ATR targets and trails: how do you use volatility in your plan?

FTC Community TeamStaff17 Sept 202612 views

Using ATR to set stops is common; using it for targets and trailing is rarer and often better. A 2× ATR move is a meaningful day on any pair, whatever the pip count.

ATR targets and trails: how do you use volatility in your plan? — pip movement diagram — How a pip moves the exchange rate

How do you use ATR?

the period and time frame you read it from
whether targets scale with ATR or stay fixed
how you trail a position using volatility instead of pips

ATR targets and trails: how do you use volatility in your plan? — support and resistance diagram — Price bouncing between support and resistance

The ATR guide has the worked examples.

Background: Average true range (ATR): measuring volatility and setting stops

ATR shows how far a pair typically moves in a period. Here is how true range is calculated, and how traders use ATR to place stops and size positions.

How is ATR calculated?

True range for each period is the largest of high minus low, high minus the previous close, and low minus the previous close, ignoring signs. ATR averages true range, typically over 14 periods with Wilder's smoothing.

What ATR multiple should I use for a stop-loss?

Many traders use 1.5 to 2 times ATR, but there is no correct number. Wider stops are hit less often and need a smaller position to keep the same amount of money at risk.

Read the full guide

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