ATR-Based Stops

Average True Range measures how much a stock typically moves in a day. Here is how it is calculated and how traders use it to set stops that fit each stock’s volatility, with real examples.

What ATR measures

True Range for a day is the largest of three numbers: today’s high minus today’s low, the distance from today’s high to yesterday’s close, and the distance from today’s low to yesterday’s close. Including yesterday’s close captures gaps. Average True Range (ATR) is the average of the true range, most often over 14 days.

ATR is in dollars, not percent. Divide it by the stock price to compare stocks: an ATR of 3% means the stock typically moves about 3% a day.

A calm stock and a volatile stock: same trend, very different daily ranges.

Unlock all of Investing School

The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.