Charts and indicatorsUpdated 2 min readBy the FXNOD team
ATR indicator explained: measuring volatility for stops and size
The Average True Range, ATR, measures volatility as the average size of a candle over recent periods, usually 14. It says how far a market typically moves in one period, in price units. ATR gives no direction. Its job is practical: setting a stop far enough away to survive normal movement, and sizing the position to match.
How it is calculated
The true range of a period is the largest of three values: the high minus the low, the high minus the previous close, and the previous close minus the low, each taken as a positive number. Using the previous close captures gaps. ATR is the average of the true range over 14 periods, smoothed.
Reading it
- A rising ATR means candles are getting larger.
- A falling ATR means the market is quietening.
- A high ATR is not bullish or bearish. Volatility rises in falls as well as in rallies.
- ATR is in price units, so compare it with the price, or with its own history, not with another market's.
Setting a stop with ATR
A stop closer than one ATR is inside the market's ordinary noise and will be hit by movement that means nothing. A common approach places the stop 1.5 to 2 ATR from the entry, beyond a level. If ATR on your chart is 0.0020 and you use 2 ATR, the stop is 0.0040 away.
Sizing the position
| ATR | Stop at 2 ATR | Position size to risk 10 (value 1 per pip per mini lot) |
|---|---|---|
| 10 pips | 20 pips | 0.5 mini lots |
| 20 pips | 40 pips | 0.25 mini lots |
| 40 pips | 80 pips | 0.125 mini lots |
When volatility doubles, the stop doubles and the position halves. The money at risk stays the same. That is the main reason to have ATR on a chart.
Other uses
- Trailing stops that follow the price at a multiple of ATR.
- Judging whether a target is realistic for the time available.
- Filtering: skipping trades when ATR is unusually low or high for your method.
In FXNOD
ATR is one of the indicators available in Bot Forge. On Deriv's volatility indices the volatility is fixed by design, so ATR there mostly confirms what the index's name already tells you.
Questions people ask
- What is a good ATR value?
- There is none in general. ATR is in price units and only means something relative to the market's price and its own history.
- What is the best ATR period?
- 14 is standard. Shorter reacts faster to changes in volatility; longer is steadier.
- Does ATR show trend direction?
- No. It measures the size of movement only.
Put it on a chart
Trade Pilot's chart has moving averages, RSI and Bollinger Bands, and a bot in Bot Forge can use indicators to choose its side. Try both on your Deriv demo account.
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