Average True Range (ATR)

What is it?

ATR measures the average daily price range (volatility) in Rupees. It doesn't tell you direction — it tells you HOW MUCH a stock typically moves per day. This is crucial for setting stop losses and profit targets. In AIShare, targets are set at 2.5× ATR and stop losses at 1.5× ATR from entry.

Why it matters

ATR is the foundation of AIShare's RISK MANAGEMENT system. While not directly scored in the 11-factor model, it determines every trade's stop loss (1.5× ATR), target (2.5× ATR), and trailing stop (1.0× ATR). Without proper ATR-based stops, swing trades either get stopped out too early or hold losses too long.

Formula

TR = max(High−Low, |High−PrevClose|, |Low−PrevClose|); ATR = SMA(TR, 14)

Key parameters

How to use

1. 1ATR tells you the average daily range — use it to set stops
2. 2Stop Loss = Entry − 1.5 × ATR (for longs) — gives room for normal noise
3. 3Target = Entry + 2.5 × ATR — ensures minimum 1.67 risk-reward ratio
4. 4Trailing Stop = Entry − 1.0 × ATR — for locking in profits
5. 5High ATR = Stock is volatile — wider stops needed, smaller position size
6. 6Low ATR = Stock is calm — tighter stops work, can take larger positions

Signals (4)

Swing trading tips

• Always size your position based on ATR: Position = Risk Amount / (1.5 × ATR)
• Don't use fixed ₹ or % stops — ATR adapts to each stock's volatility
• ATR expanding = Volatility increasing — tighten trailing stops
• ATR contracting = Volatility decreasing — a big move is brewing (like BB squeeze)

Common mistakes to avoid

• Using fixed point or percentage stops instead of ATR-based stops
• Not adjusting position size for high-ATR (volatile) stocks
• Confusing ATR direction with price direction — ATR only measures range
• Setting stops too tight (<1× ATR) — normal noise stops you out

Video tutorials (3)

• ATR Indicator — Set Perfect Stop Losses

  Trading Rush

• ATR Position Sizing & Risk Management

  Rayner Teo

• How to Use ATR for Swing Trading Stops

  The Trading Channel

Third-party tutorials — linked for educational reference. AIShare is not affiliated with these creators.

Quick quiz — test your ATR knowledge

5 questions. Pass with 3 out of 5 for a completion badge.

1. 1ATR measures…

   APrice directionBAverage daily range / volatilityCVolumeDMoving average slope

2. 2AIShare's swing-trade stop-loss example is placed at…

   AExactly entry priceB0.5× ATR from entryC1.5× ATR from entryD10× ATR from entry

3. 3Higher-ATR stocks require…

   ATighter stops, bigger sizeBWider stops, smaller sizeCNo stops at allDFixed rupee stops

4. 4Why avoid a fixed-percentage stop for all stocks?

   ABecause ATR is easier to computeBBecause different stocks have very different typical daily rangesCBecause brokers don't support themDThey work best for every stock

5. 5Sharply contracting ATR often precedes…

   AA guaranteed downtrendBA period of elevated volatility / a larger move — similar to a BB squeezeCZero price action for weeksDA fundamental change in the company

Educational self-assessment only — not a regulated qualification.