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ATR: Place Stop Losses Using Volatility, Not Guesswork

The Average True Range measures typical movement. Use it to set stops, size positions and avoid being stopped out by noise.

What ATR is

Average True Range (ATR) averages the full range of recent candles, including gaps. A 14-period ATR on the daily chart tells you roughly how far the instrument typically moves in a day.

ATR stops

A common method is to place the stop 1.5 to 3 ATR away from entry. This adapts automatically: stops widen in volatile markets and tighten in quiet ones. A stop smaller than one ATR is often just noise.

Sizing with ATR

Wider stops mean smaller positions. If your stop is 2 ATR and you risk 1% of the account, divide the money at risk by the stop distance to get the size. Your risk in money stays constant even as volatility changes.

Other uses

ATR helps choose targets (for example 2 to 3 ATR) and judge whether a move is large for the day. You can test ATR-based stops in our backtester using the stop-loss option.

Example: a 2 ATR stop

EUR/USD has a daily ATR of 70 pips. A swing trader buys at 1.1000 with a 2 ATR stop, 140 pips away at 1.0860. Risking 1% of a $10,000 account ($100) means a size of about 0.07 lots (140 pips × $0.70 per pip per 0.07 lot ≈ $98).

The same trade with a 20-pip stop would almost certainly be stopped out by normal daily noise. Let volatility set the stop, then let the stop set the size.

Choosing the multiple

A 1.5 ATR stop suits short-term trades and lets you risk less per trade; 2 to 3 ATR suit swing trades. Larger multiples give fewer stop-outs but need smaller size. Test your own multiple by checking, over the last 100 trades, how often the market hit your stop and then went on to your target.

Key takeaways

ATR measures typical movement.
Stops of 1.5-3 ATR avoid noise.
Wider stop = smaller size.
Keep risk in money constant.

Educational content, not financial advice.