Question 1

What is ATR (Average True Range)?

Accepted Answer

ATR is a technical indicator developed by J. Welles Wilder that measures market volatility. It calculates the average range between high and low prices over a period (typically 14 days), accounting for gaps. A higher ATR indicates higher volatility.

Question 2

How does ATR-based position sizing work?

Accepted Answer

Instead of using a fixed pip or price stop, you set your stop loss at a multiple of ATR (e.g. 2×ATR). This adapts position size to each instrument's natural volatility — tightening positions in volatile markets and allowing larger positions in quiet ones.

Question 3

What ATR multiple should I use for stop losses?

Accepted Answer

Common values are 1.5× to 2.5× ATR for swing trading, and 0.5× to 1× ATR for shorter-term approaches. There is no universally correct answer — it depends on your strategy and the instrument's typical price behaviour.

Question 4

Is ATR sizing better than fixed pip stops?

Accepted Answer

ATR sizing adapts to market conditions, which can reduce the rate of being stopped out by normal volatility. However, it requires more complex calculation and ATR values change over time. It is most commonly used in systematic and trend-following strategies.

ATR Position Size Calculator