Education · Indicators
ATR: the indicator that sets your stop, not your direction.
Average True Range measures how much a market typically moves per candle. It says nothing about direction. That makes it one of the most useful tools for a funded trader: it tells you where a stop belongs and how big a position can be.
What true range is.
True range is the largest of: high minus low, high minus previous close, or previous close minus low. It captures gaps. ATR is the average of that over 14 periods by default.
ATR stops and sizing.
- Place stops 1.5–2× ATR beyond your entry or structure point so normal noise does not hit them.
- Risk a fixed % of the account, then divide by the stop distance to get lot size.
- When ATR doubles, halve the position. Your dollar risk stays the same.
- Use the daily ATR to judge whether a target is realistic today.
Why it matters for drawdown rules.
Most failed evaluations come from size, not direction. On a $50,000 account with a 3% daily limit, you have about $1,500 of room on day one. Volatility-based sizing keeps a single bad candle from using all of it.
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