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What Is ATR?
ATR doesn't tell you where price is going. It tells you how far it usually travels getting there.
NoVo Options Trading · 2026
Average True Range (ATR) measures volatility - the typical size of a bar's move over a set period. It says nothing about direction. It answers one question: how much does this thing normally move in a given window? That answer is the foundation of intelligent stop placement.
How it's built
"True range" is the largest of: the current bar's high-low, the high versus the prior close, or the low versus the prior close - which captures gaps. ATR averages that over a period (commonly 14 bars). A rising ATR means the market is getting more volatile; a falling ATR means it is calming.
Sizing stops with ATR
A fixed-point stop ignores how volatile the market is right now. A one-point stop that makes sense in a quiet tape gets hit constantly in a fast one. Placing stops as a multiple of ATR adapts to conditions - wider when the market is jumpy, tighter when it is calm - so you are stopped out by a real reversal, not by normal noise.
A stop that ignores volatility isn't a stop - it's a coin flip on getting shaken out.
Volatility as a regime tell
ATR also flags regime shifts. A sudden expansion often precedes or accompanies a trending move; a long contraction (a "volatility squeeze") frequently precedes a breakout. Read alongside the VIX and volume, ATR helps you calibrate how aggressive to be - and how much room a trade needs to breathe.
More on this: ATR-Based Expected-Range Framing for a 0DTE Session · Donchian Channels · The Ichimoku Cloud · Keltner Channels · The Parabolic SAR
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.