ATR
The average size of an instrument’s price range per period, including gaps.
Also called: average true range
In plain language
True Range is the largest of: the current high minus low, the high minus the previous close, or the low minus the previous close. Including the previous close is what captures gaps.
ATR averages that over a lookback, usually 14 periods, and reports it in the instrument’s own price units. An ATR of $1.20 means the instrument typically travels about $1.20 in a period.
ATR has no direction. It tells you how far price moves, never which way.
The formula
True Range
max(High − Low, |High − Prev Close|, |Low − Prev Close|)
- ATR
- Average of True Range over N periods, usually 14
Why it matters
ATR is the most practical bridge between a chart and a position size. It turns "this instrument is volatile" into a specific stop distance you can divide your risk budget by.
Common mistakes
- Comparing ATR values across instruments with different prices. Use ATR as a percentage of price instead.
- Setting stops inside 1 ATR and being surprised by routine noise.
- Assuming today’s ATR will hold through a scheduled event.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
How much and how quickly an asset’s price moves over a given period.
A stop placed at a multiple of the instrument’s Average True Range rather than a fixed percentage.
The gap between your entry and your stop loss — your risk on a single unit.
The amount of an asset you buy or sell in a single trade.
A moving average with volatility bands plotted a set number of standard deviations above and below.