ATR-Based Stops Explained: Using Average True Range

What Is ATR and Why Use It for Stops?

Average True Range (ATR) measures typical price movement over a chosen period by combining intraday range and gaps. In plain terms, it tells you how much a market usually swings. ATR-based stops adjust to volatility: wider when price is lively, tighter when it’s calm. This helps avoid stops that are too tight in fast markets or too loose in quiet ones.

Unlike fixed-distance stops, ATR-based stops scale with the timeframe you trade. Intraday traders may read ATR on 1–15 minute charts, while swing traders often use daily ATR. The goal is consistency: similar volatility risk across trades.

How to Place ATR-Based Stops (Step-by-Step)

1. Choose your chart timeframe and an ATR length (14 periods is a common starting point).
2. Read the current ATR value from your chart.
3. Select a multiple (for example 1x, 1.5x, or 2x ATR) that fits your style and market.
4. For long trades, place the stop below entry by your chosen ATR multiple; for shorts, place it above entry by that amount.
5. Optional: anchor to structure. Place the stop beyond a recent swing low/high, then add an ATR buffer.

Trailing with ATR

To trail a stop, re-calc the stop level as price moves in your favor using the same ATR multiple. Many traders only tighten (never loosen) the stop. This approach adapts to changing volatility and can help lock gains in trends while giving trades room to breathe.

Practical Examples and Settings

Suppose ATR reads $1 on your timeframe. If you buy at $50, a 1.5 ATR stop sits roughly $1.50 below your entry (around $48.50). If there’s a nearby swing low at $49, you might place the stop just under that level with a small ATR buffer for protection against noise.

• Quiet markets or mean-reversion setups: consider smaller multiples (around 1–1.25x ATR) to keep risk contained.
• Trending or volatile conditions: consider larger multiples (around 1.5–2x ATR) to avoid getting shaken out.
• Keep the ATR length consistent across your tests so your results are comparable.

If you’re new to the indicator itself, see our quick primer: Average True Range (ATR) Simply Explained.

Common Mistakes and Where ATR Stops Work Best

• Mixing timeframes: reading ATR on one timeframe but trading on another creates mismatched risk.
• Blindly using defaults: a 14-period ATR is a starting point, not a rule. Test for your market.
• Widening stops after entry: this can snowball losses. Set your risk upfront and stick to it.
• Ignoring regime changes: ATR can contract or expand after news; review stop logic when volatility shifts.
• Forgetting liquidity and slippage: thin markets may jump over your stop distance during gaps.

ATR-based stops shine in markets where volatility changes often, helping you avoid one-size-fits-all distances. They pair well with trend-following and breakout approaches because the stop flexes as the move develops. In very low-volatility, choppy conditions, consider smaller multiples or structure-anchored stops to avoid giving back too much on quick reversals.

The best way to dial in ATR settings is practice: pick a timeframe, choose a base multiple, and review a large sample of trades. Keep notes on whether stops are routinely too tight or too loose, then adjust. Over time, you’ll find a balance between giving trades room and controlling risk.

Want to practice ATR stops quickly and systematically? Use ChartingPark to replay accelerated historical charts with TradingView charts and log results across many sessions: https://app.chartingpark.com.