ATR (Average True Range) answers one question with no directional opinion: how much does this market move in a typical period? It averages the 'true range' (the full high-to-low move, including any gap) over a lookback, giving a single number in price terms. A BTC ATR of $1,500 means a typical bar covers about $1,500 of range.
Why it is so useful
- Stops — place a stop a multiple of ATR away (e.g. 1.5×ATR) so it sits beyond normal noise and only triggers on a real move against you.
- Targets — size profit objectives in ATR units to keep risk:reward consistent across calm and wild markets.
- Sizing — adjust position size to ATR so each trade risks the same dollar amount regardless of volatility (next lesson).
- Context — a rising ATR means the market is heating up; a falling ATR means it is calming.
The key insight
A fixed-dollar or fixed-percent stop is a mistake, because the same stop is far too tight in a wild market and needlessly wide in a calm one. ATR makes your stops and targets adapt to current conditions automatically. This is exactly how this project's own engine sizes risk — stops are set at a multiple of each agent's entry ATR, not a fixed number.
Notes
ATR is direction-blind — a high ATR says 'big moves', not 'up' or 'down'. It also lags, as an average of past ranges, so a sudden volatility spike takes a few bars to fully register. Use it as the volatility input to your risk decisions, paired with directional tools for the trade itself.