Are there any good trading strategies using ATR? Any way to use it to manage risk better?
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Iâm curious, Jordan. Why would you want to find a strategy to fit in with a specific indicator, rather than starting with a strategy and then finding the indicators you need, that provide the necessary information to be able to trade it?
Sorry if I sound critical, but getting this key issue the wrong way round is one of the commonest mistakes that prevents people from trading profitably.
âThe strategy aim and definition should come before the indicator.â
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ATR is an indicator developed by J. Welles Wilder Jr back in the 1970âs and is still in common use.
In my opinion, its main function is to assist in defining exit levels for both targets and stoplosses.
But it does not generally help in deciding when, where, or in which direction to enter a trade (although I guess it could be applied in setting limit order levels).
If you consider the formula for the ATR value then it is clear that it is just an average/typical movement range for the instrument for the periods that you are measuring. E.g. average over 14 periods on a daily chart.
Therefore, ATR is more commonly a risk management element within a strategy rather than a strategy itself. For example setting an SL beyond the ATR to avoid getting stopped on basic ânoiseâ movements, or setting a TP level within the ATR to avoid missing out on a high/low move.
I donât use ATRâs myself, but it seems traders tend to use multiples of the ATR value rather than the ATR value itself.
It is worth remembering that the ATR is only an average value that is trying to indicate the typical range of price movement for the selected instrument in the chosen timeframe. But price moves according to the current market inputs and is not restricted by average values in any way at all. In other words, if you get stopped out it will be because of some significant development and not just general price movement - which is what risk management is there for?
Maybe not a very comprehensive answer to your question but hopefully provides some things to think about?
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Detailed in my opinion.
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And with the âdefaultâ setting of 14, one or two whacking great candles in that 14 candle range can really skew the âaverageâ
So what is the âbestâ setting? No one knows 
How about 1 and take a good look back? Then you could, perhaps, take that as the worst case senario. But like @SovoS I donât use it myself 
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I fully agree, especially on lower timeframes - and that tends to be the same âachilles heelâ as with most, if not all, formula-based, averaging type, indicators.
But that doesnât necessarily mean they are totally useless just because there will be occasions when price simply slices through the levels. But, as you say, deciding what is the âbestâ or âoptimumâ setting is far closer to sorcery than science! 
But maybe there is a little more value in using ATR to define, or fine-tune, target levels? At least it might give some clue as to where the price might be expected to reach and thereby keep TPâs realistic rather than rampantly over-optimistic!
But I donât really see any benefit here with ATRâs that would be superior to simply identifying likely zones above and below the entry level. At least zones show where price has stalled/reversed previously compared with using the mathematical output of an equation based on a somewhat random selection of historical time periods?
But it would be nice to also hear from the âdefence counselâ if anyone here is using ATRâs? Anyone?
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What timeframe are you looking at? Ie; Hourly, Daily & on what pair? I can run back tests on my PC for an optimal ATR that produces consistent results when it pertains to risk management and minimal variance.
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The indicator just made sense right away, so I figured why not build around something I already understand well. Just felt more natural that way.
Thanks for the detailed answer
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Iâm mostly on the daily timeframe, usually trading GBP/USD. That backtest offer sounds awesome, thanks!
No problem⌠I have a ton of CPU power now for back testing. Iâll post the results
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Got optimal results. GbpUsd Daily chart over the past 2 years (Aug 17 2023 to Aug 15 2025)
ATR 14, 21, 28 no difference.
Take profit of 1 ATR
Stop loss of 3 ATR
87% win rate.
Lot size range with starting balance of $5,000:
0.10 lot had 8% drawdown, 8% profit
1.0 lot had 43% drawdown, 89% profit
Almost any good strategy uses ATR, since it is the best way to determine stops. Volatility is constantly changing and this would not be wise to use fixed stops.
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Why is it better than putting stops beyond swings high/low of the price?
I think that most of the time previous highs and lows are a bad indicator. Price doesnât care about them. On the other hand, ATR is objective. It is real because average range is real.
If youâre saying that previous highs or lows arenât important or real, and Iâm interpreting previous highs and low as you referring to swing points or Market Structure, I have to respectfully disagree.
ATR is calculated based on the lookback period and the calculated average is literally subjective to the current timeframe in use. Market structure is objective and timeframe independent.
I agree that ATR can be useful for stop loss placement because it expands and contracts with changes in volatility, but the benefits of ATR doesnât make market structure irrelevant since these are structural levels that are either protected or targeted. Protected levels used for stop loss placement are where trade ideas are invalidated if breached.
If I misinterpreted your statement about previous highs/lows, pardon my confusion. 
I get your point, but I think youâre overstating how âobjectiveâ market structure is. Swing highs and lows depend entirely on which timeframe youâre looking at â a level that looks important on M15 can be noise on H4, and vice versa. Thatâs no more âobjectiveâ than ATRâs lookback period.
ATR at least has the advantage of being mathematically consistent across timeframes. Itâs not open to interpretation â itâs just volatility expressed as an average range. Previous highs/lows, on the other hand, only have meaning if enough traders collectively decide they do. Sometimes price respects them, sometimes it blows right through to grab liquidity.
But the main question of course is whether your relying on âmarket structureâ makes you profitable
If I plot the price of a swing point high on the daily time frame with a horizontal line, the price level will be the same on all time frames, so it is both objective and independent of the time frame.
While the ATR of the 2 PM candle on the daily time frame will be drastically different than the ATR of the 2 PM candle on the 5 minute timeframe, which is what I mean by it is subjective to the timeframe in use.
It goes without saying that almost every level of support or resistance will at some point be violated, that is the nature of the market. Does an ATR value represent dynamic support or resistance that can hold price? Probably not, itâs just moving the stop loss far enough out of the way based on multiples of the ATR but itâs more likely that a support/resistance level within that multiple is doing the heavy lifting in protecting the stop loss.
The main question that we were discussing is the validity of ATR and market structure for stop loss placement, and both have legitimate application depending on the traderâs risk management objectives.
It sounds like you could be a millionaire by now. It would be nice to see your Myfxbook 
The question is whether it is violated less than it is not.
I chimed in so new traders that read your original statement have a well rounded view and not take what you said literally, but you keep deflecting back to my bank account, which is a little bit cringe since I didnât make any monetary claims.
There are better ways to build credibility and goodwill than demanding back testing results, dismissing any trading methodology that doesnât fit your narrative, and counting other peopleâs money. I say that as helpful feedback in case you havenât picked up on the vibes of this forum yet.
Welcome to Babypips! I look forward to your contributions to the trading discussion and I hope that you enjoy participating in the community.
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