Using ATR-Based Volatility Stops to Set Stop-Loss Distance

Summary

The document explains a volatility stop that uses average true range (ATR) to help set the distance between a reference price and a stop-loss level. Its aim is to account for changing market movement: a stop placed too close may exit a trade during ordinary fluctuations, while a wider distance allows more room but can expose the position to greater losses before the stop is reached.

Three adjustable inputs determine the level: the ATR calculation length, the price source from which the stop is offset, and a multiplier applied to ATR. These settings let a trader vary the stop distance. The document gives no formula details, parameter recommendations, asset-specific examples, or test results, so it does not establish that a particular configuration is effective. It presents the indicator as one possible risk-control tool and notes that it may be combined with other indicators; it does not describe a complete entry or trading strategy.

Key ideas

• The indicator uses ATR to adapt stop-loss distance to recent volatility.
• Its settings include ATR length, the price source, and an ATR multiplier.
• A stop must balance room for ordinary price movement against limiting potential losses.
• The document gives no settings or performance evidence for a particular market.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.