Average True Range (ATR) Calculator

Category: Technical Analysis
- May 18, 2025
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Calculate Average True Range to measure market volatility, set proper stop-loss levels, and determine position sizes based on volatility

Price Data Input

OHLC data provides more accurate ATR calculations
Select a market to load sample data
One price value per line, with most recent data at the top
One price value per line, with most recent data at the top
One price value per line, with most recent data at the top

ATR Parameters

Number of periods for ATR calculation (standard is 14)
Method used to average the true range values

Position Sizing

Total trading account balance
Currency of your trading account
%
Percentage of account to risk per trade
Multiplier applied to ATR for stop loss distance

Understanding Average True Range (ATR)

Average True Range (ATR) is a technical indicator that measures market volatility by decomposing the entire range of an asset price for a specific period. ATR was developed by J. Welles Wilder Jr. and introduced in his 1978 book "New Concepts in Technical Trading Systems."

How ATR Works

ATR is calculated based on the True Range (TR), which takes into account gaps in price movement:

True Range = Max( (High - Low), |High - Previous Close|, |Low - Previous Close| )

The ATR is then typically a 14-period average of the True Range values:

ATR = Average of True Range over n periods

Wilder's original calculation used a smoothing method that gives more weight to recent data.

Interpreting ATR

  • Not Directional: ATR is a volatility indicator and does not provide information about price direction
  • Relative to Price: ATR values should be considered as a percentage of price for proper context
  • High Values: Indicate increased volatility, often at market bottoms, breakouts, or during fast-moving trends
  • Low Values: Suggest decreased volatility, often during consolidation phases or at market tops
  • Trend Changes: Sudden increases in ATR can signal potential breakouts or trend changes

ATR Trading Applications

Setting Stop-Loss Levels

ATR provides a volatility-based method for placing stop-losses:

Long Positions: Entry Price - (ATR Ă— Multiplier)

Short Positions: Entry Price + (ATR Ă— Multiplier)

Commonly used multipliers range from 1.5 to 3, depending on trading style and risk tolerance.

Position Sizing

ATR helps determine appropriate position sizes based on volatility and account risk parameters:

Position Size = Risk Amount Ă· (ATR Ă— Multiplier)

This ensures consistent risk exposure across different markets regardless of their volatility.

Trailing Stops

ATR can be used to create dynamic trailing stops that adjust based on market volatility:

Long Positions: Current Price - (ATR Ă— Multiplier)

Short Positions: Current Price + (ATR Ă— Multiplier)

These stops move with the market but maintain a volatility-based distance.

Profit Targets

ATR can help set realistic profit targets based on current market volatility:

Long Positions: Entry Price + (ATR Ă— Target Multiplier)

Short Positions: Entry Price - (ATR Ă— Target Multiplier)

Common target multipliers are 2Ă— ATR for a 1:1 reward-to-risk ratio when using a 2Ă— ATR stop-loss.

Tips for Using ATR Effectively

  • Use relative values - Always consider ATR as a percentage of price rather than just the absolute value
  • Adjust period length - Shorter periods (e.g., 5-7) are more responsive to recent volatility, while longer periods (e.g., 14-21) provide a more stable measure
  • Compare across timeframes - Analyze ATR across different timeframes to get a comprehensive view of volatility
  • Watch for extremes - Unusually high or low ATR values often precede significant market moves
  • Combine with trend indicators - ATR works best when combined with directional indicators like moving averages
  • Adjust stop multipliers - Use larger multipliers (e.g., 3-4) for volatile markets or longer-term trades, and smaller multipliers (e.g., 1.5-2) for less volatile markets or shorter-term trades

ATR Volatility Patterns and What They Reveal

If you’ve just used the ATR calculator above, you now have a fresh view into market volatility—expressed as a number, a percentage of price, and a trend. But what does this data mean for your trading decisions today, tomorrow, or this week? Let’s break down the insights and context your ATR output offers.

Signals to Watch in Your ATR Output

The Average True Range (ATR) doesn’t predict price direction—it tells you how much price is moving. That may sound simple, but volatility is a powerful filter for traders. Here’s what to pay attention to in your results:

  • Current ATR Value: This is the average daily (or period-specific) range. Higher values reflect more volatile trading environments.
  • ATR as % of Price: A normalized metric that allows comparison across assets. A reading below 1% often means calm markets, while 2.5% or more suggests high volatility.
  • ATR Trend: The recent slope—rising, falling, or stable—shows whether volatility is expanding or contracting.
  • 5-Day Change in ATR: A significant increase or decrease could mean a shift in market behavior is underway.

These elements are not just academic—they inform how tight or wide your stop-losses should be, whether your position sizing needs to shrink or grow, and whether a market is suitable for breakout or mean-reversion strategies.

How Traders Use ATR to Sharpen Their Edge

Now that you’ve got a snapshot of current volatility, here’s how to translate those numbers into trading action.

  • Breakout Setups: A rising ATR trend often signals a market gearing up for strong directional moves. Combine this with support/resistance levels or chart patterns to find breakout entries.
  • Quiet Consolidations: When ATR is flat or falling and volatility is labeled as low, range-trading strategies or waiting for a volatility expansion could make more sense.
  • Dynamic Stop-Losses: Instead of placing arbitrary stops, consider using the calculated ATR-based stop distance. This aligns your risk management with market behavior.
  • Position Sizing: The tool uses your ATR, account size, and risk percentage to suggest position sizes. This helps standardize your risk per trade regardless of the instrument’s volatility.

Risk Considerations Based on ATR

Volatility is a double-edged sword. While it creates opportunity, it can also lead to rapid drawdowns if misunderstood. Here are some risk-related takeaways from your ATR output:

  • High ATR = Higher Risk: When volatility spikes, so does slippage risk and the likelihood of being stopped out prematurely.
  • Low ATR = Hidden Danger: A low ATR often precedes major breakouts. Don’t get lulled into complacency by a sleepy chart.
  • ATR-Based Stops Aren’t Infallible: If market conditions change (e.g., news events or data releases), even a well-placed ATR stop can get run.
  • ATR Doesn’t Equal Direction: A rising ATR means increased movement, but doesn’t tell you if that movement is bullish or bearish. Always combine ATR with a directional bias or trend indicator.

Next Steps with Your ATR Analysis

Now that you’ve seen the numbers, here are some practical next steps to turn analysis into action:

  1. Adjust Stop Multipliers: If you find your stop-loss is too tight or too wide for your strategy, tweak the ATR multiplier until it fits your trading style.
  2. Cross-Check Timeframes: Use ATR on a higher timeframe to gauge macro volatility, then drop down to a shorter chart for precise entries.
  3. Pair ATR with Directional Tools: Add a moving average, RSI, or trendline to help identify whether the volatility surge supports a breakout or a fake-out.
  4. Use the Position Sizing Output: Follow the suggested lot size to maintain consistent risk. Many traders lose money not from bad trades, but from irregular sizing.
  5. Watch for ATR Reversals: If you see a sharp drop in ATR after a strong move, it may signal exhaustion. Time to tighten stops or consider exiting.

ATR is more than just a number—it’s a real-time read on market energy. Whether you’re swing trading currencies or scalping commodities, aligning your entries, exits, and size with volatility gives you a more durable trading edge.