What it is — ATR
The Average True Range (Wilder, 14 periods default) answers one question: how far does this market usually move per bar? Each bar’s “true range” includes gaps and wick extremes; ATR averages them into a single number in price units — EURUSD daily maybe 80 pips, gold $25, JPY pairs 120 pips.
ATR is not directional — it says nothing about up or down. It measures the market’s current speed, which is exactly what stops, trails and expectations should adapt to.
Why it matters — ATR
- Volatility-adaptive stops: fixed 20-pip stops are wide in calm weeks and tiny in wild ones; ATR-normalized stops behave consistently.
- Expectation setting: targeting 100 pips on a 12-pip-ATR hour is a multi-day plan, not a scalp.
- Regime detection: rising ATR = expanding volatility (news, breakouts); falling ATR = compression (range building).
ATR in one worked example
Our own pre-session dashboard pulled EURUSD ATR(14, 1H) = 0.00143 — about 14.3 pips of typical hourly movement. That single number drives three decisions. Stops: a 10-pip stop sits inside ordinary hourly noise and will be hit by trades that were “right.” Targets: expecting 40 pips from one London hour on a 14-pip-ATR day is hoping, not planning. Sizing: a volatility-scaled stop of 1.5×ATR ≈ 21 pips at $10/pip risk budget sizes the trade to 0.04 lots — and the same account on gold, whose 1H ATR was $12.29 per ounce (about $1,229 of typical hourly swing on a full 100-oz lot), sizes dramatically smaller. Same risk, different volatility, different size.
What ATR does not tell you
ATR is silent on direction — a rising ATR in a rally and a rising ATR in a crash look identical. It says nothing about entries, and it is a lagging average: after a news spike it stays elevated for hours. Three honest uses: scale stop distances to current noise (tight in quiet Asia ranges, wide in London), shrink position size when ATR expands so your dollar risk stays constant, and treat unusually low ATR as “the market is coiling” — a condition, never a signal. What ATR can never do is tell you which way. Any strategy that buys “because ATR is high” has confused a thermometer with a compass.
Frequently asked questions — ATR
Which ATR period and timeframe?
14 on your trading timeframe is the standard. Higher timeframes give stabler numbers; intraday ATR shifts with sessions — check whether your session is included in the last 14 bars.
What does ATR(14) mean?
The average true range of the last 14 candles — the typical high-to-low span per candle, with gaps counted. On the 1-hour chart, EURUSD often runs 10–20 pips; gold runs $10–$15 per ounce.
How do I use ATR for stop placement?
Set the stop beyond the level by at least 1–1.5×ATR so ordinary noise cannot reach it, then let position sizing turn that distance into lots. Bigger ATR = wider stop = smaller size, same dollar risk.
Does high ATR mean “buy” or “sell”?
Neither. High ATR means big movement — opportunity and danger. Combine with direction (trend, levels) and cut size when volatility spikes if your risk model is pip-based.
Related terms — ATR
Related tools — ATR
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