ATR (Average True Range)
ATR (Average True Range) is an indicator that shows how far price typically moves in one candle, often used to set Stop Loss distances.
ATR stands for Average True Range. It measures volatility, meaning how much a price usually moves in a given period. It does not show direction, only size of movement.
How it works
First, each candle gets a true range, which is the largest of these three numbers:
- High minus Low of the candle
- High minus the previous close (as a positive number)
- Low minus the previous close (as a positive number)
The ATR is the average of the true range over a set number of candles. The common setting is 14.
Example (EURUSD, daily candle): High 1.1050, Low 1.1000, previous close 1.1070.
- High − Low = 50 pips
- High − previous close = 20 pips
- Previous close − Low = 70 pips
The true range is 70 pips, because the price gapped down from yesterday's close.
Why it matters
Traders often use ATR to place a Stop Loss that fits current market conditions. If the daily ATR is 80 pips, a trader might set a stop 1.5 × ATR away, which is 120 pips. ATR can also help decide position size: a larger ATR means a wider stop, so a smaller Lot keeps the risk the same.
Common beginner mistakes
- Using the same fixed stop in pips every day, even when volatility changes.
- Thinking a rising ATR means price will go up. It only means moves are getting larger.
- Placing a stop smaller than the normal ATR, so ordinary price movement hits it.