ATR Indicator: Formula, Settings and ATR Stop-Loss in Forex

ATR (Average True Range) is a volatility indicator that shows how far price typically moves per candle, expressed in price units such as pips or dollars. It does not show direction. Traders mostly use ATR to place a stop-loss at a distance that fits current conditions, to size a position from that stop, and to judge whether the market is quiet or active.

Disclosure: OnForex may earn a referral commission from Exness links on this page. This is general education, not investment advice.

In this guide you will see the exact calculation with a worked example, the common settings, how to turn ATR into a stop and a lot size, how ATR changes by trading session, and our own data on how often an ATR-based stop gets hit.

What ATR measures

Developed by J. Welles Wilder Jr. and introduced in his 1978 book New Concepts in Technical Trading Systems, ATR answers one question: how big are the candles right now? A reading of 15 pips on a 1-hour EURUSD chart means that, over the recent period, the average candle has covered about 15 pips from its low to its high, once gaps are included.

Three practical points follow:

• ATR depends on the timeframe. 14 bars of 15-minute candles and 14 bars of daily candles give very different numbers.
• ATR depends on the market. A reading of 15 on EURUSD means 15 pips; on gold it might be several dollars.
• ATR is not directional. It would read the same for a steady rise and a steady fall of the same size.

How ATR is calculated

The first step is the true range (TR) of each bar. It is the largest of three values:

1. High minus low of the current bar.
2. The absolute value of the current high minus the previous close.
3. The absolute value of the current low minus the previous close.

Items 2 and 3 are there to include gaps. If price opens far from the previous close, high minus low alone would understate the movement.

ATR is then an average of the true range. Wilder's original method uses a smoothed average:

ATR = (previous ATR x (n - 1) + current TR) / n

where n is the period, usually 14. Many platforms (such as MetaTrader) use a simple moving average of TR instead, so the number can differ slightly from a Wilder-smoothed chart. The idea is the same.

Worked example (illustrative numbers)

The numbers below are made up to show the arithmetic on a 1-hour EURUSD chart. Prices are in pips from the stated levels.

Bar	Previous close	High	Low	H - L	|H - prev close|	|L - prev close|	True range
1	1.1030	1.1050	1.1020	30	20	10	30 pips
2	1.1045	1.1060	1.1035	25	15	10	25 pips
3	1.1040	1.1100	1.1050	50	60	10	60 pips

Bar 3 opens above the previous close, and its high minus the previous close (60 pips) is larger than its own range (50 pips). The true range is therefore 60 pips, not 50.

Suppose the 14-period ATR before bar 3 was 15 pips. With Wilder smoothing:

ATR after bar 3 = (15 x 13 + 60) / 14 = 255 / 14 = 18.2 pips

One large bar raised ATR from 15 to 18.2 pips. Because the average is smoothed, ATR lags: it rises after the large bars appear and falls slowly afterwards.

ATR settings

Period	Behaviour	Typical use
7	Reacts quickly, noisy	Very short-term scalping, tight trailing stops
14	The default and most widely used	Intraday and swing stops, sizing
21	Smoother	Swing trading, fewer stop changes
50	Slow, describes the "normal" level	Judging whether current volatility is above or below average

Practical advice:

• Keep 14 unless you have a reason. The default is used by so many traders and by most published research that your numbers stay comparable.
• Match the timeframe to the trade. Use ATR on the chart you trade, or on a higher timeframe if you want a stop that ignores short-lived noise.
• Compare ATR with its own history. A single value means little; ATR(14) versus ATR(50) tells you whether volatility is rising or falling.

Using ATR for a stop-loss

A fixed stop in pips ignores the market. A 10-pip stop might be sensible on a quiet day and absurdly tight on a news day. An ATR-based stop scales with the conditions.

The two usual methods:

1. Distance from entry. Stop = entry minus (multiple x ATR) for a long, or plus for a short.
2. Buffer beyond structure. Place the stop beyond a swing low, order block or other level where your idea would be wrong, then add a buffer of 0.2 to 1 x ATR so that normal noise does not touch it. Our stop-loss guide covers placement logic.

The multiple matters. Our data shows how often a random entry would be stopped out.

Stop distance	EURUSD	GBPUSD	USDJPY	XAUUSD
0.5 x ATR	88%	88%	86%	87%
1 x ATR	78%	77%	73%	74%
1.5 x ATR	66%	66%	61%	62%
2 x ATR	56%	56%	51%	52%
3 x ATR	40%	40%	34%	35%

Source: OnForex analysis of hourly prices from Yahoo Finance, January 2024 - October 2026 (gold: June 2024 - October 2026, COMEX gold futures). A random entry was taken at any hour and the stop was set k x ATR(14) away; "hit" means price touched the stop within the next 24 hours.

What to take from this:

• A 0.5 ATR stop is hit about 9 times in 10 within a day. It is mostly noise.
• A 1 ATR stop is hit three times in four. Many beginners accidentally use this and conclude that "the market hunts my stop".
• A 2 to 3 ATR stop is hit much less often, but it forces a smaller position for the same risk, which the next section shows.
• These are random entries. A real setup has a reason to be where it is, and a stop behind structure can survive better or worse than this baseline. Test your own method.

Also remember that spreads widen around news and at the daily rollover, and that stops can slip in fast markets, so the realised loss can exceed the planned one. See slippage and the spread guide.

ATR and position sizing

ATR gives you the stop distance; the formula from position sizing then gives you the lots. The advantage is that your risk in money stays the same when volatility changes: larger ATR, wider stop, smaller position.

Example (illustrative): a 1,000 USD account, 1% risk (10 USD), EURUSD 1-hour chart, ATR(14) = 15 pips, stop at 1.5 x ATR.

• Stop distance: 1.5 x 15 = 22.5 pips.
• Pip value per standard lot on EURUSD: about 10 USD.
• Lots = 10 / (22.5 x 10) = 0.044, rounded down to 0.04 lots.

If ATR doubles to 30 pips, the same rule gives a 45-pip stop and 10 / (45 x 10) = 0.022, or 0.02 lots. You take the same 10 USD risk with half the position.

Compare this with the trade plan we use in our risk reward guide: entry 1.11321, stop 1.11247 (a 7.4-pip stop sitting below an order block with a 0.2 ATR buffer), target 1.11469 for a 2R target. The stop came from structure plus an ATR buffer, and the lot size followed from it: 10 / (7.4 x 10) = 0.135, rounded down to 0.13 lots.

ATR by session

ATR(14) on an hourly chart is the average of the last 14 hours. That means at 08:00 UTC it still contains the quiet Asian hours, and the value at the New York open contains the London session. The hour you trade matters.

Average hourly range in our data:

Market	Quietest hours	Peak
EURUSD	about 6.6 to 8 pips (22:00 to 04:00 UTC)	London 07:00 to 08:00 UTC about 15 pips; New York 12:00 to 15:00 UTC 17 to 18.6 pips
GBPUSD	about 7.5 pips (22:00 to 23:00 UTC)	14:00 UTC, 22.9 pips
USDJPY	about 14 pips (21:00 UTC)	13:00 UTC, about 33.8 pips (also 31.4 at 00:00 UTC, Tokyo)
XAUUSD	about 10 to 13 USD in late US and Asia	13:00 to 14:00 UTC, about 24 USD per hour

Practical consequences:

• An ATR stop set from the overnight reading may be too tight when London opens and the range doubles.
• A stop set at the New York peak may be wider than necessary for the quiet hours that follow.
• If you trade across sessions, compare ATR on your timeframe with the typical range for that hour before fixing the size. See trading hours and ICT kill zones.

These averages describe how big candles tend to be, not which way they go.

Other uses of ATR

• Trailing stop. Trail the stop at a multiple of ATR below the highest high (for longs). The classic "chandelier exit" uses about 3 x ATR(22).
• Targets. Some traders place targets at a multiple of ATR, such as 2 x ATR, to keep the reward in line with the day's range.
• Filters. Skip trades when ATR is unusually low (little movement to pay the spread) or unusually high (news risk).
• Breakout confirmation. A bar larger than 1.5 x ATR can mean a real breakout, but not always; see breakout strategy. In our hourly data, after a break of structure price moved a further 1 ATR before closing back through the level in about 61% to 68% of cases, depending on the market. That is a probability, not a signal.
• Comparing markets. ATR as a percentage of price lets you compare, for example, EURUSD with gold.

Common mistakes

• Using a multiple that is too small. Stops at 0.5 to 1 x ATR are hit most of the time, as the table shows.
• Forgetting the pip value. ATR in pips must be converted to money through the pip value of the pair; see pip value.
• Mixing timeframes. ATR from the daily chart with an entry on the 5-minute chart will give a stop that is far too wide.
• Reading ATR as a signal. A rising ATR is not a buy or sell signal.
• Ignoring the lag. After a spike, ATR stays high for several bars even if the market has calmed; before a spike, it is low.
• Widening the stop to avoid being stopped, without cutting the lot size. Doing that raises the money at risk. The lot size must fall as the stop gets wider.

Related guides

• Stop-loss and position sizing
• Risk per trade and risk reward ratio
• Pip value and lot size
• Market structure and order block
• Martingale and averaging down: why increasing size after a loss is risky

Risk warning: Forex and CFD trading carries a high risk of loss and may not be suitable for everyone. ATR describes past volatility and does not predict future price moves or protect against slippage. This page is education, not investment advice.