ATR Profit Targets, Backtested
An ATR profit target places the exit a set multiple of average true range above the entry price, so the target widens when the stock is volatile and tightens when it is calm. Backtested with a one-ATR target and a two-ATR stop, it produced a high share of winning trades and a thin, often negative, edge.
An ATR profit target sets the exit using average true range, the average size of a day’s move including gaps. Instead of a fixed dollar amount or percentage, the target sits a chosen number of ATRs above the entry, so it adjusts to how much the stock usually moves.
How it works
The target is entry price plus a multiple of ATR. A stock bought at $100 with a 14-day ATR of $2.00 and a 1x multiple gets a target of $102.00. With a 2x multiple it would be $104.00. The general question of where to put a target is covered on the take profit page; this page is about what one specific ATR setup did in a backtest.
The version tested here pairs a 1x ATR target with a 2x ATR stop. Both are placed as orders from the average fill price, using the current 14-day ATR, so they shift a little each day as ATR changes. Whichever is hit first closes the trade. If the stock gaps through either level at the open, the fill is at the open, not at the level.
Three different entries used that same exit, on daily bars, run in TradingView’s Strategy Tester in August 2026:
- Trend + ATR: buy when the close is above the 50-day exponential average and the 200-day exponential average is rising.
- Breakout + ATR: buy when the close is above the highest high of the prior 20 days.
- Pullback + ATR: buy when the close reclaims the 20-day exponential average from below, with the close above the 200-day one.
Each ran on seven stocks (AAPL, MSFT, GOOGL, AMZN, NVDA, META and TSLA) from January 2015 to August 2026, with the whole account per trade, 0.05% commission each way and one tick of slippage. Three entries times seven stocks is 21 runs.
A worked example
Start with the break-even arithmetic, because it explains everything that follows. Using the $2.00 ATR above: the target is $2.00 above the fill and the stop is $4.00 below it. Every winner makes $2.00. Every loser loses $4.00.
The break-even share of winners
To break even, the winners must pay for the losers. If a share p of trades win, the rule breaks even when p x $2.00 = (1 - p) x $4.00. Solve it and p = 4 / 6, or 66.7%. Two winners in three just to stand still.
Now add costs. At 0.05% commission each way on a $100 stock, the round trip costs about $0.10. Winners now net $1.90 and losers lose $4.10. Break-even becomes p x 1.90 = (1 - p) x 4.10, so p = 4.10 / 6.00, or about 68.3%. That is before slippage and before any gap that fills a stop below its level.
That is why an ATR target setup can show a high share of winning trades and still lose. The ratio of target to stop manufactures the high share. It does not create an edge; it just moves the line the edge has to clear.
The original data
Across all 21 runs, 2,649 of 3,857 trades closed higher, which is 68.68%. Per run, the share ran from 57.14% to 74.39%. Compare that with the roughly 68.3% break-even worked out above. The pooled figure clears it by a fraction of a point.
The profit factors tell the same story. They ran from 0.580 to 1.532. Six of the 21 runs finished with a net loss: Pullback + ATR on AAPL, NVDA and TSLA, Breakout + ATR on GOOGL and META, and Trend + ATR on TSLA. The test called a result good only if at least 60% of trades closed higher, the profit factor was 1.3 or better, and there were at least 30 trades. Five of the 21 runs cleared all three.
Three entries, one exit, compared
Trend + ATR is the clearest case. On six of the seven stocks, 67.17% to 70.28% of trades closed higher, on 314 to 360 trades each, a large sample. Its profit factor never reached 1.3 on any of them; the best was 1.280 on GOOGL. On TSLA, 63.50% of 274 trades closed higher and the account lost 51.00%, with a 69.12% worst drawdown.
The worst run in the whole study used this exit. Pullback + ATR on TSLA: 57.14% of 63 trades closed higher, profit factor 0.580, -69.00%, worst drawdown 70.86%.
The best run used it too. Breakout + ATR on AAPL: 73.96% of 169 trades closed higher, profit factor 1.532, +143.68%, worst drawdown 14.70%. The same entry and exit on GOOGL lost 16.91%. Same code, same window, different stock.
Read all of this against the ticker list. These seven are the biggest winners of the decade. Three dip-buying rules from the same study were re-run on five stocks that lagged the S&P 500 and cleared the test once in 15 runs, against 19 in 21 on these seven. The ATR setups were not re-run on those five, so there is no evidence they would hold up there, and the base they stand on is already this thin. The full rows are in the per-ticker results table. They are simulated past results, not a forecast.
When it fails
It fails when the share of winners is mistaken for the edge. A 1x target and a 2x stop will produce a majority of winning trades on almost any entry in a rising market, because the target is closer than the stop. Every run here had more winners than losers, and six of them lost money anyway.
It fails in volatile stocks. ATR is larger on a volatile stock, so the stop is further away in dollars, and each loser is larger. TSLA was the only stock where two of the three setups lost more than half the account.
It fails on gaps. A stop order two ATRs below the fill does not guarantee a loss of two ATRs. If the stock opens below the stop, the fill is at the open. A limit order at the target has no such problem on the upside, since it fills at the limit or better, so the error runs one way.
It fails as costs rise. At 0.10% per round trip the break-even share is about 68.3%; at 0.30% on a $100 stock with a $2.00 ATR, it is 4.30 / 6.00, about 71.7%. Many of the runs above would fall below that line. Small accounts with wider spreads pay more than the test assumed.
And it fails when the ratio is tuned afterward. Trying 1.5x, 2x and 3x targets until one looks good on the same data is how a test turns into an overfit result. The ratio was fixed before these runs, and that is the only reason the numbers mean anything.
Related
ATR explains the measure the target is built from, and why it has no direction in it. Take profit covers profit targets in general and the trade between reward per win and how often the target is reached. And expectancy turns the break-even arithmetic on this page into a general formula for any target and stop.
Work out the break-even share of winners for any target and stop pair before looking at a backtest of it. If the result only just clears that line, the headline share of winning trades is mostly the ratio talking.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.