ATR Indicator: Average True Range for Stops and Volatility

A 30-pip stop can be generous on a quiet Tuesday and hopelessly tight on the afternoon of a big data release. The ATR indicator is the tool that tells you which kind of day you are in.

Quick answer: The ATR indicator (average true range) measures how far a currency pair typically moves in one candle, including gaps, averaged over 14 candles by default. It is shown in price units, so 0.0060 on EUR/USD means 60 pips. Traders use it to set stop distances and position sizes. It says nothing about direction.

What is the ATR indicator?

The average true range is a volatility indicator: a calculation made from past prices and drawn in a panel beneath the chart. Like RSI, it was introduced by J. Welles Wilder Jr. in his 1978 book New Concepts in Technical Trading Systems. Wilder was working with commodity futures, where prices often jumped between one session and the next, and he wanted a measure of movement that did not ignore those jumps.

ATR answers one narrow question: how much has this market been moving per candle, recently? On a daily EUR/USD chart, an ATR reading of 0.0060 means daily candles have recently covered about 60 pips each, on average, from their lowest point to their highest, counting any gap from the previous close. On a 15-minute chart of the same pair, the reading might be 0.0008: 8 pips per candle.

A carpenter's hands holding a yellow tape measure against a pale wooden plank on a dark workbench. — ATR works like a tape measure for price. It records how far the market has been travelling per candle, and says nothing about which way.

Three features make ATR different from the indicators most beginners meet first:

It is measured in price, not on a scale. RSI lives between 0 and 100. ATR has no fixed range; it is expressed in the same units as the price, which means you can turn it straight into pips.
It has no direction. A 60-pip rally and a 60-pip sell-off add exactly the same amount to ATR. A rising ATR means the market is moving more, not that it is moving up.
It describes the past, not the future. ATR is an average of what has already happened. It is a good guide to what is normal right now, which is exactly what you need when deciding how much room a trade needs.

Illustrative: ATR rises when price moves more, whichever way it moves. The rally and the sell-off lift ATR by a similar amount, and it sinks again when the market goes quiet. ATR measures how much, never which way.

ATR will not tell you where to enter or which way to trade. What it does, better than almost any other tool, is put a number on the market’s normal noise, so you can set a stop loss that sits outside it and a position size that respects it. If you are new to indicators in general, the Academy lesson on indicators explains how they are built from price, and why every one of them lags.

True range: the largest of three distances

Before you can average anything, you need the thing being averaged. For each candle, Wilder defined the true range (TR) as the largest of three distances:

High minus low: the candle’s own range.
High minus the previous close, ignoring the sign.
Low minus the previous close, ignoring the sign.

Why not just use high minus low? Because a candle that opens with a gap hides part of the move. Suppose EUR/USD closed Friday at 1.0820 and opens on Monday at 1.0855 after weekend news. If Monday’s candle then trades between 1.0851 and 1.0884, its own range is only 33 pips. But price really travelled from 1.0820 to 1.0884 between one close and the next high: 64 pips. The true range captures that; the simple range does not.

True range is the largest of three distances. On most candles it is simply high minus low. When price gaps up, it runs from the previous close to the high; when price gaps down, from the previous close to the low.

On a candle without a gap, the comparison changes nothing. If a candle closes at 1.0872 and the next one opens there, rises to 1.0880 and falls to 1.0806, the previous close sits inside the new candle’s range, so the largest distance is simply high minus low: 74 pips. The three-way test only matters when price jumps, and then it makes sure the jump is counted.

In forex, true gaps are less common than in shares or futures, because the market trades around the clock from Monday morning in Asia to Friday evening in New York. Most of the time, TR equals high minus low. The exceptions come at the weekend open, when news over Saturday and Sunday can move the first price on Monday, and around sudden events that make prices jump in thin liquidity. Those are exactly the moments when a stop is most likely to be skipped, so it makes sense that a volatility measure should notice them.

How average true range is calculated

Once every candle has a true range, ATR is their average. Wilder used 14 periods, and almost every platform still defaults to 14. Here are five illustrative daily EUR/USD candles, including one weekend gap, worked through by hand:

Day	Prev close	High	Low	H − L / H − PC / PC − L (pips)	True range
Thu	1.0812	1.0848	1.0795	53 / 36 / 17	53
Fri	1.0840	1.0856	1.0815	41 / 16 / 25	41
Mon (gap)	1.0820	1.0884	1.0851	33 / 64 / 31	64
Tue	1.0872	1.0880	1.0806	74 / 8 / 66	74
Wed	1.0815	1.0848	1.0808	40 / 33 / 7	40

The five true ranges add up to 272 pips, so a five-period average true range would be 54.4 pips. Using high minus low alone would give 241 ÷ 5 = 48.2 pips. The 6-pip difference is all Monday’s gap: the simple range would have quietly ignored the weekend.

Wilder’s smoothing: why one wild day barely moves ATR

The very first ATR value is a plain average of the first 14 true ranges. After that, Wilder did not drop the oldest value and add the newest. He used a smoothing rule instead:

Today’s ATR = (yesterday’s ATR × 13 + today’s TR) ÷ 14

Each new candle gets a weight of one-fourteenth, and the old ATR keeps the other thirteen-fourteenths. Suppose yesterday’s 14-day ATR was 52.0 pips and today’s true range is 80 pips. Today’s ATR is (52 × 13 + 80) ÷ 14 = (676 + 80) ÷ 14 = 756 ÷ 14 = 54.0 pips. An 80-pip day lifted the average by only 2 pips.

This rule behaves like an exponential moving average: recent candles count more, and old ones fade gradually rather than dropping out all at once. (Mathematically it matches a 27-period exponential average.) The practical effect is that ATR is steady. One extreme candle nudges it; a run of busy candles moves it properly.

Illustrative: fourteen days of true ranges with one 150-pip news day. Wilder's smoothing lifts the 14-day ATR from about 60 to 66 pips on that day, and nine quiet days later it is still 63. ATR reacts to a regime, not to a single candle.

ATR settings: 14 and the alternatives

The default of 14 is a sensible middle ground, and there is rarely a reason to change it while you are learning. A shorter setting, such as 7, reacts faster to a change in conditions but is pushed around more by single candles. A longer one, such as 20 or 50, gives a calmer reading of the longer-term norm but is slow to notice that the market has woken up.

Two settings matter more than the period. The first is the timeframe. ATR is always calculated on the candles of the chart you are looking at, so the same pair has a different ATR on every timeframe. An hourly ATR is a fraction of the daily one, because one hour’s candle covers less ground than a whole day’s. Use the ATR from the timeframe you are trading on: a daily ATR is no guide to a stop on a 15-minute chart.

The second is the smoothing method. Some platforms let you choose between Wilder’s smoothing, a simple average and other moving averages, and not every platform uses Wilder’s method by default. The readings will differ slightly. That does not matter much, as long as you use the same method every time and judge your stops against the readings your own platform gives you.

Reading the ATR indicator in pips, including JPY pairs

Platforms usually show ATR as a raw price number, which trips people up the first time. To turn it into pips, use the same rule as for any price difference:

For pairs quoted to four decimals (five on most platforms), such as EUR/USD or GBP/USD, a pip is 0.0001. Multiply the ATR by 10,000: 0.0065 is 65 pips.
For pairs quoted in Japanese yen, such as USD/JPY or GBP/JPY, a pip is 0.01. Multiply by 100: an ATR of 0.85 is 85 pips.

Beginners who forget the yen rule often read a USD/JPY ATR of 0.85 as “less than one pip” and set a stop that is far too tight, or convert it with the wrong multiplier and set one a hundred times too wide. If you are unsure, test it: count the pips from a candle’s high to low with the counter below, and compare with what ATR says a typical candle does. Our guide to what a pip is in forex covers every conversion, and the lesson on pips and lots has the basics.

PairPrice beforePrice after

Move

Standard lot (100,000)

Mini lot (10,000)

Micro lot (1,000)

The highlighted digit is the pip. For USD/JPY the pip is the second decimal and its dollar value depends on the price.

Comparing volatility across pairs and timeframes

Once you have ATR in pips, it is tempting to compare pairs directly: USD/JPY’s 75-pip daily ATR looks half as busy again as EUR/USD’s 50. But pips are a different size on each pair, because each pair trades at a different price. A fairer comparison divides ATR by the price, giving the typical move as a percentage.

Turning an ATR reading into pips and into a percentage of price. In pips, USD/JPY looks 50% busier than EUR/USD; as a share of price, their typical daily moves are close. GBP/JPY is the genuinely more volatile pair. Illustrative readings.

The percentage view answers the question “how jumpy is this pair, really?” and it explains a lot about how pairs feel to trade. EUR/USD, the most traded pair in the world according to the BIS Triennial Survey, tends to be among the calmer majors relative to its price. Crosses such as GBP/JPY combine two currencies that can each move sharply, which is why our GBP/JPY trading guide treats it as a pair for experienced traders.

ATR also changes through the day. On an hourly chart, ATR built from the quiet Asian hours will understate how far EUR/USD moves once London opens, and the London and New York overlap is usually the busiest stretch (see our guide to forex market hours). On news days, such as the monthly US jobs report covered in our non-farm payrolls guide, a single candle can be several times the ATR. Read ATR as “normal for recent conditions”, and remember that conditions can change faster than a 14-period average.

Using ATR for your stop loss

The most popular use of the ATR indicator is setting stop distance. A stop placed inside the market’s normal noise will be hit by noise, whether or not your trade idea was right. ATR tells you how big that noise is.

An ATR stop is a multiple of the current reading:

For a buy: stop = entry − k × ATR
For a sell: stop = entry + k × ATR

The multiplier k is yours to choose and keep consistent. 1.5 to 2 × ATR is a common starting range for swing trades. Below 1 × ATR, the stop sits inside the distance a single ordinary candle covers. Above 3 × ATR, the stop is so far away that the position must be tiny to keep the risk acceptable, and the trade may need an unrealistic move to reach a sensible target.

Illustrative: with ATR at 20 pips, a stop at 1 × ATR is taken out by an ordinary dip of about 1.2 × ATR before the move begins. Stops at 1.5 × and 2 × ATR sit outside that noise and survive.

Combine ATR with the chart, do not replace it

An ATR stop on its own has one weakness: it knows how much the market moves, but not where your idea fails. A stop 2 × ATR below entry might land just above a swing low, where a routine retest would hit it. The strongest approach uses both. Find the price that proves the trade wrong on the chart first, then use ATR to check the distance and to size the buffer beyond it. This is the method taught in the Academy lesson on stop-loss placement, and our guide on where to place a stop loss covers structural stops in depth.

Step through the chart below to see the two checks working together on an illustrative GBP/USD four-hour chart.

Illustrative GBP/USD 4-hour chart. The swing low marks where the idea fails; ATR decides how much room to leave beyond it. Here 1.5 × ATR puts the stop 10 pips under the swing low, outside normal noise.

The same check works in reverse. If the structural stop is only half an ATR away, it is sitting inside normal noise: wait for a better entry, or use a deeper level. If it is four or five ATRs away, the trade is a long way from its invalidation point, and a sensible size may be too small to bother with. ATR is also the usual basis for the chandelier or ATR trailing stop, which keeps the stop a fixed multiple of ATR behind the best price since entry; our guide to the trailing stop loss shows how it moves.

Here is the trade from the chart in the risk/reward visualiser, with the entry, stop and target already filled in.

Entry priceStop lossTake profit

Risk

Reward

Reward-to-risk

Win rate needed to break even

Break-even win rate = 1 ÷ (1 + R), where R is the reward-to-risk ratio. Costs push the real figure a little higher.

ATR position sizing: equal risk on every pair

A wider stop is not more dangerous in itself. What matters is how much money you lose if it is hit, and that is controlled by position size. The rule from the position sizing lesson does not change:

Position size (lots) = money at risk ÷ (stop in pips × pip value per lot)

What ATR adds is consistency. If your stop is always a fixed multiple of ATR, a volatile pair automatically gets a wider stop and a smaller position, and a quiet pair a tighter stop and a larger one. The money at risk, your risk per trade, stays the same everywhere. That is ATR position sizing, and it is the reason many systematic traders like the indicator.

A baker in an apron portioning bread dough on a kitchen scale on a floured wooden counter. — A baker weighs each piece of dough so every loaf comes out the same. ATR position sizing applies the same idea to risk, so each trade puts the same amount of money at stake.

ATR position sizing: with stops at 2 × daily ATR, GBP/JPY needs a stop three times wider than EUR/USD, so it gets half the size. Every trade still risks the same $100. Illustrative ATRs; pip values at USD/JPY 150.

Check the arithmetic on the figure. EUR/USD: $100 ÷ (100 pips × $10) = 0.10 lots. USD/JPY at 150: one pip on a standard lot is 1,000 yen, about $6.67, so $100 ÷ (150 × $6.67) = 0.10 lots. GBP/JPY: its pip is also 1,000 yen per lot, so $100 ÷ (300 × $6.67) = 0.05 lots.

The same idea works over time on a single pair. When ATR doubles after a shock, an ATR-based stop doubles and the size halves, so a turbulent month does not quietly double your exposure. Our full guide to position sizing in forex covers pip values for every kind of pair, rounding and margin checks. Try the numbers from the worked example below in the calculator: $5,000, 1% risk, a 45-pip stop and $10 a pip.

Account balance ($)Risk per trade (%)Stop loss (pips)Pip value per standard lot ($)

Example: an ATR stop and size on GBP/USD, then a volatility shift

You have a $5,000 account and risk 1% per trade: $50.
GBP/USD is trending up on the 4-hour chart. The 14-period ATR reads 0.0030, or 30 pips.
After a higher low at 1.2685, you buy at 1.2720. Your rule is a stop at 1.5 × ATR: 1.5 × 30 = 45 pips, so the stop goes at 1.2675, 10 pips beyond the swing low.
Size: $50 ÷ (45 × $10) = 0.111, rounded down to 0.11 lots. Check: 0.11 lots is $1.10 a pip, and 45 × $1.10 = $49.50 at risk.
Target at twice the risk: 90 pips above entry, at 1.2810.
Three weeks later, after a surprise interest-rate decision, the same chart’s ATR is 0.0050 (50 pips). The same rule gives a stop of 1.5 × 50 = 75 pips.
New size: $50 ÷ (75 × $10) = 0.067, rounded down to 0.06 lots. Check: 75 × $0.60 = $45 at risk. The stop is two-thirds wider; the size shrank to match, and the risk stayed within your 1%.

What ATR cannot tell you

The commonest misunderstanding about ATR is reading it as a trend or a signal. It is neither. A rising ATR during a sell-off and a rising ATR during a rally look identical in the indicator panel. If you want to know which way the market is going, you need price structure, explained in our guide to how to identify a trend, or a directional indicator such as a moving average or RSI.

ATR also cannot tell you whether volatility is about to change. It is built from the past. Volatility does tend to cluster: busy days often follow busy days, and quiet spells can last a while. But a 14-period average will always be a step behind a sudden shift. When a central bank surprises the market, ATR catches up over the following days, not in the first minute.

A low ATR is sometimes described as “the calm before the storm”. There is something to it: markets that have been squeezed into a tight range often do eventually move sharply, and indicators such as Bollinger Bands are built around that idea. What a low ATR cannot tell you is when the move will come or which way it will go. A quiet market can stay quiet far longer than a waiting trader expects, and the first breakout can just as easily be a false one.

Finally, ATR cannot tell you how big a gap could be. An ATR stop is designed to sit outside ordinary noise, but over a weekend or a major announcement, price can jump straight past any stop and fill it at a worse level. ATR can help you see that those risks exist, because it rises when gaps happen, but no stop distance removes them. Position size and risk per trade remain your real protection.

Common ATR mistakes

Treating a rising ATR as a buy or sell signal

ATR rises with any strong move, up or down. Taking a trade because “ATR is spiking” is taking a trade without a direction. Use ATR to manage the trade; let price decide the trade.

Using ATR from the wrong timeframe

A daily ATR of 70 pips is meaningless for a stop on a 15-minute entry, and a 15-minute ATR of 6 pips is far too small for a swing trade held for days. Measure ATR on the chart whose candles you are trading.

Forgetting the yen pip

A USD/JPY reading of 0.80 is 80 pips, not 0.8 pips and not 8,000. Every stop and size you calculate from it depends on getting this conversion right.

Letting ATR override the chart

A stop at exactly 2 × ATR that sits a few pips above an obvious swing low will be hit by the first retest. Find where the idea fails, then use ATR to check the distance and set the buffer. If ATR and structure disagree badly, the trade is usually not worth taking.

Changing the multiplier from trade to trade

An ATR stop only gives you consistent risk if the rule is consistent. Choose a multiple, write it in your plan, test it over many trades and record the results in your trading journal. Shrinking the multiple when you want a bigger position is just moving the stop to suit your hopes.

Frequently asked questions

What does the ATR indicator tell you?

ATR tells you how far a market has typically moved per candle over the last 14 candles, counting any gaps from the previous close. It measures volatility in price units, so you can convert it to pips. It does not tell you the direction of the trend, whether a move will continue, or where to enter.

What is a good ATR multiplier for a stop loss?

Many traders start between 1.5 and 2 times ATR for swing trades, measured on the timeframe they trade. Below 1 times ATR, the stop sits inside the distance an ordinary candle covers. Above 3 times, the stop is so wide that the position must be very small. Test any multiplier on a demo before relying on it.

How do you read ATR on USD/JPY?

For yen pairs, a pip is the second decimal place, 0.01. Multiply the ATR reading by 100 to get pips: an ATR of 0.85 on USD/JPY means candles have averaged about 85 pips. For most other pairs, such as EUR/USD, multiply by 10,000 instead.

What is the best ATR setting?

The standard 14-period setting is a good default and is what most traders and examples use. Shorter settings react faster but are noisier; longer ones are smoother but slower to notice changes. The timeframe of the chart matters more than the period, so use the ATR from the chart you are actually trading.

Is a high ATR good or bad?

Neither. A high ATR simply means the market is moving more than usual, so stops need more room and positions need to be smaller to keep the same risk. A low ATR means moves are smaller and stops can be tighter. Both conditions can be traded sensibly if size follows the stop.

Does ATR predict direction?

No. True range counts the size of a move, not its direction, so a sharp rally and a sharp sell-off raise ATR equally. To judge direction, use price structure such as higher highs and higher lows, or a directional tool such as a moving average, and use ATR to set the stop and size.