Average True Range measures how much a bar has typically been moving over a set lookback, usually 14 bars. Most setups treat a rising ATR as background noise. This one treats it as the signal: a bar that steps its own range well past that recent average, taken in the direction it closed, with a stop and target sized off the same ATR reading instead of a fixed tick count.
“A single expansion bar isn't enough on its own. Wait for a second bar closing the same direction before treating the move as confirmed.”Jason Parker · Founder, TradeScalping.com
ATR averages the true range of the last 14 bars, where true range accounts for gaps by taking the largest of the current high-to-low, the gap up from the prior close, or the gap down from it. The result is a single number in price terms that answers one question: how much has this instrument typically been moving, bar to bar, lately. It rises when the market speeds up and falls when it slows down.
The Bollinger squeeze setup elsewhere on this page trades the opposite premise: bands compressed to their tightest reading, then the release from that compression. This setup skips the waiting entirely. It looks for a bar whose true range has already stepped out to 1.5 times the current ATR or more, closing strongly in one direction, and bets that an expansion already underway keeps going rather than snapping straight back. A single expansion bar isn't enough on its own; the setup wants a second bar closing the same direction before it treats the move as confirmed, since the first sharp bar off a catalyst is often the reversal itself, not the start of a run.
| Entry | Close of the second bar confirming the same direction as the initial expansion bar |
| Exit | A target set at 1x the current 14-bar ATR reading beyond entry, not a fixed tick or level target |
| Stop | 0.5x the current ATR beyond entry on the opposite side, so it tightens on quiet days and widens on genuinely volatile ones instead of sitting fixed |
An illustrative example built to show the setup’s shape. Not historical price data, and not tied to any specific ticker.
ATR is a trailing average, so it confirms an expansion that's already started, it never predicts one before it happens. A single outlier bar sitting inside the 14-bar lookback can inflate the whole reading and make an otherwise unremarkable bar look tame by comparison, or the reverse. On a low-priced or illiquid name, an ATR-scaled stop can come out wider than a sane risk plan allows for that account size, and the right move at that point is to skip the trade, not shrink the stop back down to fit and lose the sizing logic the setup depends on.
None of this works without the framework underneath it. Read risk management next, or run your own numbers in the position-size calculator.
Common questions about trading this setup, answered straight.
The setup waits for a bar whose true range already prints 1.5x or more of the 14-bar ATR with a directional close, then a second bar confirming the same direction. Entry comes on the close of that second confirming bar, not the first expansion bar itself, since a single sharp bar off a catalyst is often the reversal, not the start of a run.
Both are set as a fraction of the current 14-bar ATR reading instead of a fixed tick count: the target sits 1x ATR beyond entry, and the stop sits 0.5x ATR beyond entry on the opposite side. That means the stop tightens on quiet days and widens on genuinely volatile ones.
ATR is a trailing average, so it confirms an expansion that has already started rather than predicting one. On a low-priced or illiquid name, an ATR-scaled stop can come out wider than a sane risk plan allows, and the right move at that point is to skip the trade rather than shrink the stop and lose the sizing logic the setup depends on.
Trade