ATR: Average True Range
The best tool for measuring volatility and setting intelligent stop-losses.
Researched and written by Laurent The Problem ATR Solves
One of the most common beginner mistakes is placing a stop-loss too tight: so close to the entry that normal price noise hits it before the trade idea even gets tested. A trader puts a 15-pip stop on EUR/USD, which has a daily range of 80 pips, and gets stopped out five times on perfectly valid trade ideas.
ATR solves this by telling you how much price actually moves in a typical period. Your stop-loss should account for this noise.
How ATR Is Calculated
ATR averages the "true range" over N periods (default 14). The True Range for each candle is the largest of:
- Current High minus Current Low
- Absolute value of (Current High minus Previous Close)
- Absolute value of (Current Low minus Previous Close)
This ensures gaps in price (when today's open is far from yesterday's close) are captured in the volatility measure, not ignored.
Reading ATR Values
ATR is displayed in price units, which for most forex pairs means pips (approximately).
| Pair | Typical Daily ATR | What This Means |
|---|---|---|
| EUR/USD | 60 to 100 pips | Expect ~80 pips of total movement in a typical day |
| GBP/USD | 90 to 150 pips | Higher volatility, bigger moves both ways |
| USD/JPY | 60 to 90 pips | Moderate volatility, slightly less than EUR/USD |
| GBP/JPY | 100 to 200 pips | One of the most volatile major/cross pairs |
ATR-Based Stop-Losses
The standard approach: place your stop-loss 1.5× ATR from the entry price. This is wide enough to avoid being hit by ordinary price fluctuations, but not so wide that the loss becomes unacceptable.
EUR/USD daily ATR = 80 pips
1.5× ATR = 120 pips
You buy EUR/USD at 1.0850. Stop-loss = 1.0850 − 0.0120 = 1.0730
This stop gives your trade room to breathe through normal daily noise.
ATR for Position Sizing
ATR-based stops have an important side effect: on high-volatility days, your stop is wider, which means you must trade smaller lots to keep the dollar risk constant. This is actually good: ATR forces you to automatically reduce size when markets are wild.
The formula: Lot size = Account risk in $ / (ATR × 1.5 × pip value)
Combined with the Position Size Calculator, you can implement this precisely on every trade.
ATR as a Trade Filter
ATR also tells you when NOT to trade. If ATR is very low (price has barely moved for days), entering a trade expecting a big move may be premature. Wait for ATR to expand, meaning volatility is returning. A rising ATR during a breakout adds confidence that the breakout is real.
Key Takeaways
- • ATR measures how much a pair moves on average per candle, in pips.
- • A daily ATR of 80 pips means EUR/USD moves about 80 pips per day on average.
- • Stop-loss placement: use 1.5× ATR to avoid being stopped out by normal market noise.
- • Position sizing: wider ATR = wider stop = smaller lot size to maintain consistent risk.