Ticker&TapeATR and ADR: measuring how much a stock moves
Every stock has its own rhythm. Some move 1% on a normal day, others move 6%. ATR and ADR measure that rhythm, so your stops and position sizes fit the stock you are actually trading.
Average true range (ATR)
The true range of a day is the biggest of three distances: today's high minus today's low, today's high minus yesterday's close, or yesterday's close minus today's low. Including yesterday's close captures gaps that a simple high-minus-low would miss.
ATR is the average of the true range, usually over 14 days. It is shown in dollars. A $50 stock with an ATR of $2 moves about $2 on a typical day. The platform's data box also shows ATR %, the ATR divided by price, so you can compare stocks at different prices.
Average daily range (ADR %)
ADR % is a simpler cousin. It averages each day's high-to-low range as a percentage of price, usually over 20 days. It ignores gaps, but it is easy to read: an ADR of 4% means the stock typically swings about 4% from low to high in a session.
Both numbers answer the same question: how much does this stock normally move? Use whichever you find easier, and stay consistent.
Volatile vs calm stocks
- Calm (ATR % or ADR % around 1% to 2%): large, mature companies and index ETFs like SPY. Moves are slower and stops can be tighter.
- Moderate (around 2% to 4%): many established growth leaders.
- Volatile (5% and up): young, fast-growing companies and recent IPOs. Big potential moves, but normal daily noise can hit a tight stop.
Using ATR for stops and size
The classic rule in this method is to cut a loss at 7% to 8% below your buy price. ATR helps you check whether that stop makes sense. If a stock's ATR % is 6%, a 7% stop is barely more than one normal day, so you may get shaken out by noise. Some traders then take a smaller position so they can give the stock more room while risking the same dollars.
Here is an example. You have a $100,000 account and risk 0.5% per trade, or $500. A $50 stock has an ATR of $2. A stop 1.5 ATR below entry is $3 away, at $47. Shares = $500 ÷ $3 = about 166 shares, roughly $8,300 of stock. The position sizing lesson walks through this in detail, and the stop-losses lesson covers where to place the stop.
Quick ATR reference
| ATR | Average true range in dollars, usually 14 days, includes gaps |
|---|---|
| ATR % | ATR divided by price; compares stocks at different prices |
| ADR % | Average high-to-low range as a % of price, usually 20 days |
| Stop check | A stop closer than about 1 ATR is likely to be hit by normal noise |
| Size rule | Wider stop means fewer shares for the same dollar risk |
Common mistakes
- Using the same tight stop on a calm stock and a wild one.
- Keeping the same share count when the stop has to be wider.
- Reading a high ATR as a sign of a better stock; it only means bigger swings.
- Forgetting that ATR rises after a big gap and slowly drifts back.
Key points
- ATR and ADR % measure how much a stock normally moves in a day.
- Compare ATR % with your stop distance so normal noise does not stop you out.
- A wider stop calls for a smaller position to keep your dollar risk the same.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. Why does the true range include yesterday's close?
If a stock gaps, the move from yesterday's close counts as part of the day's range. A plain high-minus-low would ignore it.
2. A stock's ATR % is 6% and you plan a 7% stop. What does the lesson suggest?
A stop closer than about one ATR is likely to be hit by normal moves. Giving more room while buying fewer shares keeps the same dollar risk.
3. You risk $500 on a trade and your stop is $3 below your entry. About how many shares should you buy?
Shares = dollar risk ÷ stop distance = $500 ÷ $3, about 166 shares.
Open the position size calculator → Try it on Ticker&Tape