What the ATR indicator shows
The Average True Range (ATR) is a volatility indicator. Volatility here means how far price typically moves within one candle. J. Welles Wilder developed the ATR, and it is built into MetaTrader.
ATR does not show direction. A rising ATR means candles are getting larger, whether price is going up or down. A falling ATR means candles are getting smaller. The value is in the instrument's own price units: pips for a currency pair, dollars for XAUUSD, index points for US100.
Because it only measures movement size, ATR is mostly used for risk tasks such as placing stops and sizing positions, not for deciding when to enter.
The formula: true range, then an average
Each candle has a true range (TR). It is the largest of these three distances:
- current high minus current low
- current high minus previous close, as an absolute value
- current low minus previous close, as an absolute value
The last two distances matter when price gaps. If a candle opens far from the previous close, the plain high-low range understates the move, and the true range captures it.
ATR is the average of true range over a chosen number of candles, called the period. Wilder used his own smoothing. In this method each new ATR value is the previous ATR, adjusted by a small share of the gap between the new TR and that previous ATR. Some platforms use a simple moving average of TR instead. The two methods give slightly different values, so ATR readings can differ between charting tools.
ATR indicator settings
The only input is the period. MetaTrader loads a default period that follows Wilder's original choice, and most traders start there.
| Choice | Effect | Trade-off |
|---|---|---|
| Shorter period | Reacts quickly to new volatility | Jumps after single large candles |
| Default period | Balanced, widely used reference | Lags sudden regime changes |
| Longer period | Smooth, stable reading | Slow to show that conditions changed |
Two points experienced traders keep in mind:
- Timeframe matters more than period. ATR on an hourly chart and ATR on a daily chart measure different things. Use the ATR from the timeframe you trade, or the timeframe your stop is meant to survive.
- Consistency matters. If you compare ATR across instruments or over time, keep the same period and timeframe. Otherwise the comparison is meaningless.
How to add ATR in MT4 and MT5
The steps are the same in both platforms:
- Open the chart of the instrument.
- Go to Insert → Indicators → Oscillators → Average True Range.
- Set the period, pick a line colour, and confirm.
ATR opens in a separate window below the price chart. You can also drag it from the Navigator panel onto the chart. See MetaTrader 4 and MetaTrader 5 for platform basics. You can practise on a demo account before using ATR with real money.
Reading ATR: a drawn example
The sketch below is illustrative only. It is not real market data.
In the quiet range, candles are small and ATR stays low and flat. When large candles appear, ATR climbs. It peaks after the biggest candles, not at the moment they start. As candles shrink, ATR falls slowly, because the average still contains the large candles for a while.
This lag is normal. ATR is a lagging indicator. It describes recent volatility. It does not predict future volatility.
How to use ATR in forex: stops and sizing
ATR-based stop distance
A fixed stop distance can be too tight in volatile conditions and too wide in quiet ones. An ATR-based stop sets the distance as a multiple of the current ATR, so it adjusts to how much price is actually moving. The multiple is your own choice. A larger multiple gives more room and a wider stop. A smaller multiple gives a tighter stop that ordinary movement is more likely to hit.
Position size for a fixed risk
A wider stop needs a smaller position if the amount you are willing to lose stays the same. The logic:
- risk amount = the money you accept losing if the stop is hit
- stop distance = ATR multiple × ATR
- position size = risk amount ÷ (stop distance × value of one pip per lot)
Use the calculator below to run these numbers for your instrument and account currency.
Fill in the empty fields to see the result.
Stop distance = ATR × multiple; size = money at risk / (stop in pips × pip value), rounded down to 0.01 lot.
The result is only as good as the inputs. Leveraged CFD and forex trading can lose money fast. A stop can be filled worse than its level during gaps or fast markets, so the real loss can exceed the planned risk. More on this in risk management.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Other common uses
- Trailing stops. The stop follows price at an ATR multiple. The Supertrend indicator is built on this idea.
- Channels. Keltner Channels place bands at ATR distances around a moving average.
- Filtering. Some traders skip setups when ATR is unusually low, because small ranges may not cover costs such as the spread.
- Comparing volatility. Dividing ATR by price gives a percentage figure that can be compared across instruments with different price scales.
When ATR misleads
- Gaps and spikes. A weekend gap or a news candle inflates true range, and the effect stays in the average for the whole period. Stops based on that reading may be wider than current conditions need.
- Session effects. Forex volatility changes through the day. ATR on intraday charts mixes quiet and active sessions, so its value may not fit the hour you are trading.
- Regime changes. After a long quiet stretch, ATR is low exactly when volatility starts to rise. A tight ATR stop set at that moment can be hit quickly.
- No direction. A high ATR does not tell you whether a move will continue. Read direction from structure or tools like ADX, not from ATR.
- Data differences. Price feeds, server time and the smoothing method vary between providers. A daily ATR in one platform can differ from another, especially where short Sunday candles exist.
- Cost blind spot. ATR ignores spreads and swaps. On very small timeframes, costs can be a large share of the ATR.
Related volatility tools: Bollinger Bands and Standard Deviation. For the wider context, see technical analysis.
Frequent questions
What is a good ATR value?
There is no good or bad value. ATR depends on the instrument, the timeframe and current conditions. Compare it with its own recent history on the same chart.
Does a high ATR mean the price will go up?
No. ATR measures the size of movement, not its direction. It rises in both falling and rising markets.
Should I change the default ATR period?
The default is a common reference point. Shorter periods react faster but are noisier. Longer periods are smoother but slower. Test any change on a demo account first.
Why does my ATR differ from another platform's?
Platforms can use different smoothing methods, price feeds and server times. These produce slightly different values.
Can ATR stops guarantee my maximum loss?
No. Gaps and fast markets can fill a stop beyond its level, so the actual loss can be larger than planned.