One of the fastest ways traders sabotage good setups isn’t bad entries — it’s unrealistic targets.
In this quick video lesson from Senior Market Strategist John Rowland, CMT, he explains how Average True Range (ATR) can be used to set profit targets that align with how a stock actually moves, not how traders hope it will move.
The Problem With “Wishful” Targets
John starts with a simple but critical question: Is this target realistic for the timeframe I’m trading?
A 50% target might make sense for a longer-term investment. But for a short-term or swing trade, targets that are 50%, 75%, or 100% away are often ignore basic market math.
That’s where volatility comes in.
What ATR Really Measures
Average True Range (ATR) is not directional. It doesn’t predict whether a stock will move up or down.
Instead, it measures how much a stock typically moves based on probability and range, not opinion.
In the clip, John uses:
- 9-day ATR
- Expressed as a percentage of price
Example: An ATR of 2.6% means the stock’s normal daily movement is about 2.6%, regardless of direction.
Connecting ATR to Realistic Targets
John’s key insight is simple:
Your profit target should be proportional to the stock’s volatility.
If your target is:
- 15% away
- ATR is 2.6%
That’s roughly a 6–7x ATR move, which John considers reasonable for a swing trade.
Where traders get into trouble is when the profit target is mismatched with the stock’s volatility over the expected timeframe, such as ATR targets at 10X or more over shorter timeframes.
The farther your target stretches beyond ATR norms, the lower the probability of success.
How Smaller Targets Can Increase Win Rate
Finally, John reframes the idea of “reward”: If you structure a 3-to-1 reward-to-risk trade with ATR at 2.6%, you may only need a 2x ATR directional move to reach your first profit target.
That dramatically improves the odds of success.
The goal isn’t to maximize upside on every trade; it’s to stack high-probability outcomes over time.
Watch the clip to see how John applies ATR step by step:
- Stream the full webinar to learn exit and profit-taking frameworks
- Turn on notifications so you don’t miss John’s next live educational session
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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