Technical analysis
How do I use the Average True Range (ATR) to gauge daily asset volatility?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Average True Range (ATR) measures the average size of a security's daily price range over a set period (commonly 14 days), quantifying volatility rather than price direction.
How it works
Traders use ATR to size stop-losses and position sizes appropriately for a stock's typical daily movement, since a stop too tight relative to ATR risks being triggered by normal daily noise.
An example
If a stock's 14-day ATR is $2, a trader might set a stop-loss roughly 1.5x ATR, or $3, away from entry to avoid routine volatility.
Risk & limitations
A rising ATR during a decline signals increasing volatility and risk, which can warrant smaller position sizes rather than larger ones.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.