ATR
ATR measures how much a market typically moves per bar. It's the most practical indicator for setting stop losses and sizing positions to volatility.
Full name
Average True Range
Default settings
14 periods
Formula
True range = max(high − low, |high − previous close|, |low − previous close|); ATR = Wilder-smoothed average of TR over N periods
What ATR measures
Average True Range, another Wilder indicator, measures the average size of each bar's full range, including overnight gaps. If EUR/USD has a daily ATR of 70 pips, it has typically moved about 70 pips from high to low each day recently. ATR says nothing about direction.
Why traders love it
Placing stops outside the noise
A stop that's tighter than the market's normal movement gets hit by random noise. A common approach is to place the stop 1.5 to 2 × ATR beyond your entry or beyond the swing point. If daily ATR is 70 pips, a 1.5 × ATR stop is about 105 pips.
Sizing to volatility
Because a wider stop means more pips at risk, you trade a smaller size to keep the dollar risk the same. Enter the ATR-based stop into the position size calculator and it does the maths.
Reading the regime
Rising ATR means volatility is expanding, often around news or at trend breakouts. Falling ATR means quieter conditions, which suit range strategies.
Common mistakes
- Using one fixed pip stop for every market and every week.
- Comparing ATR across instruments without converting to a percentage of price.
- Reading high ATR as bullish or bearish. It's direction-neutral.
Indicators work best inside a plan
See which strategies use this indicator, then size the trade before you enter.