ATR (Average True Range)

TL;DR: The ATR doesn't tell you which way the market will go; it tells you how far it is currently moving. Scalpers use ATR to mathematically determine where to place their stop losses to avoid being randomly stopped out by noise.

One of the biggest mistakes novice scalpers make is using a fixed percentage stop loss (e.g., "I always use a 0.5% stop loss"). A 0.5% stop loss might be perfectly safe on a quiet weekend, but during a volatile New York session, a 0.5% swing is just background noise.

Enter the ATR

The Average True Range (ATR) indicator calculates the average size of the past N candles (typically 14). It gives you an objective measurement of the market's current Volatility.

Using ATR for Stop Losses

If the 1-minute ATR for Bitcoin is currently $20, it means that, on average, every 1-minute candle has a high-to-low range of $20.

If you place your stop loss only $10 away from your entry, you are placing it inside the normal market noise. You are mathematically guaranteed to be stopped out by random fluctuations, even if your directional bias was correct.

The Rule of Thumb: Place your stop loss at least 1.5x to 2x the current ATR away from your entry (or behind the nearest structural Support/Resistance). This gives your trade enough "breathing room" to develop while protecting you from catastrophic drawdowns.