ATR — Average True Range

Overview

ATR measures market volatility by calculating the average range of price bars over a specified period — it is essential for position sizing, stop-loss placement, and identifying volatility shifts. Use our position size calculator to convert ATR readings into proper trade sizing instantly. Read the stop-loss guide and the position sizing guide to master ATR-based risk management across every market. ATR adapts to any asset — apply it in crypto, stocks, and forex for volatility-adjusted trading.

How It Works

True Range = max of (High − Low), abs(High − Previous Close), abs(Low − Previous Close). ATR = 14-period smoothed average of True Range. Higher ATR = more volatile; lower ATR = less volatile.

Key Signals

• Very low ATR often precedes breakout moves (volatility contraction → expansion).
• Set stop-losses at 1.5-2x ATR below entry for proper breathing room.
• Position size = risk per trade / (ATR × multiplier) for volatility-adjusted sizing.
• Expanding ATR confirms a strong move; contracting ATR during a trend warns of exhaustion.

Common Mistakes

• Using fixed-pip stop-losses instead of ATR-based stops — ATR adapts to current volatility.
• Treating ATR as a directional indicator — it only measures magnitude, not direction.
• Using ATR 14 universally without adjusting for different assets and timeframes.