Also called Average true range
ATR
The typical distance a price travels in a day. Used to size stops in the stock's own terms, so a volatile name gets more room than a quiet one.
Updated 2026-09-03
The average true range measures how much an instrument typically moves in a day, in the instrument's own units. A stock with a $4 ATR moves about four dollars on a normal day. It says nothing about direction.
Its value is in making risk comparable. A $2 stop-loss is enormous on a stock that moves 30 cents a day and is noise on a stock that moves five dollars. Expressing stops and targets as multiples of ATR means the same rule applies sensibly to both, and the same rule keeps applying when volatility changes.
Position sizing
This is the more important use. If you decide to risk a fixed amount per trade, and your stop is placed at some multiple of ATR, then the position size falls out of the arithmetic. A volatile instrument automatically gets a smaller position. That single mechanism does more for a strategy's survival than most entry rules.
See also
- Max drawdown — The deepest fall from a peak before a new peak was reached. The number that decides whether a strategy is one you could actually hold through.
- Backtest — Running a set of rules over history to see what they would have done. It shows what did happen, never what will, and it flatters any rule tuned on the same data.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
