Average true range (ATR)

ATR is a stock's typical daily price range, averaged over a number of days, usually 14. Each day's true range is the largest of high minus low, high minus the previous close, and the previous close minus low, so gaps count. Traders use ATR to set stops and size positions.

A stop placed two ATRs below the entry gives a volatile stock more room and a quiet stock less. Position sizing from that stop then buys fewer shares of the volatile stock, so each trade still risks the same amount.

Example. A stock at ₹500 with a 14-day ATR of ₹15 moves about 3% on a typical day. A 2 ATR stop sits ₹30 below the entry.