# ATR (Average True Range) > The Average True Range measures how much an asset typically moves per period. Learn the true range formula, how to use ATR for stops, position sizing and filters. Source: https://learn.tradelabsai.com/indicators/atr/ Track: Indicators · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "ATR (Average True Range)", https://learn.tradelabsai.com/indicators/atr/ The Average True Range (ATR) measures how much an asset typically moves in one period, in price units. J. Welles Wilder introduced it in 1978. ATR does not tell you direction; it tells you how volatile a market is right now. That makes it one of the most practical tools in trading, used to set stops that respect normal noise, to size positions so each trade risks a similar amount, and to compare volatility across markets. ## True range A candle's simple range is its high minus its low. But if a market gaps, that range misses the move between the previous close and today's prices. Wilder's **true range** fixes this: ``` True range = max(High − Low, |High − Previous close|, |Low − Previous close|) ATR = average of true range over n periods (usually 14, smoothed) ``` **Example: True range with a gap** Yesterday a stock closed at $50. Today it gaps up, trading between $53 and $55. High minus low = $2. High minus previous close = $5. Low minus previous close = $3. True range = $5, the largest. The simple range would have understated today's movement. ## What ATR tells you An ATR of $2.50 on a stock means it has moved about $2.50 per day on average recently. Higher ATR means bigger swings; lower ATR means calmer trading. ATR in price units makes it easy to plan stops and targets, but to compare markets, divide by price to get ATR as a percentage. | Asset | Price | 14 day ATR | ATR % | |---|---|---|---| | Stock A | $40 | $1.20 | 3.0% | | Stock B | $400 | $6.00 | 1.5% | Stock B has the larger ATR in dollars, but Stock A is twice as volatile relative to its price. ## Using ATR for stops Placing a stop inside an asset's normal daily movement invites being stopped out by noise. A common approach is to place stops a multiple of ATR away from entry or from a structure level: - **1 to 1.5 × ATR:** tight; suits short term trades. - **2 to 3 × ATR:** typical for swing trades. - **Chandelier exit:** trail a stop 3 × ATR below the highest high since entry. See [Trailing Stop Orders](https://learn.tradelabsai.com/orders/trailing-stop-orders/). Combining ATR with structure works well: place the stop beyond the swing low plus a fraction of ATR as a buffer. See [Stop Loss Strategies](https://learn.tradelabsai.com/risk/stop-loss-strategies/). ## Using ATR for position sizing ATR lets you size positions so each trade carries similar risk, regardless of how volatile the asset is. **Example: ATR position sizing** Account $25,000, risk 1% = $250. A stock's ATR is $2.00, and the stop is set at 2 × ATR = $4.00 from entry. Position size = $250 ÷ $4.00 = 62 shares. A calmer stock with ATR $0.80 would allow a stop of $1.60 and a position of 156 shares, for the same $250 risk. This is the basis of volatility based sizing used by many trend following systems. See [Volatility and ATR-Based Sizing](https://learn.tradelabsai.com/risk/volatility-and-atr-based-sizing/). ## Other uses - **Volatility filter:** avoid trading when ATR is extremely high (risky) or extremely low (dead market), or look for low ATR as a sign of compression before a breakout. See [Compression and Expansion](https://learn.tradelabsai.com/price-action/compression-and-expansion/). - **Target setting:** a target of 2 or 3 times ATR gives a realistic sense of how far price might move in a few days. - **Building block:** Supertrend and Keltner Channels use ATR. See [Supertrend](https://learn.tradelabsai.com/indicators/supertrend/) and [Keltner Channels](https://learn.tradelabsai.com/indicators/keltner-channels/). ## Settings The standard period is 14. Shorter periods react faster to changes in volatility; longer periods give a steadier reading. ## Common mistakes - **Reading ATR as directional.** Rising ATR means more movement, up or down. - **Comparing ATR in dollars across very different prices.** - **Using the same fixed stop distance** in all markets instead of adapting to volatility. ## Frequently asked questions ### What does ATR measure? How much an asset typically moves per period, including gaps, showing its current volatility in price units. ### How do you use ATR for a stop loss? Place the stop a multiple of ATR away from your entry or beyond a structure level, often 1.5 to 3 times ATR depending on your timeframe. ### Does a high ATR mean the price will go up? No. ATR measures the size of movement, not its direction. ## Sources - Wikipedia, [Average true range](https://en.wikipedia.org/wiki/Average_true_range) ## Continue learning - Next lesson: [Bollinger Bands](https://learn.tradelabsai.com/indicators/bollinger-bands/) - Previous lesson: [Ichimoku Cloud](https://learn.tradelabsai.com/indicators/ichimoku-cloud/) - Related: [Ichimoku Cloud](https://learn.tradelabsai.com/indicators/ichimoku-cloud/): The Ichimoku Cloud shows trend, momentum and support in one view. Learn the five lines, the cloud, the standard signals and how traders use Ichimoku today. - Related: [Volatility](https://learn.tradelabsai.com/markets/volatility/): Volatility measures how much and how fast prices move. Learn historical and implied volatility, ATR, the VIX, why volatility clusters and how it affects risk. - Related: [Volatility and ATR-Based Sizing](https://learn.tradelabsai.com/risk/volatility-and-atr-based-sizing/): Volatility sizing adjusts position size so each trade carries similar risk whatever the market's swings. Learn ATR sizing, volatility targeting and worked examples. - Related: [Stop Loss Strategies](https://learn.tradelabsai.com/risk/stop-loss-strategies/): A good stop sits where your trade idea is proven wrong. Compare structure, volatility, percentage and time stops, with examples and the mistakes to avoid. - Related: [Supertrend](https://learn.tradelabsai.com/indicators/supertrend/): Supertrend is an ATR based trailing line that flips between support and resistance as the trend changes. Learn how it is calculated, settings and how to trade it. - Related: [Keltner Channels](https://learn.tradelabsai.com/indicators/keltner-channels/): Keltner Channels set bands a multiple of ATR around an EMA. Learn the formula, how they differ from Bollinger Bands, the squeeze and trend trading strategies. - Related: [Trailing Stop Orders](https://learn.tradelabsai.com/orders/trailing-stop-orders/): A trailing stop follows the price by a set amount or percentage and only moves in your favour. Learn how it works, how to set the distance and common pitfalls.