The Average True Range (ATR) averages the size of recent candles, including gaps. A 14-period ATR on a 1-hour chart tells you how much the market typically moves in an hour lately. It says nothing about direction.
Three practical uses
- Stops: 1–2 × ATR beyond the entry or beyond the structure level.
- Targets: compare your target with the daily ATR. A target bigger than one full daily range is unlikely to be reached today.
- Size: when ATR doubles, halve the position to keep the same risk.
Reading changes in ATR
Rising ATR means volatility is expanding, often after news or at session opens. Falling ATR means the market is quiet and ranges are compressing, which often comes before a breakout.