beyond the bar-to-bar range so only a real adverse move triggers it. Because the multiple scales with ATR, the stop automatically widens when the market gets choppier and tightens when it calms.