What Is ATR Multiple?
ATR Multiple is a way to standardize position sizing and stop-loss placement across different volatility regimes. Rather than saying 'stop at $2 below entry,' you say 'stop at 1.5 ATR below entry.' The dollar stop varies; the volatility-adjusted distance stays consistent.
Common conventions: 1 ATR stop = aggressive (frequent stop-outs from noise); 2 ATR = standard for swing trades; 3+ ATR = very wide, used for trend-following with smaller position sizes. Position size is set so that hitting the ATR stop costs the same dollar amount per trade.
The benefit is psychological consistency: high-volatility names get wider stops and smaller positions; low-volatility names get tighter stops and larger positions. The risk per trade — in percentage of account — stays constant regardless of the instrument's behavior.
Related terms
- ATR (Average True Range) — Volatility indicator measuring the average range of price movement per candle.
- Stop Loss — A predefined exit price that limits losses if a trade moves against you.
- Position Sizing — Determining how many shares or contracts to trade based on account size and risk tolerance.
- Risk Management — The systematic process of identifying and controlling exposure to losses.