Average True Range (ATR)

Example

Say a stock’s 14-day ATR reads $1.50, meaning its daily true range has averaged about $1.50 lately. A stop only $0.40 from entry would sit well inside a normal day’s swing, while a stop at 2 × ATR would be $3.00 away. Because ATR is in dollars, $1.50 is a 10% daily range on a $15 stock but only 0.5% on a $300 stock.

Hypothetical numbers, for illustration only.