What it is
J. Welles Wilder introduced ATR in 1978. True range is the size of a candle measured properly: it includes any gap from the previous close, so a market that gaps up and keeps going is not under counted.
ATR is in the market's own units. On a 15 minute gold chart it might read 3 points in a quiet hour and 10 points around a US data release; on US30 it might read 20 or 80. That makes it the natural yardstick for how far a stop needs to be.
How it is calculated
True range for each candle is the largest of: high minus low; the gap between the high and the previous close; the gap between the low and the previous close. ATR smooths true range with Wilder's method over 14 candles: new ATR = (previous ATR x 13 + this true range) / 14.
Settings
| Setting | Default | Range | What it changes |
|---|---|---|---|
| length | 14 | 1 to 200 | How many candles the true range is averaged over. Shorter reacts to a change in activity sooner; longer is steadier. |
How to read it
How to trade it
- 1
Read the ATR on your entry timeframe before placing a trade. On a 15 minute gold chart with ATR at 5 points, a 1.5 ATR stop is 7.5 points.
- 2
Place the stop 1.5 to 2 x ATR beyond your entry level or beyond the swing low, whichever is further.
- 3
Set the first target at 2 to 3 times the stop distance.
- 4
Size the position so the stop distance in points equals the risk you accept, using the market's value per point on your lot size.
- 5
Trail the stop at 2 to 3 x ATR behind price once the trade is in profit.
ATR does not give direction, so it does not cancel a trade by itself; your stop does. If ATR jumps to more than double its recent level just after entry, the market conditions your stop was sized for have changed and the plan should be reviewed.
On WickSpeak, ATR writes a plain-English reading on the live candle: how big candles are right now in points, whether the market is waking up or calming down, how to use that for stops and what would change the read. In Playbook you can test whether ATR is rising or falling, and set stops in ATR multiples and trailing stops on ATR.
Best markets and timeframes
Useful on every market and timeframe. Use the ATR of the timeframe you trade from: a 15 minute ATR for a 15 minute entry, and the daily ATR to judge how much of the day's usual range is left.
Common mistakes
- Reading high ATR as bullish or bearish. It only measures size.
- Using a fixed point stop on gold every day when its candle size changes a lot between sessions.
- Using the daily ATR to size a stop on a 5 minute trade.
Works well with
Questions traders ask
What is a good ATR stop loss?
Many traders use 1.5 to 2 x ATR on their entry timeframe, beyond a swing level. Tighter stops get hit by normal noise; wider ones need a smaller position.
What does a high ATR mean?
Candles are larger than usual, so the market is moving a lot. It says nothing about direction.
What is the ATR of gold?
It changes all the time with the session and the news. Check the live ATR on the timeframe you trade rather than relying on a fixed figure.
Why is ATR 14 the default?
Wilder used 14 periods in his original work, and it remains the standard most traders and platforms use.