ATR (Average True Range)
A volatility measure of how much a contract typically moves per bar — the standard tool for sizing stops and positions to current conditions.
What is ATR (Average True Range)?
ATR measures average bar-to-bar movement, gap-inclusive. It answers the sizing question every funded trader faces daily: how far is a “normal” move right now, and therefore how wide must a stop be to survive noise — and how many contracts does that stop allow against my drawdown?
How ATR (Average True Range) works
True range per bar = max(high−low, |high−prior close|, |low−prior close|); ATR averages it over the lookback. Sizing workflow: stop = k × ATR (commonly 1–1.5 on intraday timeframes), then contracts = account risk ÷ (stop in points × point value). When ATR doubles, the same stop distance in points is half as safe.
Worked example
NQ 5-minute ATR reads 25 points on a quiet morning: a 1.2×ATR stop is 30 points = $600/contract. CPI day, ATR reads 55: the same formula demands a 66-point stop = $1,320/contract — meaning half the size for identical account risk. The formula made the size-down decision automatic.
ATR (Average True Range) vs related concepts
Side-by-side comparison of ATR (Average True Range) against the most commonly confused alternatives.
| Concept | Definition | Category |
|---|---|---|
| ATR (Average True Range) this term | A volatility measure of how much a contract typically moves per bar — the standard tool for sizing stops and positions to current conditions. | Strategies |
| VWAP (Volume-Weighted Average Price) | The average price of a session weighted by volume — the institutional benchmark for fair value and one of the most-watched intraday levels in index futures. | Strategies |
| Tick Value | The dollar value per minimum price movement on a futures contract — multiplying tick value by ticks moved gives your dollar P&L change per contract. | Futures Mechanics |
| Daily Loss Limit | A cap on how much an account can lose in a single trading session — independent of cumulative drawdown — designed to prevent one bad day from ending the account. | Rules & Risk |
Why traders fail ATR (Average True Range)
Fixed-point stops across all regimes — a 20-point NQ stop is sensible at ATR 18 and a coin flip at ATR 50. Using ATR as a direction signal: it measures energy, not direction. Its whole job on a funded account is keeping your risk per trade constant while the market’s volatility isn’t.
Frequently asked questions about ATR (Average True Range)
What is ATR used for in trading?
Measuring current volatility to size stops and positions. A stop expressed in ATR multiples automatically widens in volatile conditions and tightens in quiet ones, keeping dollar risk consistent.
What is a good ATR-based stop for futures?
Commonly 1 to 1.5× the ATR of your trading timeframe, then position size is derived from that stop distance and your per-trade risk budget — not the other way around.