Guide · Risk Management
Average True Range: Measuring How Far a Market Normally Moves
ATR tells you the typical daily range of an asset, gaps included. It says nothing about direction, which is exactly why it's so useful for stops and position sizing.
Average True Range, or ATR, answers a narrow question: how much does this market usually move in one period? It was introduced by J. Welles Wilder in 1978, and it remains one of the most practical indicators because it doesn't try to predict anything. It simply measures the size of recent candles.
The building block is the true range of each candle, which is the largest of three numbers: today's high minus today's low, the distance from yesterday's close to today's high, and the distance from yesterday's close to today's low. The extra two cases capture gaps — if a market closes at 100 and opens the next day at 110, a plain high-low range would miss the jump. ATR is then an average of those true ranges, most commonly over 14 periods. Wilder used a smoothed average; many charting tools offer a simple one. The difference is small for practical purposes.
Expressed as a percentage of price, ATR makes very different markets comparable. Using simple 14-day averages of Binance daily candles through October 2, 2026: tokenized gold (PAXG) moved about 1.4% on a typical day, bitcoin about 2.8%, ether about 3.3%, and The Sandbox's SAND token about 7.5%. A move that would be extraordinary for gold is an ordinary Tuesday for a small gaming token, and ATR puts a number on that difference.
ATR also shows when the character of a market changes. Before October 2, SAND's 14-day ATR was about $0.0033, or 7.3% of its price. That day it rose 53.8%, with a true range of about $0.029 — nearly nine times its recent average — on more than 40 times its usual daily volume. A single candle that size pushes the average up immediately and keeps it elevated for the next two weeks, a mechanical reminder that a market which just made a huge move is likely to keep making large ones in both directions.
The most common use is stop placement. A stop set at a fixed percentage ignores how noisy the asset is: a 2% stop on SAND would be hit by ordinary fluctuation, while a 2% stop on gold is already wider than a normal day. Many traders instead place stops at a multiple of ATR, often 1.5 to 3 times, beyond their entry or invalidation level. Position size then follows from the stop distance: the wider the ATR-based stop, the smaller the position needed to keep the same amount of money at risk.
Its limits are worth stating plainly. ATR is backward-looking, so it lags at exactly the moments it matters most — it was still describing a quiet SAND on the morning of October 2. It has no direction: a high ATR can come from a crash or a rally. And it says nothing about where support or resistance sits. Use it to size risk to the market in front of you, not to decide whether to trade at all.