Average true range
Average true range (ATR) is a moving average of each bar's true range, which is the largest of three distances: the bar's high minus its low, the high against the previous close, and the low against the previous close.
It measures how far price moves per bar, gaps from the previous close included, not which way price moved, because every distance enters as an absolute value. The reading is in the instrument's price units, so on EUR/USD an ATR of 0.00720 is 72.0 pips. On TradingView the default length is 14 bars, and the default smoothing is what its documentation calls a Relative Moving Average (RMA).
This page covers the mechanic; it is not trading advice.
What the true range catches that high minus low misses
The two distances measured from the previous close catch gaps. EUR/USD trades around the clock through the trading week, so a bar usually opens at or next to the previous close and its true range rarely differs from its high minus low. The difference shows mainly on the first bar after a market break, such as the weekend reopen. When EUR/USD closes the week at 1.1253 and that first bar trades between 1.1240 and 1.1162, high minus low is 78 pips, but the low sits 91 pips below the previous close. True range takes the 91 pips, the full distance from close to extreme.
The period counts bars on the chart's own timeframe. On a daily chart ATR(14) smooths daily true ranges with a length of 14; on an hourly chart the same setting works on hourly bars, so its length is 14 hourly bars rather than 14 daily bars. Without its timeframe, a reading cannot set a Stop-loss distance.
ATR is often read as the plain average of each day's high minus low. Both halves of that reading can be wrong. True range adds the gap from the previous close, as the 91-pip bar after the weekend reopen shows. TradingView's default average is not a plain one either: its documentation names it a Relative Moving Average (RMA) and lists SMA as a separate option. In a smoothed average such as the one worked below, a new bar enters with a 1/14 weight and older bars fade instead of dropping out after 14 bars.
ATR measures Volatility and carries no direction, since a sharp fall lifts it as much as a sharp rise of the same size.
From an ATR reading to a stop and a lot size on EUR/USD
An ATR(14) of 0.00720 on the daily EUR/USD chart, an illustrative reading rather than a measured value, sets the stop and then the lot size for a long entry at 1.1253.
Converting is a division by the Pip size: 0.00720 ÷ 0.0001 = 72.0 pips. The stop multiple is the trader's own rule, and this example assumes 1.5 × ATR. That gives 1.5 × 72.0 = 108 pips, so the Stop-loss on the long position sits at 1.1253 − 0.0108 = 1.1145.
ATR-based position size
Lots = Risk amount ÷ (ATR multiple × ATR in pips × Pip value per lot)- Risk amount (1% of $10,000)
- $100
- ATR(14), illustrative
- 72.0 pips
- ATR multiple (assumption)
- 1.5
- Pip value per standard lot
- $10
Position size, rounded down
0.09 lots
The quotient is $100 ÷ (108 × $10) = $100 ÷ $1,080 = 0.0926 lots, to four decimals. Rounded down to a 0.01 Lot size step, which is set by the broker, the position is 0.09 lots with $97.20 at risk at the stop; 0.10 lots would put $108.00 at risk, above the 1% limit. ATR supplies only the stop distance, and the rest is the standard Position size formula.
One weekend-gap bar through a smoothed average
TradingView's ATR help names its default smoothing "a Relative Moving Average (RMA)". The working below shows how a smoothed average weights a new bar, using the smoothed moving average (SMMA) whose formula MetaQuotes' Moving Average help documents: the first value is the arithmetic average of the first N values, and each later value is (previous value × (N − 1) + new value) ÷ N.
Fed into a 14-period smoothed moving average standing at the illustrative 72.0 pips, the 91-pip bar gives (72.0 × 13 + 91) ÷ 14 = 1,027 ÷ 14 = 73.4 pips, against 72.4 pips if the bar were measured as high minus low. The 1.4-pip move reflects the new bar's 1/14 weight, which then shrinks by a factor of 13/14 with every later bar rather than vanishing after 14 bars as in an arithmetic average.
Settings change the number
TradingView's smoothing can be switched from RMA to SMA, EMA or WMA. Averaging the same true ranges by another method returns a different ATR, so two charts agree only when the length, the smoothing method and the timeframe match and their bars come from the same price feed and close times.
Related terms
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Common questions
What is the default ATR setting on TradingView?
TradingView's documentation gives 14 as the default length and "a Relative Moving Average (RMA)" as the default smoothing, which can be changed to SMA, EMA or WMA. The length counts bars on the chart's timeframe, so on an hourly EUR/USD chart a length of 14 means 14 hourly bars, not 14 days.
Does a rising ATR mean price is going up?
No. ATR takes every distance as an absolute value, so a sharp fall on EUR/USD raises it as much as a sharp rise of the same size, and TradingView's documentation states that ATR is not used to indicate the direction of price. A rising ATR shows only that bars are covering more distance, gaps included.
Can ATR be compared between EUR/USD and USD/JPY?
Not in raw form. A EUR/USD reading is in dollars and a USD/JPY reading in yen, and TradingView's documentation states that ATR values of different securities cannot be compared. Dividing by price fixes the scale: an illustrative ATR of 0.00720 on EUR/USD at 1.1253 is 0.64% of price, and an illustrative 1.10 on USD/JPY at 158.02 is 0.70%.