ATR (Average True Range)
ATR measures average price range over a period, giving traders the volatility figure to size positions and set stops.
ATR measures the average price range over a period, telling you how much a market actually moves per bar. It is the standard tool for volatility-based position sizing and stop placement.
The Average True Range (ATR) is a volatility indicator developed by J. Welles Wilder that averages the true range of price over a period, typically 14. It tells you how much a market actually moves per bar, in price terms, which makes it the basis for volatility-based position sizing and stop placement. ATR rises in volatile markets and falls in quiet ones, and it is direction-agnostic.
How It Works
- True range captures gaps: max of current high-low, high-prior close, low-prior close
- Averaged over 14 periods by default
- Expressed in price terms, so it scales with the instrument
Trading Tips
Set stops at a multiple of ATR (e.g. 2x) so volatility defines the level, not hope
Size positions so a 2x ATR move equals your allowed risk
ATR contraction before a range break hints the breakout may be sharp
Related Terms
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