ATR stands for Average True Range. It measures how much a stock typically moves in a day, usually averaged over 14 sessions. It says nothing about direction. A stock rising steadily and a stock swinging wildly can both have a high ATR; the number only tells you the size of the normal move.
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How ATR is calculated
Each day's "true range" is the largest of three distances: today's high minus today's low, today's high minus yesterday's close, and yesterday's close minus today's low. Including the previous close means overnight gaps are counted too. ATR is the average of those true ranges.
Why swing traders use it
A stop placed inside a stock's normal daily move is likely to be hit by ordinary noise. ATR gives a simple way to keep the stop outside that noise.
- ATR stop: entry price minus a multiple of ATR, often 1.5 to 2 times.
- Position size: a wider ATR means a wider stop, so fewer shares for the same money at risk.
- Comparing stocks: ATR as a percent of price shows which names are calm and which are wild.
A worked example (hypothetical numbers)
A hypothetical stock trades at $60 with a 14-day ATR of $1.50. With a 2× ATR stop, the stop sits at $57, a risk of $3 a share. With $150 at risk on the trade, the position is 50 shares. The free stop loss calculator does this in seconds.
Using ATR well
- Combine it with structure. If support is at $57.40, a stop just below support may be better than an exact ATR number.
- Recheck it. ATR changes; a stock that becomes much more volatile needs a fresh look.
- Do not chase low ATR. Calm stocks are easier to manage, but they still need a reason to buy.
Education only, not financial advice. ATR measures movement; it does not predict direction.
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