Technical Analysis
ATR (Average True Range) — Definition & Example
A volatility measure showing the typical range a price moves per period — useful for stop placement and sizing.
ATR averages the "true range" (greatest of: today's high-low, today's high to yesterday's close, today's low to yesterday's close) over a lookback (typically 14). It tells you how much an asset usually moves per bar. Stops placed at less than 1×ATR are typically too tight; trailing stops at 2-3×ATR balance protection with breathing room. ATR-sized position sizing keeps risk constant across instruments of different volatility.
Example
A stock trades at ₹500 with 14-day ATR of ₹8. A stop placed ₹3 away (less than 0.5×ATR) is likely to be hit by normal noise. A stop at ₹490 (1.25×ATR) is more reasonable.
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