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The average true range

The same 4% move is a yawn in one stock and a shock in another. Judge real days as normal or event, then let ATR — a stock’s own daily range — reveal which they were.

Placing a stop, you felt that jumpy stocks need more room. This is the exact yardstick for how much.

A stock drops 4% in a day. Big deal — or an ordinary Tuesday? Depends entirely on the stock. For a sleepy name that drifts a point a day, −4% is a real event. For one that swings 4% before lunch, it's noise. The move alone tells you nothing; you have to know what normal looks like first.

The average true range (ATR) is that yardstick — a 14-day average of the daily range (the largest of high minus low, high minus prior close, or low minus prior close), so it captures how far this stock usually travels in a session, gaps and all. Measure any move in ATRs and it becomes comparable across stocks: under about 1 ATR is normal daily noise; 1.5 ATRs or more is a real event.

Each chart below ends on one dramatic day. Call it — normal day or real event — then reveal the ±1-ATR "normal" band and see whether the move stayed inside it.

The traps are the whole point. A +4% day that never left the band was a normal day for a jumpy stock; a −3.5% day that punched clean through was a real event for a calm one. The percentage fooled the eye both times — the ATR didn't.

That's why traders size moves in ATRs, not raw percent: it's a stock-specific, time-varying ruler. The same number drives stop placement — a stop closer than 1 ATR sits inside the noise the band shows, so ordinary movement is likely to reach it.