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ATR (Average True Range)

The average size of a bar's full range over N periods, including gaps; a plain measure of how much an asset moves.

A trailing stop held two ATRs under a rising priceA rising price line with a stepped line below it that climbs whenever price climbs and holds its level whenever price falls, until price drops onto it.PRICE AND A TRAILING ATR STOP2 × ATRstop hittrailing stoppriceIllustrative prices. The stop follows price up and never moves back down.
A trailing stop set by ATR. Average true range measures how far a market typically travels in a session, so a stop placed a multiple of ATR under price leaves room for ordinary swings. The step line only ever ratchets up, and the circle marks where price falls onto it.

True range is the largest of: high minus low, high minus prior close, or prior close minus low. ATR averages that over 14 periods by default. It is expressed in price, not percent.

ATR is the workhorse for position-sizing and stop-loss placement because it adapts to the instrument. A 2-ATR stop on a quiet stock and on a volatile one represent similar amounts of normal noise.

Example: a stock at $80 has a daily ATR of $2.40. A stop 1.5 ATR away is $3.60 below entry. Risking $300 means a position of 83 shares.

Related: volatility, position-sizing, stop-loss, trailing-stop

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