What is ATR?
Average True Range smooths true range over N bars — volatility in price units.
Formula
True Range Calculation: True Range = MAX of: 1. High - Low (today's range) 2. |High - Previous Close| (gap up) 3. |Low - Previous Close| (gap down) ATR = Average of True Range over N periods (usually 14) Example: Day 1 TR: ₹15 Day 2 TR: ₹18 Day 3 TR: ₹12 ... (14 days) 14-day ATR: ₹16 Meaning: Stock moves approximately ₹16 on average day
Indian market context (NSE)
Reference levels: Nifty 50 at 24,300, Reliance Industries at ₹1,300, Bank Nifty futures at 55,000 (lot size 30). Examples below show how ATR shows up on Indian index, equity, and futures books — update to live quotes in your journal.
Nifty 50 perspective
ATR on Nifty (24,300): on the 15-minute chart, combine with session VWAP and 9:15–10:00 liquidity — index atr signals misfire on expiry Tuesdays without volume confirmation.
Reliance Industries perspective
ATR on Reliance at ₹1,300: daily vs hourly settings diverge around results and ex-dividend dates; note corporate events in journal when atr readings spike.
Bank Nifty futures perspective
ATR on Bank Nifty futures (55,000): first-hour signals differ from post-14:30 behaviour; avoid standalone entries when banking names lead the move.
How to validate
- Forward-test ATR on paper or sim for two weeks after rule changes.
- Validate only on trades where ATR settings matched the written playbook.
- Split results by trending vs range weeks on Nifty before trusting the signal.
- Require higher-timeframe bias agreement if that is part of your rule.
How to track in TradeLyser
- Add ATR reading to trade entry notes (value + timeframe).
- Create tags: “ATR aligned” / “ATR ignored”.
- Monthly: filter trades by alignment tag and compare win rate and avg R.
- Screenshot chart context for mentor review on disputed trades.
Best practices
- Combine ATR with higher-timeframe bias — not as a lone trigger.
- Avoid curve-fitting settings on less than three months of tagged data.
- Refresh playbook screenshots when changing ATR parameters.
- Skip trading when ATR conflicts with written risk limits.
Common pitfalls
- Treating ATR as a guaranteed reversal signal.
- Optimising parameters on one bullish month only.
- Trading against higher-timeframe bias because ATR “said so”.
- Failing to log when you overrode ATR discretionally.
How to use this in TradeLyser
Log ATR(14) at entry on each tag; align stop multiplier in playbook.
Related terms
Average True Range averages the true range of price bars, capturing gaps. Traders use ATR to set stop distance and size positions relative to current volatility.
Position sizing translates account risk into quantity. With a ₹2,000 risk cap and ₹40 stop per share, size is 50 shares — before lot multiples on F&O.
A stop loss is a pre-defined exit when the market moves against you by a set amount. It caps loss per trade when fills match your plan.
Volatility quantifies variability — in prices (historical/realised) or in option premiums (implied). Higher volatility means wider expected swings over a horizon.
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