Plain-English definition
ATR smooths true range to describe how much an instrument has recently moved per candle.
What it measures
Volatility—not market direction.
Formula
True range is the greatest of high−low, |high−previous close|, and |low−previous close|. ATR is a smoothed average of true range.
How to read it
A rising ATR means movement is expanding. A falling ATR means movement is contracting. Values must be interpreted in the instrument’s price units.
Common signals
- Volatility expansion
- Volatility contraction
- ATR-multiple stop
- Volatility-normalized filter
Best market conditions
Risk sizing, stop calibration, volatility filters, and cross-regime comparisons.
Weak market conditions
Directional prediction. ATR reacts to movement and does not say which way price will go.
Default settings
Wilder’s 14-period smoothing is common.
Alternative settings
Shorter lengths react quickly; longer lengths create a more stable volatility baseline.
Repainting and confirmation
Standard ATR is fixed after the source candle closes.
Common mistakes
- Using ATR as a direction signal
- Ignoring contract value
- Applying one multiplier everywhere
- Widening risk without reducing size
Example use
If the tested stop expands from one to two ATR, reduce position size so the currency amount at risk stays unchanged.
Strategy ideas worth testing
- ATR regime filters
- Volatility-normalized stops
- Position-size adjustment
- Expansion after compression
Complementary indicators
Summary verdict
One of the most practical risk inputs available, provided contract value and market regime are handled correctly.
Frequently asked questions
Does high ATR mean price will fall?+
No. ATR has no direction.
Can ATR set my position size?+
It can define stop distance, which can then feed a position-size calculation.
Does ATR repaint?+
Not after candle close in a standard implementation.