ATR and RSI as measurements
Compute ATR and use it to size stops; read RSI as a measurement. · 6 min
Charts in this lesson are generated. They are not real market data and predict nothing.
True range is the candle’s range, extended to the previous close when price gapped. ATR (average true range) smooths it over 14 candles: the typical size of a candle, gaps included.
TR = max(high − low, |high − previous close|, |low − previous close|)
last candle: TR 0.99 · ATR(14) 1.23 · a stop 2 ATR away = 2.47
Stops closer than about one ATR sit inside ordinary noise. Track B uses ATR to place stops and to size positions so the money at risk stays constant.
RSI, measured
RSI(14) compares the average up close to the average down close over 14 candles, on a 0 to 100 scale. Here it reads 32. It measures recent momentum; “overbought” and “oversold” are labels, not signals.
Previous close 40. The next candle gaps down: high 37, low 35. True range?