42Fibonacci
Home

Candlesticks + ATR: Room to Move

By 42Fibonacci · Updated Oct 2026 · 10–12 min readSee live examples in screener →
Quick answer
What it looks likeAverage True Range over 14 days, read as a % of the close — the size of a typical day
When to trade itUse as a filter to judge whether a stock moves enough to swing
What confirms itNothing on its own — ATR narrows the list; pattern, trend and volume decide the trade

Average True Range (ATR) measures how far a stock typically moves in a day, averaged over 14 sessions. As a percentage of price, it compares volatility across stocks. ATR has no direction; swing traders use it as a filter to keep only stocks that move enough to be worth trading.

ATR doesn't tell you which way a stock will go. It tells you how far it usually goes — and whether there is enough movement to make a swing trade worth taking.

At a glance
TypeContext framework
What it addsHow far the stock typically moves in a day
DefaultATR 14 on daily charts, Wilder smoothing
Our readingATR as a % of the close — so a $20 and a $400 stock compare directly
Common misconceptionHigh ATR ≠ bullish or bearish

What Is ATR

ATR — Average True Range — is a volatility indicator. It measures how much a stock typically moves in a single session, high to low, gaps included, averaged over a lookback period. Like RSI, it was introduced by J. Welles Wilder in his 1978 book New Concepts in Technical Trading Systems, originally for commodities, where limit moves and overnight gaps made a plain high-minus-low range misleading.

An example. Say a stock trades around $50 and its ATR is $2.00. That means over the last 14 sessions, the distance from each day's low to its high — counting any gap from the previous close — has averaged about $2. Some days it moved $1, some days $3.50, but it typically moves about $2 a day. That is what ATR tells you: how far the stock usually moves in a day.

True Range: The Building Block of ATR

ATR is built from true range: one number per day that measures how far the stock actually travelled, including any gap from the previous close. ATR is the average of the last 14 true ranges.

On most days, true range equals the candle's high minus its low. The exception is a gap, when the stock opens well above or below the previous close. Part of that day's move happened overnight, outside the candle, so the candle alone understates it.

Candle range vs true rangeIllustrative
45.0047.5052.5055.0050.00Normal dayTR = High − LowYesterdayTodayCandle range2.50True range2.50Gap upTR = High − Prev closeGAPYesterdayTodayCandle range2.00True range5.00Gap downTR = Prev close − LowGAPYesterdayTodayCandle range2.00True range5.00
Yesterday closed at $50.00. With no gap, true range is the candle’s own range. After a gap, true range reaches back to yesterday’s close, so it counts the overnight move the candle leaves out.

The rule behind all three: true range runs from the lower of today's low and yesterday's close, to the higher of today's high and yesterday's close. When there is no gap, that is just the candle.

ATR as a Percentage of Price

ATR is measured in dollars, which makes it useless for comparing stocks at different prices. An ATR of $4 on a $400 stock is a 1% day. An ATR of $1 on a $20 stock is a 5% day. The $20 stock is five times as volatile even though its ATR is a quarter the size.

The fix is to divide by price: ATR% = ATR ÷ close × 100, also called ATRP or normalized ATR. It expresses a stock's typical daily move as a share of its own price, so a $20 stock and a $400 stock sit on the same scale.

The 42Fibonacci screener shows ATR this way. A setup with ATR 3.41% moves about 3.41% of its price on a typical day, or about $1.70 on a $50 stock.

What ATR Does and Doesn't Do

ATR is directionless. A stock collapsing 4% a day and a stock rallying 4% a day can have identical ATRs. Rising ATR means the days are getting bigger, not that buyers or sellers are winning.

ATR is backward-looking. It describes the last few weeks. An earnings report, a sector shock, or a quiet holiday week can change a stock's range faster than a 14-day average catches up.

ATR is not a target. A stock with a 3% ATR is not “due” to move 3% tomorrow. Some days are a fraction of the average, some are several times it. ATR is the size of a typical day, not a forecast of tomorrow's.

Using ATR to Find Swing Trade Candidates

Before a swing trader looks at a single candle, they decide which stocks are worth looking at. ATR is one of the most common ways to make that cut, because a swing trade needs movement: a stock that barely moves rarely produces a swing worth trading.

Compare two hypothetical stocks, both at $50. Stock A has an ATR of 3%; Stock B has an ATR of 0.8%. A 10% swing is a little over three days of typical range for Stock A and more than twelve for Stock B. Stock B isn't a bad company or a bad chart. It is simply too quiet for this style of trading.

That is why swing traders use ATR% as a floor. Screening out stocks below a minimum ATR% leaves a list of names that move enough to swing. Pattern, trend and volume then decide which of those are worth a closer look. Volatility comes first because it decides whether a setup has room to play out at all.

The 42Fibonacci screeners have this filter built in. Set a minimum ATR — for example ATR ≥ 2.5% — and only setups whose stock moves at least that much on a typical day remain.

Common ATR Mistakes

Reading direction into ATR
The mistake

ATR is rising — the stock is heating up, time to buy.

The fix

Rising ATR means bigger days in either direction. Volatility frequently expands during declines. Direction comes from the pattern and the trend, never from ATR.

Comparing raw ATR across stocks
The mistake

This one has an ATR of $6 and that one $1 — the first is far more volatile.

The fix

Not if the first trades at $600 and the second at $20. Compare ATR as a percentage of price; that is what the screener chip and filter show.

Treating a high floor as a quality filter
The mistake

I set ATR to 6% — everything left must be a great setup.

The fix

A higher floor only leaves faster-moving stocks — more room to swing, but also bigger, less predictable days. Volatility is opportunity and risk in the same number.

Forgetting that ATR lags
The mistake

ATR says 2%, so earnings tomorrow won't move it much.

The fix

ATR describes the last few weeks. Earnings, news, and market-wide shocks can produce a day several times ATR with no warning in the average.

Key Takeaways
  • ATR measures how far a stock typically travels in a day, gaps included — not which way
  • True range is the largest of high − low and the two distances from the prior close, which is how gaps get counted
  • ATR as a % of price is what makes ATR comparable across stocks at different prices
  • 42Fibonacci uses the standard Wilder ATR(14) on daily bars, shown as a % of the detection-day close
  • Swing trades need room to move: the ATR filter sets a floor so stocks too quiet to swing drop out
  • ATR is context, not a signal — the pattern, trend, and volume still decide the trade

Frequently Asked Questions

What is ATR in trading?

ATR (Average True Range) is a volatility indicator introduced by J. Welles Wilder in 1978. It averages each session's true range — the full distance a stock covered, including any gap from the prior close — over a lookback period, usually 14 days. The result is the size of the stock's typical day, in price units.

What is a good ATR for swing trading?

There is no standard number. A swing trade needs enough daily movement to reach a target in a reasonable number of days, so many traders set a minimum ATR% and skip the quietest stocks. How high to set it depends on your holding period and how big a move you are looking for. Treat any published band as someone's personal rule of thumb.

What is the difference between ATR and ATR%?

ATR is measured in dollars, so it can't compare stocks at different prices — $4 is a 1% day on a $400 stock and a 20% day on a $20 one. ATR% divides ATR by the closing price and multiplies by 100, giving the typical day as a share of price. The 42Fibonacci screener shows and filters on ATR%.

How does 42Fibonacci calculate ATR?

With the standard Wilder ATR(14) on daily bars. Each day's true range uses that day's high and low and the prior close. The first value is the simple average of 14 true ranges; every later day updates as (previous ATR × 13 + today's true range) ÷ 14. The figure on a result is that ATR divided by the detection-day close, times 100.

Does a high ATR mean a stock is going up?

No. ATR has no direction. A stock falling hard and a stock rallying hard can have the same ATR, and volatility often expands during declines. ATR tells you how big the days are; the candlestick pattern and the trend tell you which way.

Why is ATR(14) the default?

Fourteen is the period Wilder used for RSI and for the true-range average in his Directional Movement system — his original Volatility System actually used 7 days — and 14 has become the default ATR setting on most charting platforms. Using the common setting means your readings match what most traders see. Shorter lookbacks react faster to changes in volatility; longer ones are steadier. Small differences between platforms usually come from the smoothing method rather than the period.

The Bottom Line

ATR is the least glamorous indicator on the chart and one of the most practical. It won't find a setup for you. It tells you whether a stock moves enough for a swing to play out.

When you open a setup, you're asking: “Does this stock move enough to be worth swinging?” The ATR floor answers that before you read a single candle.

This is one of five context guides in this series; the others get the same treatment: Candlesticks + Moving Averages for trend structure, Candlesticks + RSI for momentum, Candlesticks + Volume for conviction, and Candlesticks + Fibonacci for retracement levels. New to candles entirely? Start with the candlestick basics guide.

Find setups with room to move.
Scanned every trading day across 3,000+ stocks, with ATR on every result.
Open the screener →
In this guide
Your learning path17 of 17 guides
← Candlesticks + FibonacciSeries complete