Average True Range
a.k.a. ATR
An indicator that shows how far price typically moves per candle, used to size stops and gauge volatility.
The Average True Range (ATR) measures how much a market normally swings. For each candle it takes the 'true range' (the biggest of: high minus low, or the distance from the previous close to today's high or low, so gaps count) and then averages it, usually over 14 periods.
It says nothing about direction. It tells you how wild the ride is. Traders use it to place a stop-loss outside normal noise, for example 1.5 times ATR away, and to shrink position size when the market starts thrashing.
Using ATR for a stop
- Daily ATR on GBP/USD is 90 pips.
- You set your stop 1.5 × ATR away: 135 pips.
- You size the trade so 135 pips equals the 1% of your account you are willing to lose.
Bottom line: The stop sits outside an ordinary day's thrash, and the risk in money stays the same.
Using the same fixed 20-pip stop on a quiet pair and on one that swings 150 pips a day.
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