Average True Range (ATR)
A volatility measure based on the daily true range, used widely for stop placement and sizing.
Definition
ATR, also by Welles Wilder, captures the average size of daily price moves including gaps. Unlike standard deviation, ATR uses the true range which includes overnight gaps — making it more useful for asset classes with overnight risk (equities, futures). ATR has no direction; it only measures volatility. Its principal use is in position sizing (1 R = N * ATR) and trailing stop-loss placement (Chandelier Exit).
Formula
TrueRange_t = max(
High_t - Low_t,
|High_t - Close_{t-1}|,
|Low_t - Close_{t-1}|
)
ATR(N) = Wilder’s smoothed average of TrueRange over N periods, typically N=14Worked example
AAPL has ATR(14) = $3.50. A trader risking $500 per trade at a 2*ATR stop would size: 500 / (2 * 3.50) = 71 shares. If price = $190, position notional = $13,490 — risk-based rather than dollar-based sizing.
How ARIA Analyst uses it
ARIA uses ATR for stop placement in every Trade Setup it generates and as the volatility input to the Kelly position-sizing engine.
Related terms
Volatility (σ)
Standard deviation of returns — the most common dispersion-based risk measure.
Bollinger Bands
A volatility envelope: 20-period moving average plus and minus two standard deviations.
Kelly Criterion
Optimal fraction of capital to risk per bet to maximise long-term geometric growth.
Maximum Drawdown
The largest peak-to-trough decline of equity over a given window.
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