The ATR Trailing Stop is an overlay which plots potential stop losses based on a multiple of the Average True Range (ATR). The ATR Trailing Stop is plotted above (or below) the price when the stock is in a downtrend (or uptrend). Welles Wilder, who invented the ATR Trailing Stop preferred ATR multiple of 3.
A stop-loss is a pre-arranged price at which an instruction is automatically issued to a broker to sell or buy a share.
If a stock is very volatile, they might get stopped out when their stop loss is too tight.
For example, if the stock price fluctuates wildly, then traders might get stopped out if the stop loss is placed just 3% below the current price.
More (less) volatile stocks typically have a larger (smaller) ATR.
Traders can therefore use ATR Bands to plot stop losses which account for a stock's volatility.