🟡
📌 Recommended
Trade smarter with ATR-based stop loss settings
✓ 20% Fee Discount✓ $50 Bonus
Join with Referral Code →※ Fee discount is automatically applied
What is ATR (Average True Range)?
ATR (Average True Range)
ATR (Average True Range) is an indicator that measures market volatility. It shows numerically, “How much does this coin move on average per day?”
Developed in 1978 by J. Welles Wilder, the father of technical stock analysis, it is essential for futures traders today to set stop loss distances and determine position sizes.
ATR calculation principle
ATR is a moving average of True Range.
True Range = Largest of:
1. High price of the day - Low price of the day
2. Closing price of the previous day - High price of the day (absolute value)
3. Closing price of the previous day - Low price of the day (absolute value)
ATR (period 14) = Exponential Moving Average with 14-period True Range
It is built into all exchange charts without the need for manual calculations.
How to read ATR
Meaning of ATR values
BTC ATR (4-hour chart) = $1,500
What it means: It moved about $1,500 on average over the last 14 4-hour candles.
→ If you set the stop loss at $500, it can explode even with normal fluctuations.
→ A minimum stop of $1,500 to $2,000 is required.
What ATR changes mean
| ATR changes | market situation | Strategy |
|---|---|---|
| ATR increase | Increased volatility (big move expected) | Reduce position size |
| ATR reduction | Reduced volatility (sideways, waiting for explosion) | Combination with Bollinger Squeeze |
| ATR surge | News/Event Occurrence | Enter the trend direction or wait and see |
🟡
Join Referral →Practice at Bybit
20% Fee Discount + $50 Bonus
3 ways to use ATR in practice
Use 1: Set stop loss based on ATR (most important)
ATR based stop loss is much more reasonable than arbitrarily setting a 1% or 2% stop loss.
ATR based stop loss formula:
Stop loss distance = ATR × 1.5 to 2 times
Example (BTC 4-hour bar):
ATR = $2,000
Stop loss = $2,000 × 1.5 = $3,000 (based on entry price)
Reason: Designed to avoid stop loss within normal volatility of $2,000
Use 2: Determine position size
Formula:
Position size = (Account × Risk Ratio) / ATR
Example:
Account: $10,000
Risk: 1% = $100
ATR: $2,000
Position size = $100 / $2,000 = 0.05 BTC
Meaning: When a stop loss occurs, you only lose exactly 1% of your account.
This way you can trade any stock with the same risk.
Use 3: ATR + Bollinger Band combination
When ATR is low (sideways):
If the Bollinger Bands are contracting at the same time = a big price movement is imminent.
Waiting Strategy:
- When ATR starts to increase + enters the direction of Bollinger breakout
- The direction of the first bar where volatility explodes determines the short-term trend.
ATR settings
| Settings | Basic | Scalping | swing |
|---|---|---|---|
| period | 14 | 7~10 | 20~30 |
| base rod | 4 hour bar | 5~15 minutes | daily salary |
Related guides
- Position size calculator →
- Using Bollinger Band volatility →
- Complete explanation of risk management →
- Liquidation price calculator →
🟡
🎁 Special Benefit
Practice immediately at Bybit
✓ 20% Fee Discount✓ $50 Bonus
Join with Referral Code →※ Fee discount is automatically applied