Educational content. This article explains the average true range indicator and how it converts a stop distance into a lot size on different instruments. It does not constitute investment advice or a recommendation. CFD trading carries significant risk of loss and may not be suitable for all investors.
Average true range (ATR) is the average of the true range over a set number of periods, 14 by default. The true range of one period is its high-to-low distance, widened to include any gap from the previous close. ATR shows how far a market typically travels per period, in price units, and says nothing about direction.
The general idea of volatility is covered in what is volatility in trading. This article goes one step further: how the ATR is smoothed, how to add it in MT5, and why one ATR is worth very different amounts of money per lot on forex, gold, oil, indices and crypto.
How Is Average True Range Calculated?
ATR starts from the true range, the largest of three distances: current high minus current low, absolute current high minus previous close, and absolute current low minus previous close. The second and third terms capture gaps, which a plain high-low range would miss. The three-distance definition and a four-day example are in the volatility article; they are not repeated here.
What that article leaves out is the smoothing. Most charting packages follow the method of J. Welles Wilder, who introduced the indicator. After the first ATR (a plain average of the first N true ranges), each new value is:
ATR = (previous ATR x (N - 1) + latest true range) / N
A worked example with N = 3, to keep the arithmetic short, and these daily true ranges on EURUSD, in pips: 60, 50, 70, 40, 80.
| Day | True range (pips) | ATR (pips) | Calculation |
|---|---|---|---|
| 1 | 60 | n/a | Warm-up |
| 2 | 50 | n/a | Warm-up |
| 3 | 70 | 60.0 | (60 + 50 + 70) / 3 |
| 4 | 40 | 53.3 | (60.0 x 2 + 40) / 3 |
| 5 | 80 | 62.2 | (53.3 x 2 + 80) / 3 |
Day 5 was the largest true range in the series (80 pips), yet the ATR rose only to 62.2. Wilder smoothing is slow by design: every new day carries a weight of 1/N. A 14-period ATR gives the latest day a weight of about 7%, so it needs several large days in a row to move noticeably.
How Do You Add ATR in MetaTrader 5?
Open the Insert menu, choose Indicators, then Oscillators, then Average True Range, and set the period (default 14). MT5 draws the ATR in its own window below the chart, in price units, not in pips.
Two practical points:
- Units. On a five-digit forex symbol such as EURUSD, the ATR window shows a value like 0.00112, which is 11.2 pips. On gold, which has two digits, 41.94 is USD 41.94 per ounce.
- Smoothing. MetaTrader 5's built-in ATR averages the true range with a simple moving average, as its MetaQuotes example source (ATR.mq5) shows, not Wilder's recursive formula, so its value differs a little from the figure on charting sites that use Wilder. Compare the same method when comparing instruments or dates.
The same distance can also be read in points, the unit MT5 uses for trailing stop distances. On EURUSD (5 digits) one pip is 10 points, so an ATR of 11.2 pips is 112 points. On gold (2 digits) a point is USD 0.01, so an ATR of USD 41.94 is 4,194 points. The pip definition explains where the pip stops being the natural unit.
Why Is One ATR Worth Different Money on Each Instrument?
One ATR is a price distance, and the money behind it is that distance multiplied by the contract size and the number of lots. Contract size is how many units of the underlying one lot controls, covered in what is contract size. So two instruments with the same percentage ATR can differ by a factor of fifty in profit or loss per lot.
The table holds the ATR constant at an assumed 1% of price for every symbol, which is not a measurement and is not typical of any of them. It isolates what the contract specification does. Prices, contract sizes and lot limits are from the Vanto feed snapshot, 10 October 2026; the account currency is assumed to be USD.
| Symbol | Class | Price | Contract size | Assumed ATR (1%) | One ATR on 1 lot |
|---|---|---|---|---|---|
| EURUSD | Forex | 1.12014 | 100,000 | 0.01120 (112 pips) | USD 1,120 |
| XAUUSD | Metals | 4,194.38 | 100 | 41.94 | USD 4,194 |
| XAGUSD | Metals | 60.8035 | 5,000 | 0.6080 | USD 3,040 |
| UKOIL | Energies | 102.811 | 100 | 1.028 | USD 103 |
| US500 | Indices | 7,820.77 | 1 | 78.21 | USD 78 |
| BTCUSD | Crypto | 82,885.88 | 1 | 828.86 | USD 829 |
The numbers behave as the contract size says. A lot of gold (100 ounces) and a lot of silver (5,000 ounces) are very different positions, and a lot of US500 is a single index unit. A trader who sizes every symbol with the same lot habit therefore risks very different amounts for the same chart distance, which is also why pip value differs across forex pairs and lot minimums differ across classes (minimum lot size).
How Do You Size a Position From ATR?
Position size from ATR has three steps: choose a stop distance as a multiple of ATR, convert it to money per lot, and divide the amount you accept to lose by that figure.
Lots = amount at risk / (stop distance x contract size), rounded down to the lot step.
The multiple (1.5 below) is an illustration, not a recommendation; traders choose their own. The amount at risk is USD 100 on every line. Same snapshot and same assumed ATR of 1% of price.
| Symbol | Stop (1.5 x ATR) | Loss per 1 lot at the stop | Lots for USD 100 | Valid size | Loss at the minimum lot |
|---|---|---|---|---|---|
| EURUSD | 168 pips | USD 1,680 | 0.0595 | 0.05 | USD 16.80 |
| XAUUSD | USD 62.92 | USD 6,292 | 0.0159 | 0.01 | USD 62.92 |
| XAGUSD | 0.9121 | USD 4,560 | 0.0219 | 0.02 | USD 45.60 |
| UKOIL | USD 1.542 | USD 154 | 0.648 | 0.6 | USD 15.42 |
| US500 | 117.31 points | USD 117 | 0.852 | 0.85 | USD 1.17 |
| BTCUSD | USD 1,243 | USD 1,243 | 0.0804 | 0.08 | USD 12.43 |
Take EURUSD: 1.5 x 112 pips = 168 pips. One pip on 1 lot is USD 10, so 1 lot loses USD 1,680 at the stop. USD 100 / USD 1,680 = 0.0595 lots, rounded down to the 0.01 step gives 0.05. Rounding down matters: rounding to 0.06 would risk USD 100.80.
Gold shows the limit. USD 100 / USD 6,292 = 0.0159 lots, which rounds down to 0.01, the minimum. That ticket already risks USD 62.92 at this stop, and no smaller size exists. If the plan was to risk USD 20, this stop distance cannot be traded on gold at any valid size. The only variables left are a tighter stop (which sits closer to the noise) or a larger risk amount. Minimum lot and step sizes per symbol are in minimum lot size.
A stop that is actually hit can fill at a worse price than planned, so the real loss can exceed the amounts above. This is slippage.
What Do ATR Multiples Mean for Stop Placement?
A stop at a small multiple of ATR sits inside the market's ordinary range; a stop at a larger multiple sits outside it, at the cost of a bigger loss per lot. The multiple is a trade-off, not a setting with a correct value.
| Stop distance | Ordinary movement | Loss per lot | Lots for the same risk |
|---|---|---|---|
| 0.5 x ATR | Reached within a typical period | Smallest | Largest |
| 1.0 x ATR | About one typical period of travel | Medium | Medium |
| 1.5 x ATR | Beyond a typical period | Larger | Smaller |
| 3.0 x ATR | Beyond all but unusual periods | Largest | Smallest |
Lot size and stop distance move in opposite directions with the amount at risk fixed: doubling the multiple halves the lots. This is the same relationship as in the volatility article, and it connects to the risk-reward ratio: a stop at 1.5 x ATR requires a target of 3 x ATR for a 2 to 1 ratio, and a far target is usually reached less often.
Margin is a separate check. Position size from risk and margin required are different numbers, and the second must also fit the account. See what is margin and the stop-out level, which is 50% at Vanto with a margin call at 100%.
When Does ATR Mislead?
ATR misleads whenever the next period is unlike the periods inside the window. Four cases:
- Regime change. A 14-period ATR from a quiet fortnight understates the range on the day of a major release. The stop that looked outside the noise sits inside it.
- Window hides events. One day five times larger than the rest raises a 14-day average, then drops out of the window 14 days later and the ATR falls abruptly with no change in the market.
- Raw units across symbols. An ATR of 112 pips and an ATR of USD 41.94 are not comparable until each is divided by its price, or turned into money per lot as above.
- Gaps and weekends. The true range includes gaps, so a gap day enlarges the ATR even if the rest of the period was calm. ATR then overstates ordinary movement for a while.
ATR does not cap the loss either. It sizes the position for a typical move; an atypical move, a gap through the stop or a spread widening at the open can lose more than planned.
Frequently Asked Questions
What is a good ATR setting?
There is no universal setting. The default of 14 periods is the common convention, and a shorter window reacts faster while a longer one is steadier. Pick one window, keep it, and compare like with like across dates and symbols.
Does ATR show whether price will go up or down?
No. The true range is an absolute distance, so ATR rises in sharp rallies and sharp sell-offs alike. It measures how big moves are, not which way they go.
Is ATR the same on every platform?
No. Wilder's recursive smoothing and a simple moving average of the true range give slightly different values from the same data. Charting sites often use Wilder's method, and MetaTrader's built-in indicator uses a simple average, so check which one a figure comes from.
How do you convert ATR from pips to money?
Multiply the ATR in price units by the contract size and the lots. On EURUSD, an ATR of 112 pips is 0.01120 x 100,000 = USD 1,120 per lot. For forex pairs not quoted in USD the result is first in the quote currency and then converted.
Can ATR be used on any timeframe?
Yes. The period count stays the same but the candle changes: 14 on a daily chart averages 14 days, 14 on a one-hour chart averages 14 hours. An ATR from a lower timeframe describes a shorter move and should not be mixed with a stop sized on a higher one.
Does a higher ATR mean a higher margin requirement?
Not directly. Margin comes from price, contract size, lots and leverage, not from ATR. Volatility affects the risk of a margin call because larger swings move the account equity faster, which is why leverage amplifies losses as well as gains.
Calculate the Numbers Before You Size a Position
The Vanto trading calculator shows contract size, pip value and margin for each symbol and lot size, which turns an ATR-based stop distance into an amount at risk before an order is placed.
Risk warning. Trading securities, futures, options, and contracts for differences are complex financial instruments that require knowledge and understanding. Prices can fluctuate significantly and securities may become valueless. Investors may incur losses exceeding the potential for profits. Trading on margin can result in losses greater than the amount initially deposited. Past performance is not necessarily a guide to future performance. The information in this article is for educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Consider whether CFD trading is appropriate for your circumstances and seek independent advice if necessary.