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What is ATR?

ATR (Average True Range) is the average price range over the last N bars, used to measure volatility and set stop distances that fit the market.

BeginnerAURORA StandardAURORA Pro6 min read
Topic: Risk & Position SizingMarket: All marketsAuthor: KenvinHoangReviewer: KapyBara✓ Reviewed 14 Oct 2026
The question

Is a 10-point stop far or near? Is the answer the same for gold today and gold last year?

After this lesson you will

  • Calculate a candle's True Range, including when there is a gap
  • Understand what ATR measures and what it does not
  • Use ATR to express stop distances and candle sizes

What is ATR?

ATR (Average True Range), introduced by J. Welles Wilder, measures a market’s volatility.

Step 1, a candle’s True Range: take the largest of three numbers:

  • High − Low.
  • |High − Previous close|.
  • |Low − Previous close|.

The last two make True Range include gaps: when price opens far from the previous candle, the real range is larger than the range visible in the candle itself.

Step 2, ATR: the average True Range over the last N bars, usually N = 14. Wilder used his own smoothing method, but the meaning is the same: “how much the market moves per bar on average”.

Why does ATR matter?

  • Knowing whether a distance is far or near. A 10-point stop can be 0.5 ATR today but 2 ATR in a quiet market.
  • Comparing markets. “1.5 ATR” means the same thing on gold, NAS100 or EURUSD; “10 points” does not.
  • Adjusting size. When ATR rises, a sensible stop is farther away, so size must shrink to keep the money at risk constant.

Common misunderstandings

  • High ATR is a buy / sell signal. ATR has no direction. It only tells you whether swings are large or small.
  • Daily ATR applies to M15. ATR depends on the timeframe; check it on the one you trade.
  • A 1-ATR stop is the standard. No number is right for every strategy; ATR is only a unit of measure.
  • ATR forecasts future volatility. ATR describes the recent past; major news can change volatility instantly.

Chart example

Illustration of calculating True Range with a gap, and the ATR formula Illustration. The second candle’s high − low is only 2.5, but because of the gap its True Range is 4.8.

How does AURORA use ATR?

ATR is the unit of measure throughout AURORA:

  • The Trailing line: sits a multiple of ATR from its pivot anchor, so it adapts to volatility.
  • Pullback Entry: used only when the Break candle is 1.8 ATR or longer.
  • Stop limits:
    • AURORA Pro, Entry Filter Profile Balanced / Strict: Break stop at most 4 / 3 ATR.
    • SMC: structural stop at least 0.3 ATR, with a ⚠SL warning above 4 ATR.
  • Warning colour: the Trailing line shifts gradually to orange as price comes within about 0.5–3 ATR.
  • Scoring: many Score and Setup Quality components measure candle size and price stretch in ATR.

What ATR does not tell you

  • Direction. Strong rallies and strong sell-offs both have high ATR.
  • Upcoming volatility. News, sessions and holidays change volatility suddenly.
  • The optimal distance. Which ATR multiple suits your strategy must be tested on your own data.

Practical checklist

  • Check ATR on the exact timeframe you trade.
  • Express stop distances in ATR to compare markets.
  • Avoid stops smaller than about half an ATR: noise tags them easily.
  • When ATR jumps, reduce size to keep the money at risk constant.
  • Remember ATR says nothing about direction.

Video Explainer

The video for this article is in production. The full written lesson is already complete.

Video chapters

  1. Is 10 points far or near?
  2. True Range and gaps
  3. ATR averages True Range
  4. ATR in AURORA
  5. What ATR does not tell you
Show transcript
Is a stop 10 points from entry far or near? It depends on how much the market is moving. ATR answers that question with a single number. First comes True Range: a candle's real range, the largest of high minus low and the distance from the previous close to this candle's high or low. That includes gaps. ATR is the average True Range over the last N bars, usually 14. With ATR you can say "the stop is 1.5 ATR away" instead of "10 points away", and compare gold, indices and currencies. But ATR only measures how big the swings are; it says nothing about whether price will go up or down.

Product documentation

Educational and decision-support content, not investment advice. Chart examples are illustrative or historical and do not guarantee future results. Trading carries a risk of capital loss.