One of the key concepts that I use to trade the markets is Average True Range (ATR). It's just a method for making sure stops aren't too tight. If you get stopped out on a 3x ATR then so be it but it's reasonable to assume that mostly 2x or 2.5x will keep you in.
True Range is an indicator initially defined by Welles Wilder. It is the greatest of the following for each period:
The distance from today's high to today's low.
The distance from yesterday's close to today's high.
The distance from yesterday's close to today's low.
Average True Range: is the average of the true ranges over the past x periods (where x is specified by the user).
A simple definition is the move in cents that a share could reasonably be expected to make during a particular period. On a daily chart, it shows how much the share price is likely to go up or down in a day. It typically shows a figure compiled from the last 15 - 20 days price activity.
