Skip to content
GetProfitable
Search
Dictionary

Stop distance

The gap between your entry price and your stop price, expressed per share, contract or pip.

Stop distance is the denominator in every sizing formula. It should come from the chart or from volatility - a level that invalidates the idea - and not from how much you happen to want to lose.

Once it exists, size is mechanical: shares = dollar-risk / stop distance. Entry $40.00, stop $38.50, distance $1.50. Entry $40.00, stop $39.60, distance $0.40, which buys 3.75x more shares for the same money at risk. This is why a tight stop is not automatically "less risky": the position grows to compensate, and a tighter stop is hit more often.

In other instruments the unit changes but not the logic. Futures use ticks times tick-value; forex uses pips times pip value; options usually need a modelled loss rather than a price distance, because the premium does not move one-for-one with the underlying.

Related: dollar-risk, share-sizing-formula, atr-position-sizing

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.

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