ATR — Average True Range — is one of the most useful indicators that isn't about direction at all. It measures volatility, and that makes it brilliant for sizing trades and placing stops.
What ATR measures
ATR averages the "true range" (the size of each bar, accounting for gaps) over a period, usually 14. A high ATR means big, fast moves; a low ATR means quiet, narrow bars. It says how much price is moving, not which way.
Why it's so practical
- Smarter stops — placing a stop a multiple of ATR away (e.g. 1.5× ATR) gives the trade room to breathe in current conditions, instead of a fixed distance that's too tight in volatile markets and too loose in quiet ones.
- Position sizing — once your ATR-based stop sets the distance, your position size follows so risk stays fixed.
- Reading conditions — rising ATR warns of expanding volatility; falling ATR signals a quiet, coiling market that may be due for a move.
The key insight
ATR turns "where do I put my stop?" from a guess into a measurement. When volatility rises, your ATR stop widens — so your position size should shrink to keep cash risk constant. The position-size calculator does the math.
ATR doesn't tell you where price is going. It tells you how far you might be wrong — which is exactly what your stop and size need to know.
Education only — not financial advice.