ATR (Average True Range)
How far this thing actually moves per bar — the volatility yardstick behind every good stop and position size.
Core IndicatorsIntermediate 5 min read· Lesson 11 of 13 in Technical Analysis
Explanation & formula
True Range = max(high−low, |high−prev close|, |low−prev close|) — capturing gaps. ATR(14) is its Wilder-smoothed average: 'typical bar travel' in price units. NATR expresses it as % of price for cross-stock comparison.
Interpretation & use
ATR doesn't predict direction — it sizes NOISE. Stops belong outside noise: e.g. 2×ATR below entry survives normal wiggle; a fixed 'one dollar' stop is meaningless across a $20 and a $900 stock. Position sizing off ATR (risk budget ÷ ATR-stop distance) equalizes real risk per trade — the core of the Risk Management course.
Common mistakes
Setting identical %-stops on quiet and violent stocks, then wondering why the violent ones always stop out. Volatility is a property to measure, not an inconvenience to ignore.