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Average true range (ATR): meaning in forex and gold trading

ATR measures average price range over a set number of periods, including gaps, and is used to size stops to current volatility.

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Definition

Average true range (ATR): ATR measures average price range over a set number of periods, including gaps, and is used to size stops to current volatility.

How ATR is calculated

The true range of a candle is the largest of: high minus low, the gap from the previous close to the high, and the gap from the previous close to the low. ATR is the average of that over, typically, 14 periods. It shows how much a market is moving, not which direction.

Stops and sizing with ATR

Many traders set stops at 1 to 2 × ATR so normal noise does not hit them. Because a wider stop needs a smaller size, ATR and position sizing work together to keep risk constant across quiet and busy markets.

Worked example

EUR/USD's daily ATR is 60 pips. A 1.5 × ATR stop is 90 pips. With £5,000 and 1% risk, the position is about £50 ÷ (90 × £7.46) ≈ 0.07 lots.

Common mistakes

  • Reading ATR as a direction signal.
  • Using daily ATR for a five minute trade.

If you follow trade signals, for example the gold signals or EUR/USD signals, understanding this term helps you size and manage each trade yourself. The free Forexuro Telegram channel shares daily market updates where these ideas are used in practice.

Volatility

Volatility is how much and how fast price moves; higher volatility means larger swings in both directions.

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Stop loss

A stop loss is an order that closes a trade at a set price to cap the loss if the market moves against you.

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Position sizing

Position sizing is choosing the trade size so that a stop loss hit costs a fixed, planned share of your accoun...

Read more

Trailing stop

A trailing stop is a stop loss that moves with price by a set distance as the trade goes in your favour, but n...

Read more

Tools and guides

Frequently asked questions

What ATR period is standard?

14 is the default on most platforms.

Does ATR work on gold?

Yes. It is in dollars, so convert to pips using your broker's convention.

Education only, not financial advice. Trading forex, gold and CFDs carries a high risk of losing money, and leverage magnifies both gains and losses. Past performance is not a reliable guide to future results. Read our risk disclosure.