ATR measures the average size of recent candles, including gaps. It tells you how volatile a market is, not its direction.
Why every trader should use ATR
- Stops: a stop of 1.5–2× ATR is usually outside normal noise.
- Position size: higher ATR = wider stop = smaller position.
- Targets: if the daily ATR is 80 pips, a 200-pip target for today is wishful thinking.
Example
EUR/USD daily ATR = 70 pips. A stop of 1.5 × ATR = 105 pips for a swing trade. On a $10,000 account risking 1% ($100): 100 ÷ (105 × $10) ≈ 0.09 lots.
Wick says
ATR is the market's mood ring. Big number: it's excited. Small number: it's napping.
Key takeaways
- ATR measures volatility in pips (or dollars).
- Use it to set stops beyond normal noise.
- Size positions so wider stops still risk the same amount.