Trading term

What is ATR (Average True Range)?

ATR (Average True Range) measures how much a security typically moves in a period — its volatility — as an average of recent trading ranges. It doesn't say which direction price is heading, only how far it tends to travel, which makes it a core tool for stop-losses and position size.

Developed by J. Welles Wilder, ATR averages the 'true range' of recent candles (usually 14), where true range is the largest of the current high-to-low or the gap from the previous close. A high ATR means big, wide candles — a volatile, fast-moving market. A low ATR means small, quiet candles. It's plotted as a single line in a sub-pane, rising and falling with volatility.

ATR's real power is in risk management, not direction. Because it tells you how far price normally travels, traders use it to place stop-losses far enough away that normal noise won't trigger them (say a stop 2× ATR below entry), and to size positions so each trade risks the same amount regardless of how volatile the instrument is. Rising ATR warns that moves — and risk — are getting bigger; falling ATR signals a calming, coiling market.

ATR rises with volatility
PRICE (candle ranges)ATR (volatility)volatility expandscalms

As the candles widen into a volatile burst, the ATR line climbs; as they calm, it falls. ATR measures how far price moves — its size — never the direction.

For example

A stock's ATR is $2. A trader placing a stop 1.5× ATR below their $80 entry sets it at $77 — far enough that ordinary daily swings won't stop them out, but tied to the stock's real volatility.

Go hands-on in Premium

That's ATR (Average True Range) in theory — it clicks when you read it on a live chart. Practise it hands-on in the TradeWize Premium Technical Analysis track.

Explore Premium →

Why it matters to you

ATR is the volatility ruler that makes risk consistent: it lets you size every position and place every stop in proportion to how much the instrument actually moves, instead of guessing. That's the difference between a stop that survives normal noise and one that gets picked off — and it's why ATR underlies most systematic risk models.

⚠ ATR has no direction

The classic mistake is reading a rising ATR as bullish. ATR only measures the SIZE of moves, not their direction — it rises whether price is crashing or soaring. Using it as a trend or entry signal misreads it entirely. It answers 'how far?', never 'which way?'

Frequently asked questions

What does ATR measure?

ATR measures volatility — the average size of a security's recent trading ranges, including gaps. A high ATR means large, fast moves; a low ATR means small, quiet ones. It quantifies how far price typically travels in a period, with no indication of direction.

How do you use ATR to set a stop-loss?

A common method is to place the stop a multiple of ATR away from entry — say 1.5× or 2× ATR. Because ATR reflects the instrument's normal movement, this keeps the stop far enough out that ordinary noise won't trigger it, while staying tied to real volatility rather than an arbitrary percentage.

Does a high ATR mean the price is going up?

No — ATR has no directional information. It rises when moves get bigger in either direction, so ATR can spike during a crash just as easily as a rally. It answers 'how far does price move?', never 'which way?' Pair it with a directional tool for that.

What is a good ATR value?

There's no universal 'good' value — ATR is relative to the instrument and its price. A $2 ATR is large for a $20 stock but tiny for a $2,000 one. What matters is ATR relative to the security's own history: rising ATR means expanding volatility, falling ATR means it's calming.

Related terms

Ascending triangleAn ascending triangle is a bullish continuation pattern: a flat horizontal resistance line on top, with a rising trendline of higher lows beneath it. As the higher lows squeeze price against the ceiling, pressure builds — and it usually resolves with a breakout up through the resistance.Bollinger BandsBollinger Bands wrap a price chart in three lines: a middle moving average with an upper and lower band set two standard deviations away. The bands widen when volatility rises and squeeze together when it falls, framing whether price is relatively high or low.BreakdownA breakdown is when price falls decisively through a support level it had been holding above — the bearish mirror of a breakout. It signals sellers have overwhelmed the buyers defending support, and often triggers a fast move lower as stops and new sellers pile in.BreakevenBreakeven is the price at which a trade shows neither a profit nor a loss — your entry price plus any costs. 'Moving your stop to breakeven' means raising a stop-loss to your entry once the trade moves in your favour, so a winner can no longer turn into a loser.
← Back to the full glossary