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Back to Indicators
VolatilityLagging

ATR — Average True Range

Overview

ATR measures market volatility by calculating the average range of price bars over a specified period — it is essential for position sizing, stop-loss placement, and identifying volatility shifts. Use our position size calculator to convert ATR readings into proper trade sizing instantly. Read the stop-loss guide and the position sizing guide to master ATR-based risk management across every market. ATR adapts to any asset — apply it in crypto, stocks, and forex for volatility-adjusted trading.

How It Works

True Range = max of (High − Low), abs(High − Previous Close), abs(Low − Previous Close). ATR = 14-period smoothed average of True Range. Higher ATR = more volatile; lower ATR = less volatile.

Key Signals

  • Very low ATR often precedes breakout moves (volatility contraction → expansion).
  • Set stop-losses at 1.5-2x ATR below entry for proper breathing room.
  • Position size = risk per trade / (ATR × multiplier) for volatility-adjusted sizing.
  • Expanding ATR confirms a strong move; contracting ATR during a trend warns of exhaustion.

Common Mistakes

  • Using fixed-pip stop-losses instead of ATR-based stops — ATR adapts to current volatility.
  • Treating ATR as a directional indicator — it only measures magnitude, not direction.
  • Using ATR 14 universally without adjusting for different assets and timeframes.

More Volatility Indicators

Chaikin Volatility

Chaikin Volatility measures the rate of change of the difference between high and low prices, providing a unique view of how the trading range is expanding or contracting. Unlike <a href="/academy/indicators/atr" class="text-primary hover:underline">ATR</a>, which smooths absolute range, Chaikin Volatility focuses on the acceleration of range changes. It is useful in <a href="/market/stocks" class="text-primary hover:underline">stock</a> and <a href="/market/forex" class="text-primary hover:underline">forex</a> markets and can be explored alongside other volatility tools in our <a href="/academy/indicators" class="text-primary hover:underline">indicator guide library</a>.

Bollinger Bands — Volatility Envelopes

Bollinger Bands plot a moving average with upper and lower bands set at 2 standard deviations, expanding during high volatility and contracting during low volatility to create actionable squeeze and breakout signals. The Bollinger Squeeze is especially powerful when combined with <a href="/academy/indicators/keltner-channels" class="text-primary hover:underline">Keltner Channels</a> in the TTM Squeeze setup, a favourite of professional traders. Pair Bollinger Bands with the <a href="/academy/indicators/rsi" class="text-primary hover:underline">RSI</a> to filter false signals and confirm <a href="/guides/trade-breakouts" class="text-primary hover:underline">breakout entries</a>. Set them up on <a href="/tools/platforms/tradingview" class="text-primary hover:underline">TradingView</a> for real-time alerts and multi-timeframe analysis.

Mass Index

The Mass Index identifies potential trend reversals by measuring the narrowing and widening of the range between high and low prices, generating a "reversal bulge" signal when the range first expands then contracts. It is a unique contrarian tool for <a href="/market/stocks" class="text-primary hover:underline">stock</a> and <a href="/market/forex" class="text-primary hover:underline">forex</a> traders. Combine Mass Index reversal signals with momentum tools from our <a href="/academy/indicators" class="text-primary hover:underline">indicator guide library</a> for higher-probability entries.

Ulcer Index

The Ulcer Index measures downside volatility by calculating the depth and duration of drawdowns from recent highs, providing a risk metric that focuses exclusively on the pain investors care about most. It was created by Peter Martin specifically for evaluating <a href="/market/stocks" class="text-primary hover:underline">stock</a> fund performance. Incorporate the Ulcer Index into your risk management alongside tools from our <a href="/academy/indicators" class="text-primary hover:underline">indicator guide library</a> to protect capital during volatile markets.

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