The Average True Range (ATR) is a volatility indicator, from J. Welles Wilder, that averages the “true range” over N periods (commonly 14) to express how much an instrument typically moves per bar. True range is the greatest of the current high-low, the distance from the prior close to the current high, and the distance from the prior close to the current low — so it captures gaps that a plain high-minus-low would miss.
ATR measures the size of movement, not its direction, which makes it a sizing and stop tool rather than a signal. Anchoring a stop to a multiple of ATR (for example 1.5× ATR below entry) places it beyond normal noise and adapts automatically as volatility changes, and ATR-based position sizing keeps dollar risk roughly constant across calm and wild markets.
Because stop distance feeds directly into position size and the R-multiple, ATR quietly shapes a strategy’s whole risk profile. Several baselines in Secuora’s research at /strategy use a 1× ATR(14) stop precisely so the test reacts to volatility instead of an arbitrary fixed distance.
High $105, low $101, prior close $104. True range = max(105−101, |105−104|, |101−104|) = max(4, 1, 3) = 4. With a 1.5× ATR stop on a $4 ATR, the stop sits $6 from entry.