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ATR position sizing

Using a multiple of average true range as the stop distance, so size adapts to each instrument's volatility.

ATR sizing combines stop-distance and percent-volatility-sizing. Set the stop at k x atr from entry, then size off that distance.

Example with $300 of dollar-risk and a 2x ATR stop. Instrument A has an ATR of $0.50, so the stop sits $1.00 away and you buy 300 shares. Instrument B has an ATR of $3.00, so the stop sits $6.00 away and you buy 50 shares. The dollar loss at the stop is identical; the exposure differs by a factor of six because the instruments do.

The practical benefit is that a quiet utility and a volatile biotech can share the same rule book. The practical trap is that ATR expands after the fact: a stock that just tripled its ATR gets a very wide stop and a very small position, which sometimes means no position at all once you round down.

Related: percent-volatility-sizing, atr, stop-distance

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

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