Average True Range (ATR)

Average True Range is a measure of volatility.

The range in ATR is the difference between the high and low of the candle on whatever time period you're using.

This range is then averaged out over a number of time periods which can be adjusted in the indicators settings (default: 14)

So, if you're on the daily timeframe, the ATR is the average of the difference between all the highs and lows of the last 14 days; which gives you essentially, the amount that price can be expected to move in a day.

As the ATR is a measure of volatility, if it is trending upwards, it tells you that volatility is rising. This will typically be the case during a trend or a breakout. If ATR is falling, price is consolidating, or slowing down.

ATR as a stop-loss

The ATR can be used as a stop-loss and this is in my opinion the best way to use it. David Paul mentions it here in this video at around 3:40 "Most traders will look at a stop-loss of 2.5x the ATR or something like that."

@abetrade has also said on Twitter, something along the lines of, "If your Price Action stop is wider than 12h/1d ATR, just use ATR as stop," basically saying that you choose the tighter of the two between a market structure/price action stop, and the ATR.

Personally, I think it's helpful to have these ideas at the back of mind, but there is no hard and fast rule. It should be something that fits your trading style and system.