Loading
Market Intelligence › Basic Terminologies
What Average True Range means, and its relationship with the stop loss
Published by The Retail Trader · JUL 25, 2026 · Indicators
ATR does not tell you direction. It gives just one number — how much this stock normally moves in a day. This is the number that makes both the stop loss and the position size practical.
A day's simple range is high minus low. True range adds the gap to it — the difference between the previous close and today's high or low is also counted.
The average of that over some days is the ATR. It comes in rupees, not percentage, so to compare across stocks it has to be divided by the price.
The best use of ATR is on the risk side:
• Placing the stop loss at a multiple of ATR, so that it is not hit by normal noise.
• Adjusting size by ATR so that the same rupee risk is kept across different stocks.
• Keeping the target realistic according to ATR as well.
• When ATR rises, size shrinks by itself — this is its biggest benefit.
Putting the same rupees into two stocks is not taking the same risk. One stock moves two percent a day and the other half of that — keeping the same size in both means four times the risk, without knowing it.
This article is for educational purposes only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.