Volatility watch: what's the range telling you?
Volatility regimes change the whole game: tight ranges starve breakout traders, wide ranges punish the patient. Watching volatility itself — ATR, VIX, option-implied — is a market read of its own.
What are you seeing?
- how current volatility compares with recent norms
- which pairs have compressed or expanded
- how you're adjusting to the regime
Background: ATR and volatility stops.
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.
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