ATR in gold trading
ATR, the Average True Range, measures gold's typical bar-to-bar range including gaps; traders use it to size stops and judge whether a day is quiet or wild.
Also called Average True Range, Average true range
ATR (Average True Range) is a volatility indicator introduced by J. Welles Wilder in 1978. For each bar it takes the true range, the largest of: high minus low, high minus the previous close, and low minus the previous close, so that gaps are included. It then averages the true range over a number of bars, 14 by default. The result is in price units, so on XAUUSD an ATR of 38 means a typical bar spans about $38.
How it applies to gold trading
ATR is the most practical way to adapt to gold’s changing volatility. A daily ATR of $40 says a stop $8 away on a daily-chart setup is inside normal noise. Many traders set stops at a multiple of ATR, such as 1.5 × ATR(14) on the trading timeframe, and then size the position so that the stop risks a fixed percentage. The stop widens in volatile weeks and narrows in quiet ones; the dollar risk stays the same.
ATR also sets expectations. If the daily ATR is $40 and gold has already moved $45 by the London close, the odds of a further large extension in New York are lower than on a day that has barely moved.
A common mistake
Reading ATR as a directional signal. It measures the size of movement, not its direction; a rising ATR in a falling market is a falling market with bigger candles.
See also: ADR, Volatility, Stop-loss, Bollinger Bands.
Frequently asked questions
What ATR setting should I use for gold?
The 14-period default on the timeframe you trade is the common starting point. A shorter period reacts faster to volatility changes; a longer one is smoother.
How do I set a stop-loss using ATR on XAUUSD?
Multiply the current ATR by a factor (1 to 3 is typical) and place the stop that distance beyond the entry or beyond the relevant swing. Then calculate lot size from the stop distance and the planned risk.