ATR (Average True Range)
ATR measures volatility by calculating the average range between high and low prices over a specific period (usually 14 days). Higher ATR means more volatility.
Understanding the Concept
Volatility is opportunity, but it's also risk. ATR tells you how much an asset typically moves so you can position size correctly and set realistic stops. If Bitcoin's ATR is $2,000, don't set your stop $500 away—you'll get stopped out on normal noise. Make it $2,500+ to give the trade room. ATR also helps you spot regime changes. When ATR spikes, big moves are happening. When it compresses, you're in a low-volatility range—breakouts are coming. Day traders use ATR for profit targets. If ATR is $1,000 on BTC, expecting a $5,000 move in one session is unrealistic.
Real-World Example
Ethereum's ATR is $80. You enter a swing trade and set your stop $100 below entry (more than ATR) to avoid getting shaken out by normal volatility. Your profit target is 2x ATR = $160.
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