Skip to content
GetProfitable
Search
Dictionary

ATR stop

A stop-loss placed a fixed multiple of average true range away from entry, so the distance adapts to current volatility.

A trailing stop held two ATRs under a rising priceA rising price line with a stepped line below it that climbs whenever price climbs and holds its level whenever price falls, until price drops onto it.PRICE AND A TRAILING ATR STOP2 × ATRstop hittrailing stoppriceIllustrative prices. The stop follows price up and never moves back down.
A trailing stop set by ATR. Average true range measures how far a market typically travels in a session, so a stop placed a multiple of ATR under price leaves room for ordinary swings. The step line only ever ratchets up, and the circle marks where price falls onto it.

Instead of risking a fixed number of points, the trader risks, say, 1.5 times the 14 period atr. In a quiet market that is a tight stop in absolute terms; in a volatile one it is wide. The noise level, not the account, sets the distance.

Combined with position-sizing, this keeps risk per trade constant in currency terms while the stop distance varies: a wider ATR stop simply means a smaller position. That pairing is the standard professional approach.

The weakness is that ATR measures recent volatility, so it is slow to react when conditions change abruptly. Entering just before an earnings report or a rate decision with a stop sized on quiet-period ATR understates the risk badly. Event awareness has to sit on top of the arithmetic.

Related: atr, chandelier-exit, position-sizing, invalidation-level, true-range

Educational only, not advice. Spotted an error? Post in Site Feedback.