01Entry idea
Volatility breakout
A directional-neutral breakout trigger that scales naturally to any asset's typical range.
VolatilityExpert Curated · Playbook
ATR
Average True Range
A non-directional measure of volatility: the average size of the bar-to-bar true range over a chosen lookback.
ATR is a non-directional volatility indicator that measures the average size of recent bar ranges. Developed by J. Welles Wilder, it uses 'true range' (which accounts for gaps) and smooths it over 14 bars by default. Used for stop-loss sizing, position sizing, and volatility-regime filtering — not for direction.
Average True Range, introduced by J. Welles Wilder, measures volatility by averaging the true range over N bars (typically 14). True range itself is the greatest of: current high minus current low, the absolute value of current high minus previous close, and the absolute value of current low minus previous close.
ATR tells you nothing about direction — only about how much the asset is moving on average. That makes it the workhorse of risk management: position sizing, stop-loss placement, take-profit targets, and volatility-regime filtering. It also pairs well with any directional indicator to size trades dynamically to current conditions.
Entry ideas
How do I enter trades using ATR?
02ideas
02Entry idea
Low-volatility accumulation
An early-accumulation long that scales into symbols coiling for a breakout.
Exit ideas
When should I exit an ATR trade?
03ideas
01Exit idea
ATR trailing stop
The staple volatility-adaptive exit for trend-following systems.
02Exit idea
ATR take-profit target
A volatility-aware fixed target that gives consistent risk-reward across any asset.
03Exit idea
Volatility contraction exit
An early-exit rule that closes trades when the move dies even before price reverses.
Utilities
What else is ATR good for?
03ideas
01Utility
Wide-bar skip filter
A discipline filter that skips entries on bars that have already moved too far, avoiding chasing.
02Utility
Low-conviction trade filter
A regime filter that protects P&L by sitting out dead-flat markets.
03Utility
Chandelier exit
A profit-locking trailing stop that tightens as the trade extends, giving volatility room.
How do I read ATR?
- ATR rising = volatility expanding. Common at trend starts, news events, and breakouts.
- ATR falling = volatility contracting. Common in late-stage trends, consolidation phases, and overnight sessions.
- ATR is in price units — for SPY at $400, ATR(14) might be $4 (1% daily range). Compare ATR to price level for percentage volatility.
- ATR is non-directional. A rising ATR does not mean rising price — it means rising bar size in either direction.
- Multi-bar ATR lows often precede expansion moves. ATR at a 60-bar low is a coiled-spring volatility regime worth watching for breakouts.
- Use ATR multiples to set adaptive stops: a 2× ATR stop scales with the asset's recent volatility, unlike a fixed-percentage stop.
What are the default ATR settings?
| Parameter | Default | When to adjust |
|---|---|---|
| Length | 14 | Wilder's original setting. Drop to 7 for faster volatility adaptation; raise to 21 for smoother readings on noisy assets. |
| Smoothing method | Wilder (RMA) | Pine's ta.atr() uses Wilder's smoothing by default. Custom EMA-based ATRs produce different (faster) values. |
| Stop multiplier | 1.5–3.0 | Common range for ATR-based stops. Tighter (1.5) for quick scalp trades; wider (3.0) for trend-following positions. |
| Take-profit multiplier | 2.0–5.0 | Set risk-reward target as multiple of ATR. 2× ATR target is conservative; 5× is for trend riders. |
How do I code ATR in Pine Script?
//@version=5
indicator("ATR Example", overlay=false)
length = input.int(14, title="Length", minval=1)
multStop = input.float(2.0, title="Stop Multiplier", minval=0.1, step=0.1)
atrValue = ta.atr(length)
plot(atrValue, title="ATR", color=color.purple, linewidth=2)
// Position-sizing reference (in price units):
// stopDistance = atrValue * multStop
// e.g., long entry at close, stop = close - stopDistancePine's ta.atr() returns ATR directly — it bundles the True Range calculation and Wilder smoothing internally. ATR plots as a single line in its own pane. To use it for stops, multiply by your chosen multiplier and subtract from entry price. The commented lines show the pattern most strategies use for ATR-based stop placement.
How is ATR calculated?
ATR averages the true range over a chosen lookback period. True range is the largest of three measurements that account for both within-bar movement and gap risk.
- 1.For each bar, compute True Range (TR) as the maximum of: (high − low), |high − previous close|, and |low − previous close|.
- 2.The absolute-value terms ensure gaps are captured — if a stock gaps up overnight, TR includes the gap.
- 3.Smooth True Range with 14-bar Wilder smoothing (RMA in Pine Script) to get ATR.
- 4.ATR is non-directional: a high value means large bars (volatile market), low means small bars (calm). It says nothing about direction.
- 5.Multiply ATR by 1.5–3 to size stops or take-profit targets that adapt to current volatility.
When does ATR fail?
ATR does not really "fail" — it accurately measures volatility. The failures come from misusing it.
Confusing magnitude for direction. ATR rising tells you bars are getting bigger; it does not tell you whether price is going up or down. Treating ATR like a directional indicator produces nonsense signals.
Using ATR alone for entries. ATR has no buy/sell logic embedded — it is a sizing and risk-management tool. Strategies that fire entries on "ATR crosses X" rarely have edge because they are trading volatility shifts, not directional bias.
Stop multipliers on illiquid assets. A 2× ATR stop on a thinly traded crypto pair can be wider than the typical retracement, leading to trades that should have stopped out riding into ruin.
Pair ATR with a directional indicator (EMA, MACD, Supertrend) for entry logic and use ATR purely for sizing, stops, and regime filtering.
What mistakes do traders make with ATR?
- Treating ATR as a directional indicator. ATR measures bar size, not direction. A spike in ATR can come from a breakout up or a breakdown down — by itself it is neutral.
- Using fixed-percentage stops instead of ATR-based stops on volatile assets. A 2% stop on Bitcoin gets hit constantly; a 2× ATR stop adapts to BTC's actual volatility.
- Ignoring ATR when sizing positions. Two trades with the same dollar risk should have inversely sized positions: more shares of a low-ATR asset, fewer of a high-ATR one. Many traders skip this and over-size on volatile names.
- Using ATR(1) for stop-loss calculations. ATR with a very short lookback is just bar range; you lose the smoothing that makes ATR robust. Stick with 14, occasionally 7 for fast markets.
- Setting take-profit equal to stop distance. A 1:1 risk-reward looks fine in theory but rarely beats break-even after fees and slippage. Aim for at least 2× ATR target on a 1× ATR stop.
How does ATR compare to similar tools?
| Indicator | When to prefer |
|---|---|
| Bollinger Bands | Bollinger Bands give volatility-adjusted price levels (where the bands sit); ATR gives volatility magnitude in raw price units. Use BB for entry context, ATR for risk sizing. |
| Standard deviation | Standard deviation is symmetrical around the mean (used in Bollinger Bands); ATR uses true range and accounts for gaps. For gap-prone assets like stocks at the open, ATR is more accurate. |
| Supertrend | Supertrend uses ATR internally to size its trend-following stop. If you want a directional signal with built-in volatility-aware stops, use Supertrend. If you want raw volatility data, use ATR directly. |
ATR FAQ
Why use ATR instead of standard deviation?
ATR uses 'true range,' which captures price gaps (e.g., overnight moves on stocks). Standard deviation uses bar-to-bar closes, missing intraday movement and gaps. For risk management on gap-prone assets like stocks or crypto over weekends, ATR gives a more accurate volatility picture.
What's a good ATR multiplier for stop-loss?
A 2× ATR stop is a common starting point — wide enough to avoid normal retracements, tight enough to limit damage on a wrong call. For trend-following systems holding multi-day, 3× ATR is more typical. For scalp strategies on 1–5 min charts, 1× ATR is common. Always backtest the multiplier on your specific asset and timeframe.
Does ATR work on crypto?
Yes — ATR works on any asset with continuous OHLC data. Crypto's high volatility and 24/7 markets make ATR particularly useful for sizing: a fixed-percentage stop that works on stocks gets blown out on Bitcoin, while ATR-based stops scale with each pair's actual volatility.
How do I use ATR for position sizing?
Decide a fixed dollar risk per trade (say 1% of account). Compute the stop distance as N × ATR (e.g., 2× ATR). Position size = dollar risk ÷ stop distance. This gives equal dollar exposure across volatility regimes — fewer shares of volatile assets, more of calm ones.
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Each entry, exit, and utility rule in the Playbook is hand-picked from established trading literature, validated against historical backtests, and reviewed by the PineWiz team. We add new ideas as we encounter them and refresh existing ones when market behavior or default settings shift. Last review: .
Educational content. Not financial advice.