ATR: How the Average True Range Sets Stops and Sizes
Macro Glossary, Indicators and Reads
By Ken Chigbo, macro trader and founder of KenMacro, 18+ years in markets.
Updated 2026-05-20
The desk’s answer
ATR (Average True Range) is a volatility indicator averaging the true range over N bars, typically 14. True range is the largest of the current high to current low, current high to prior close, and current low to prior close. ATR is read as the typical absolute price move per bar in the chart’s units (pips for forex, dollars for stocks). The standard use is sizing stops at a multiple of ATR (commonly 1.5x or 2x the 14-bar ATR) rather than at fixed pip distances, so the stop adapts to current volatility instead of being too tight in fast tape or too wide in calm tape.
Defined term, ATR (Average True Range)
ATR (Average True Range) is a volatility indicator developed by J. Welles Wilder, calculated as the rolling average of the true range over a lookback (typically 14 bars). True range is the largest of (current high minus current low), (current high minus previous close), and (current low minus previous close). It measures the typical absolute price move per bar and is widely used to size stops at multiples of recent volatility.
How ATR is calculated
Step 1: compute true range for each bar as the maximum of (high minus low), (absolute value of high minus prior close), and (absolute value of low minus prior close). The prior-close terms catch gaps that the high-minus-low alone would miss. Step 2: average the true range over N bars, typically 14, using Wilder’s smoothing (a modified exponential average where today’s ATR = (yesterday’s ATR times 13 + today’s TR) / 14). On EUR/USD a typical 14-bar ATR on the daily chart in 2024-2026 has run between 55 and 110 pips depending on the volatility regime; in 2020-style stress it ran above 150.
Using ATR for stop and target placement
The standard ATR stop is 1.5x to 2x the current 14-bar ATR placed beyond the entry on the relevant side. On EUR/USD with daily ATR of 70 pips, a 2x ATR stop is 140 pips. The position is sized so this stop equals 1 percent of account balance. Targets are commonly set at 1x to 3x ATR for partial exits, with trailing stops at 1x ATR for runners. The advantage of ATR sizing is that it adapts: in a 35-pip ATR regime the stop tightens to 70 pips, in a 110-pip regime it widens to 220 pips, so the strategy survives both calm and fast tape without arbitrary stop distances.
What ATR does not tell you
ATR measures volatility, not direction. A pair with high ATR can be ranging or trending; ATR alone gives no signal about which regime is live. ATR also does not distinguish between volatility from drift (a steady directional move) and volatility from chop (a range with wide bars and no progress); both can produce identical ATR readings. For direction or regime, ATR is paired with structure (higher highs and higher lows, range boundaries) and with a directional driver. The desk uses ATR for sizing and not for the trade decision itself.
Frequently asked
What is ATR in trading?
Average True Range, a volatility indicator developed by J. Welles Wilder that averages the true range over N bars (typically 14). True range is the largest of (high minus low), (high minus prior close), and (low minus prior close). It measures the typical absolute price move per bar.
How is ATR used for stops?
The standard ATR stop is 1.5x to 2x the current 14-bar ATR placed beyond entry. On EUR/USD with daily ATR of 70 pips, a 2x ATR stop is 140 pips, with the position sized so this stop equals 1 percent of account balance. The advantage is adaptive sizing: stops widen in fast tape and tighten in calm tape automatically.
Does ATR show direction?
No. ATR measures volatility, not direction. A pair can be ranging or trending with identical ATR readings. ATR pairs with structure and a directional driver to form a complete trade decision; alone it is only a sizing input.
What this means at the desk
Size stops by ATR, not by fixed pips. The market sets the volatility; the trader sets the risk percentage.
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Educational glossary entry only,
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