What Is ATR? Average True Range and How to Size Trades With It

True range for a candle is the largest of three distances: high minus low, high minus previous close, and previous close minus low. Including the previous close is what makes it "true" range — it captures gaps, where price opened away from where it last closed.

ATR is then a moving average of true range, most commonly over 14 periods. An ATR of 120 on a chart quoted in points means the instrument has recently been covering roughly 120 points per candle on that timeframe.

The most common mistake in stop placement is choosing a distance based on how much you are willing to lose rather than on how much the market normally moves. A stop tighter than one ATR will be hit by ordinary noise regardless of whether your idea was correct.

A workable default is to place the stop at 1.5 to 2 ATR beyond your invalidation level. If ATR on the 15-minute chart is 30 points, a 15-point stop is inside the noise band; a 50-point stop sits outside it. The trade may still lose, but it will lose because the idea was wrong, not because of a routine wick.

Once stop distance comes from ATR, position size follows arithmetically. Decide the cash amount you are willing to risk, divide it by the stop distance in price units, and convert to lots or contracts using the instrument's value per point.

Worked example on a $10,000 account risking 0.5% ($50): if ATR-derived stop distance is 40 points and each point is worth $1 per lot, position size is $50 ÷ (40 × $1) = 1.25 lots. When volatility doubles, ATR doubles, stop distance doubles, and size automatically halves — your cash risk stays constant while the market changes around you.

Every funded account has a daily loss limit. On MixFunded programs that limit is a fixed percentage of starting balance, so the question that actually decides whether you survive is: how many consecutive full stop-outs fit inside today's allowance?

ATR-based sizing makes that answer stable. If you size so that each loss costs 0.5% and the daily limit is 3%, you have six full losses of room every day regardless of whether the market is quiet or violent. Fixed-lot sizing gives you the same room on calm days and a single-trade blowout on volatile ones.