ATR (Average True Range)
ATR measures how much a stock typically moves in a day, in rupees. It is a plain volatility gauge — used mostly to size stops and positions, not to predict direction.
Average True Range (ATR), another J. Welles Wilder indicator, answers a simple question: how much does this stock usually move in a day? It expresses volatility as an amount — for a PSX stock, a number of rupees — rather than as a direction. A stock with an ATR of 4 typically swings about PKR 4 a day; one with an ATR of 0.5 barely moves.
What 'true range' means
Each day's true range is the largest of three distances: today's high minus today's low, today's high minus yesterday's close, or yesterday's close minus today's low. Using the previous close captures overnight gaps that a simple high-minus-low would miss. ATR is then the average of the true range over a period — usually 14 days.
Why traders care about ATR
- Setting stop-losses. A stop placed a fixed number of rupees away ignores how volatile the stock is. A stop placed a multiple of ATR away — say entry minus 2 × ATR — adapts: wider for jumpy stocks, tighter for calm ones.
- Position sizing. Knowing a stock's typical daily move helps you size a trade so a normal day's swing does not blow past your risk limit.
- Comparing volatility. ATR % (ATR divided by price) lets you compare a PKR 50 stock and a PKR 500 stock on the same scale.
A worked example
The figures below are illustrative:
| Item | Value | Note |
|---|---|---|
| Entry price | PKR 120.0 | Where you buy |
| ATR(14) | PKR 3.5 | Typical daily move |
| Stop distance | 2 × ATR = PKR 7.0 | Room for normal noise |
| Stop-loss | PKR 113.0 | Entry − 7.0 |
Here the stock normally moves about PKR 3.5 a day, so a stop PKR 7 below entry gives the trade room to breathe without being shaken out by an ordinary day's wobble. If ATR were larger, the same logic would set the stop further away.
What ATR does not tell you
- No direction. ATR rises whether a stock is crashing or soaring — it only measures the size of the move, never which way.
- It is relative. An ATR of 4 is large for a PKR 50 stock and tiny for a PKR 5,000 one. Use ATR % when comparing names.
Use ATR on PSX Algos
ATR and ATR % are built into the strategy builder, including ready-made ATR-based trailing-stop presets (for example, a 2× or 3× ATR trailing stop). Pair ATR exits with any entry signal, then backtest the whole rule across a decade of PSX history to see how the stops would have behaved.
Build a strategy with ATR stops →Frequently asked
What is ATR in simple terms?
ATR (Average True Range) measures how much a stock typically moves in a day, expressed as an amount of money. It is a volatility gauge, not a direction signal.
How do traders use ATR for stop-losses?
They place the stop a multiple of ATR away from entry — for example, entry minus 2 × ATR. This makes the stop wider for volatile stocks and tighter for calm ones, so normal daily noise does not trigger it.
Does ATR tell you if a stock will go up or down?
No. ATR only measures the size of price moves, not their direction. It rises in both strong rallies and sharp sell-offs, so it is used alongside a directional indicator.
What is ATR percent?
ATR % is ATR divided by the stock's price. It lets you compare volatility across stocks of very different prices on the same scale.