Average True Range (ATR): volatility, stops and position size

The Average True Range (ATR) measures how much a security typically moves in a day, in dollars, gaps included. J. Welles Wilder Jr. introduced it in 1978 for commodity traders whose markets often opened far from the previous close. A plain high-minus-low range misses those gaps; Wilder's true range captures them, and the ATR is a smoothed average of it, 14 days by default.

ATR says nothing about direction. Its job is to size things: how far away a stop should be, how many shares to buy, how big a "big" move is for this particular stock right now. This guide calculates true range and ATR on Micron's chart, a stock whose daily range grew more than tenfold in a year, and shows the practical uses, including where a common ATR-based stop would have triggered.

True range

The daily range, high minus low, ignores what happened overnight. If a stock closes at $100, opens at $110 and trades between $108 and $112, the range is $4, but the stock moved $12 from the previous close. Wilder's true range takes the largest of three distances:

1. Today's high − today's low.
2. |Today's high − yesterday's close| (catches gaps up).
3. |Today's low − yesterday's close| (catches gaps down).

In the example, the second distance, $12, is the true range.

The formula

The smoothing is the same as in Wilder's RSI: each day keeps 13/14ths of the old average and adds 1/14th of the new true range.

A worked example on Micron

Here are the last two sessions on Finabase's chart for Micron Technology (MU).

On October 28 Micron gapped up from $928.76, so the true range was measured from the previous close to the high, $61.24, double the day's own high-low range of $30.66. On October 29 it gapped down, and the true range ran from the previous close to the low. Both ATR values match Finabase's chart.

One extreme day

On June 25, 2026 Micron opened at $1,233 after closing at $1,048.51 the day before, traded as high as $1,255 and as low as $1,136.31. Its true range was $206.49, the largest of the year.

ATR = (86.86 × 13 + 206.49) ÷ 14 = $95.41

One day lifted the 14-day average by almost $9. It will take weeks of normal days for that shock to fade out of the smoothing.

ATR on a real chart: Micron 2025–2026

Micron's year was one of the most extreme among large US stocks in this data: from $224.01 at the end of October 2025 (and a low of $192.59 on November 21) to a high of $1,255 on June 25, 2026, then back to $934.27 by October 29.

• ATR rose from $9.14 at the start to a peak of $97.32 on June 29, 2026. Most of that tenfold rise reflects the higher price, not just more turbulence.
• As a share of price, ATR ran from 4.1% to 11.5%. Volatility relative to price did rise sharply in the summer, but by far less than the dollar ATR suggests. The Normalized ATR (NATR): volatility as a percentage of price plots exactly this percentage.

How traders use ATR

Stop distance. A stop placed a multiple of ATR from the entry or from a recent high adapts to the stock's normal noise. A 2 × ATR stop on a quiet utility is tight; on Micron in July 2026 it was nearly $200.

The chandelier exit. Chuck LeBeau's chandelier exit hangs a stop a multiple of ATR, often 3, below the highest high of the last 22 sessions. On Micron, after the June 25 peak close of $1,213.56, that stop was first hit on July 7, 2026, at a close of $938.38, against a stop of $975.76. The exit locked in a large gain from earlier in the year, but it came 23% below the peak close, because three ATRs on a stock this volatile is a very wide stop.

Position sizing. Divide the dollars you are prepared to risk by the stop distance. With $1,000 at risk and a 2 × ATR stop on Micron at the last bar (2 × $47.80 = $95.60), the position would be 10 shares, about $9,300. The same rule on a stock with a $2 ATR would allow 250 shares. ATR sizing equalizes risk across very different stocks.

Breakouts and volatility filters. A move larger than, say, 1.5 ATR in a day is unusual for that stock and may mark a breakout or news. Some systems only trade when ATR is rising, or falling.

Pitfalls and limitations

Dollars, not percent. ATR rises with price, so it cannot be compared across stocks or across long periods for the same stock. Use NATR for that.

Shocks linger. Wilder smoothing keeps an extreme day in the average for weeks, as Micron's June 25 shows.

No direction. Rising ATR means larger moves, up or down. It often rises in sell-offs and in climactic rallies alike.

Comparison table

See Normalized ATR (NATR): volatility as a percentage of price, Bollinger Bands: formula, the squeeze and walking the bands and Parabolic SAR: how stop-and-reverse works, step by step for another trailing-stop method.

How Finabase calculates and scores ATR

Finabase computes ATR with TA-Lib's ATR function on each bar's high, low and close, with Wilder smoothing. A new ATR study defaults to 14 periods and is drawn in its own panel, in the same units as the price.

ATR (14) appears in the technical gauge on the symbol page with its latest value and carries no Buy or Sell rule, so it always counts as neutral. That is the right treatment for a direction-free volatility measure: use the value to size stops and positions.

Frequently asked questions

What is a good ATR value?

There is no good or bad value; ATR describes how much a stock typically moves. Compare it with the price (or use NATR) and with the stock's own history.

How do I use ATR for a stop-loss?

Place the stop a multiple of ATR away from your entry or from a recent high or low, commonly 1.5 to 3 ATR. Larger multiples give the trade more room and risk more per share.

Why did my ATR jump?

A single large true range, often a gap on news, adds a big value to the average. On Micron's June 25, 2026 gap, ATR rose about $9 in one day.

Summary

The Average True Range is Wilder's smoothed average of the day's true range, gaps included. It measures typical daily movement in dollars and is the standard tool for setting stops and sizing positions. Micron's year shows its strengths and its main caveat: it adapted from $9 to $97 as the stock moved from $224 to $1,255, and much of that change was the price level itself. Use ATR to size risk, and its normalized form to compare volatility.