What it means
ATR averages the daily true range (greater of: high-low, |high-prev close|, |low-prev close|) over a period. It quantifies typical daily price movement in dollar terms.
Why it matters
ATR-based stops adapt to current volatility regimes. A 2-ATR stop in a calm market is tight; the same 2-ATR stop in a wild market is wide. Both keep the same statistical 'space' around the trade.
How to use it
Use ATR for stop placement (typically 1.5-3× ATR below entry for long trades). Use it for position sizing (size = risk / (ATR × stop_multiplier)).
Take it further
Want a worked example or a deeper dive? Ask Rocky how this concept applies to your specific watchlist or trade idea.
Ask Rocky