What is the ATR indicator?

The Average True Range is a volatility indicator. J. Welles Wilder Jr. introduced it in his 1978 book New Concepts in Technical Trading Systems, the same book that introduced RSI. It answers one question: how big have the candles on this chart been lately, gaps included?

Its building block is the true range of each candle: the largest of the three distances in the list below. The plain high-to-low range misses gaps. If a stock closed at $50.00 and the next candle opens at $51.30, that jump is real movement, and the true range counts it.

Hypothetical: the prior close is $50.00, and today's candle trades between a high of $51.20 and a low of $50.60. High minus low is $0.60. High minus prior close is $1.20. Low minus prior close is $0.60. The true range is the largest, $1.20, twice what the candle alone shows.

  1. Current high − current low.
  2. Current high − previous close, as an absolute value (ignore the minus sign).
  3. Current low − previous close, as an absolute value.
True range (TR)
The largest of the three distances above for one candle. It equals the plain high-low range unless the candle moved away from the previous close.
Average True Range (ATR)
A smoothed average of the true range over a set number of candles, 14 by default, shown in the price units of the chart.
Wilder's smoothing (RMA)
Wilder's averaging method: each new value keeps 13/14 of the previous ATR and adds 1/14 of the new true range, so ATR changes gradually.
ATR multiple
A distance counted in ATRs, such as a stop 1.5 × ATR from the entry. With ATR at $0.40, 1.5 × ATR is $0.60.

How is the average true range calculated?

The first ATR value is the simple average of the first 14 true ranges. After that, Wilder smooths it: ATR = (previous ATR × 13 + current true range) ÷ 14. Each new candle counts for one fourteenth, so a single wild bar nudges ATR instead of yanking it.

Hypothetical: ATR is $0.50 and the next candle's true range is $1.20. New ATR = ($0.50 × 13 + $1.20) ÷ 14 = $7.70 ÷ 14 = $0.55. A candle more than twice the average lifted ATR by only five cents. That slowness helps with stops and hurts right after news, when ATR still describes the calmer market before it.

On TradingView, open Indicators and search for Average True Range. Its settings have Length, 14 by default, and a smoothing option that defaults to RMA, TradingView's name for Wilder's method; you can switch it to SMA, EMA or WMA. 14 is the standard default on most platforms. A shorter length reacts faster and jumps more; a longer one is smoother and slower. Small differences between platforms usually come from the smoothing type or how much history is loaded.

How to read ATR: volatility in dollars, not direction

ATR is printed in the price units of the chart. A 5-minute ATR of $0.40 means recent 5-minute candles have spanned about 40 cents each, gaps included. A rising line means bigger candles; a falling line means quieter ones. In the drawing at the top of this page, the ATR line climbs as the candles grow.

Bigger candles can point either way. A sharp selloff and a sharp rally both push ATR up, so a rising ATR is not bullish and a falling one is not bearish. The classic misreading: a stock slides on rising ATR and a trader sees strength coming in. ATR only says the moves got larger. For direction, read the trend, the levels and the closes; technical analysis for beginners shows how.

Because ATR is in dollars, raw numbers cannot be compared across stocks. Divide by price for a percentage. Hypothetical: a $20 stock with a daily ATR of $0.80 moves about 4% a day; a $400 stock with a daily ATR of $8.00 moves about 2%. The bigger dollar number belongs to the calmer stock.

How to set an ATR stop loss

An ATR stop puts distance between your entry and normal noise. The simple version: for a long, stop = entry − a multiple × ATR; for a short, stop = entry + a multiple × ATR. Many traders use 1 to 2 × ATR. A 1 × ATR stop is tight and gets hit more often by ordinary swings; 2 × ATR survives more noise but cuts the position size. No multiple suits every stock or timeframe.

The better version combines ATR with location. Put the stop where the trade idea is proven wrong, beyond the level or the swing low, with a buffer of about 0.1 to 0.3 ATR, then check the distance in ATRs. Under about 0.5 ATR, routine candles can hit it; beyond 2 to 3 ATR, the target has to be very far away to pay for the risk. The stop loss and take profit guide covers buffers in detail.

Hypothetical: a stock has support at $49.70–$49.80 and the 5-minute ATR is $0.30. A 5-minute candle dips into the zone and closes back above it at $50.00, and you buy at $50.00. A 1.5 × ATR stop is $0.45 away, at $49.55: below the zone and below the swing low at $49.65. The level and the multiple agree, which is what you want.

Two ways it fails. Squeeze the stop to $49.91, only 0.3 ATR away, and an ordinary candle takes you out before support is even tested. Or keep the sound $49.55 stop and watch support break anyway: you lose about 1R, or more if a fast move fills you below the stop, because a triggered stop becomes a market order. That second loss is the plan doing its job.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn trade plan on a candle chart: an entry, a dotted stop line below it labeled stop, and a dashed line rising to the target labeled target.

How to size a position from an ATR stop

ATR sets the stop distance; your account sets the dollar risk. Shares = dollar risk ÷ stop distance. This is where ATR earns its place: when volatility rises, the stop widens and the share count falls on its own, so a full loss costs about the same in dollars.

Hypothetical: a $25,000 account risking 0.5% per trade accepts a $125 loss. With ATR at $0.30, a 1.5 × ATR stop is $0.45 away: $125 ÷ $0.45 = 277.8, rounded down to 277 shares, about $13,850 of stock at $50.00. A stop-out costs 277 × $0.45 = $124.65, plus costs.

On a wilder day ATR doubles to $0.60. The stop moves to $0.90 away, and $125 ÷ $0.90 = 138.9, so 138 shares, about $6,900 of stock. Same dollar risk, half the shares. The failure case is skipping this step: keep 277 shares with the $0.90 stop and a full loss becomes $249.30, double the plan. The position size calculator does this math for longs and shorts, and the risk management guide covers how much to risk per trade.

UpTickFlow, our invite-only TradingView indicator, draws the stop before the trade so you can size from it: it waits for a candle to close at a level, shows an entry, a stop and a target, scores the setup from 0 to 100, and stays quiet in chop and abnormal volatility. It does not generate ATR signals, and your stop multiple and risk per trade stay your decisions.

Targets and trailing stops in ATR terms

Once the stop is set, express the target in R, multiples of that risk. In the drawing below, the risk is 1R and the target is 2R away. With the $0.45 stop from above, a 2R target is $0.90 away, at $50.90, which is 3 × ATR. Then check the chart: if resistance sits at $50.40, price has to get through it first. Take a realistic target or skip the trade; the risk/reward ratio guide shows the math.

Daily ATR also works as a rough range budget. Hypothetical: a stock's daily ATR is $2.40 and it has already traded $2.20 from low to high by 11:00 a.m. ET. A long that needs another $1.00 is asking for a day about 1.3 times the average range. Trend and news days do that, but it is a stretch, not a base case.

A trailing ATR stop follows the trade: for a long, keep the stop a set multiple of ATR below the highest price since entry, and only ever move it up. The best-known version is the Chandelier Exit, developed by Charles Le Beau: the highest high of the last 22 periods minus 3 × ATR(22) for a long, or the lowest low plus 3 × ATR(22) for a short. Hypothetical, on a daily chart: a 22-day high of $105.00 and an ATR(22) of $2.00 put the exit at $99.00.

The trade-off cuts both ways. A tight trail exits on the first normal pullback and misses the trend. A wide trail rides the trend but gives back a lot before it triggers: $6.00 a share from the high in the example above.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn trade plan: an entry line, a red box down to the stop labeled risk = 1R, a green box up to the target labeled reward = 2R, and a note reading R:R = 1:2.

Intraday vs daily ATR: which one should you use?

ATR measures one candle of the chart you are looking at, so a 5-minute ATR is far smaller than a daily ATR on the same stock. Hypothetical: daily ATR $3.00, 15-minute ATR $0.55, 5-minute ATR $0.30. Use the ATR of the chart you trade. A 5-minute setup with a daily-ATR stop is a swing stop on a day trade, and a swing trade with a 5-minute-ATR stop sits inside the daily noise.

Intraday ATR also follows the clock. The regular US session opens at 9:30 a.m. ET; the first candles are usually the largest and the midday candles the smallest. A 14-bar ATR on a 5-minute chart covers only 70 minutes, so it lags those shifts: with extended hours off, at 10:00 a.m. it still mixes the open with the previous afternoon, and after lunch it can still carry the morning's big candles. Session times are in US stock market hours.

Gaps distort it most. Hypothetical: the prior close is $50.00 and the stock opens at $51.50; the first 5-minute candle trades from $51.30 to $51.80. Its true range is $1.80 (high minus prior close), not $0.50, and that one bar inflates the 5-minute ATR for a while. After a gap, let ATR settle, or set the stop from the structure and use ATR only as a sanity check.

Low ATR before a breakout, and other limits

A falling ATR means the candles are shrinking: a quiet market, not a safe one. Quiet stretches often end in expansion, as in the drawing below, where price coils in a tight box before a candle closes above it on a volume spike. While price coils, ATR sits near its lows; when the range breaks, true ranges jump and ATR follows a few candles late. A stop sized on the quiet ATR can be too tight once the move starts. The breakout trading strategy and Bollinger Bands guides cover squeezes.

Keep the other limits in mind too:

  • It looks backward. ATR describes the last 14 candles, not the next one, and it cannot warn you about news, earnings or a gap.
  • It has no direction. It cannot tell you whether to buy or sell.
  • It is in dollars. Compare stocks by ATR as a percentage of price, not by the raw number.
  • It does not stop gaps. A stop 2 × ATR away can still fill far beyond its price if the stock jumps past it.
  • It does not find setups. An ATR stop on a trade with no level, no trend and no closed trigger candle is a well-measured bad trade. ATR methods fail often, like every method.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn chart where price coils inside a tight range box, then a candle closes above the box on a volume spike and a buy signal appears.

An ATR routine before every trade

Run these checks in order while you are still flat. If any answer is no, there is no trade.

  1. Does the higher timeframe agree with the direction? See multi-timeframe analysis.
  2. Is price at a level that matters, such as support, resistance or VWAP?
  3. Has the trigger candle closed at that level?
  4. Is the stop beyond the level, at least about 0.5 ATR away on the chart you trade, and does the target before the next level give at least your minimum R?
  5. Is the size set from the stop, so a full loss costs your fixed risk, such as 0.5% to 1% of the account?
  6. Is ATR clean, or are you right after a gap or a news candle that distorts it?

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn pre-trade checklist with ticked boxes for higher timeframe agrees, price is at a level, the candle has closed, and stop & target are set; the last line reads size = 1% risk.