Average True Range (ATR) Calculator
Category: Technical AnalysisCalculate Average True Range to measure market volatility, set proper stop-loss levels, and determine position sizes based on volatility
Price Data Input
ATR Parameters
Position Sizing
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:
The ATR is then typically a 14-period average of the True Range values:
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 × Multiplier)
Short Positions: Entry Price + (ATR × 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:
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 × Multiplier)
Short Positions: Current Price + (ATR × 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 × Target Multiplier)
Short Positions: Entry Price - (ATR × Target Multiplier)
Common target multipliers are 2× ATR for a 1:1 reward-to-risk ratio when using a 2× 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
What this calculates
Average True Range — how far an instrument typically moves in a period.
- Formula
TR = max(high − low, |high − prev close|, |low − prev close|); ATR = average TR over N periods- Worked example
- If EUR/USD has a 14-day ATR of 0.0075, it moves about 75 pips a day on average. A 20-pip stop sits well inside normal noise.
- When to use it
- To size stops to actual volatility rather than a round number.
- Common mistake
- ATR measures size of movement, not direction. A rising ATR says moves are getting larger, not that price is going up.