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ATR

Average True Range — measures how much a stock typically moves per period.

ATR tells you the normal "noise" range. If SPY has an ATR of $2, a $1 move is noise but a $4 move is significant. We use ATR to set stops (1.5x ATR) and targets (2-2.5x ATR). This ensures stops aren't too tight (noise stops you out) and targets are realistic.
Related Terms
Risk:Reward Ratio

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