Smart position sizing & risk management

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Technical Indicators

ATR

Average True Range: measures volatility by averaging the true range over a set period (typically 14 days).

What is ATR?

ATR (Average True Range) measures market volatility. It calculates the average of the "true range" over a specified period: typically 14 periods. The true range is the greatest of:

  • Current high minus current low
  • Absolute value of current high minus previous close
  • Absolute value of current low minus previous close

How traders use ATR

  • Stop loss placement: set stops 1.5-2x ATR from entry to avoid getting stopped out by normal volatility
  • Position sizing: use ATR to normalize position sizes across stocks with different volatilities
  • Profit targets: set targets at multiples of ATR for consistent risk/reward
RiskPicks uses ATR in its calculator to suggest stop loss distances that account for a stock's natural volatility.
Try it in the Calculator

Related Terms

Bollinger Bands

A volatility indicator with a middle SMA band and upper/lower bands set at 2 standard deviations.

Position Sizing

Determining how many shares to buy based on your account size, risk tolerance, and stop loss distance.

Stop Loss

An order to sell a position when it reaches a specified price, limiting potential losses.