ATR (Average True Range) — Complete Reference
Volatility indicator measuring the average price range per period.
What ATR measures
ATR, developed by J. Welles Wilder, averages the True Range over a lookback period (typically 14). True Range = greatest of: current high − current low; current high − previous close; current low − previous close. ATR doesn't indicate direction, only volatility.
Why ATR is essential for traders
Volatility-adjusted stop-losses. Volatility-adjusted position sizing. Without ATR, traders use fixed-percentage stops that get hit by noise on volatile names and miss the move on quiet names. ATR makes risk consistent across instruments.
ATR multiples for stops
1× ATR stop: aggressive, frequent stop-outs. 2× ATR: standard for swing trades. 3× ATR: wide, used in trend-following with smaller position sizes. The right multiple depends on your strategy's average trade duration.
ATR-based position sizing
Position size = risk dollars / (ATR × multiple). This means: on high-ATR (volatile) names, position size is smaller. On low-ATR (quiet) names, position size is bigger. Risk per trade stays the same dollar amount regardless of the asset.
ATR for profit targets
Same logic as stops. 1× ATR target = quick scalp. 2-3× ATR target = standard swing trade. Setting targets in ATR multiples normalizes your strategy across different volatility regimes.
ATR for volatility regime detection
Compare current ATR to its 30-day average. Above average = high-vol regime (wider stops, smaller positions, more breakout potential). Below average = low-vol regime (tighter setups, often precedes volatility expansion).
ATR doesn't indicate direction
Important: ATR has no directional information. It tells you HOW MUCH the asset moves on average, not WHICH WAY. Pair with directional indicators (trend, momentum) for complete decision framework.
Free ATR calculators
Use our ATR stop-loss calculator to set volatility-adjusted stops and position sizes. SultraxAI uses ATR throughout its signal model.