Indicator guide
ATR Backtesting Guide
ATR is a range-based measure of market volatility. A valid backtest converts its readings into explicit, time-aware rules and evaluates them after costs without assuming profitability.
How ATR is commonly used
Researchers use ATR for volatility filters, ATR stops, position sizing, and breakout thresholds. The indicator should be calculated only from information available at each simulated decision time.
Parameters to define
State the lookback period and smoothing method. Parameter choices affect signal frequency and lag, so compare a limited, predefined range rather than selecting one value after reviewing the full history.
How to evaluate a test
Review net return, maximum drawdown, volatility, trade count, win/loss size, exposure, and behavior across subperiods. Compare with a simple benchmark and test unseen data.
Research checklist
- lookback period and smoothing method
- Signal timing and execution price
- Fees, spread, and slippage
- Out-of-sample stability
Questions and answers
How do I backtest ATR?
Define the ATR calculation and signal rules, prevent future data from entering each decision, apply realistic execution costs, and validate on a separate period.