Stop-Loss Distance

A stop placed by eye or at a fixed 2% often gets hit by ordinary market noise. This calculator sizes the stop from the instrument’s average volatility, measured by ATR.

How the calculation works

ATR (Average True Range) was introduced by J. Welles Wilder in 1978. It measures how far price typically travels in one bar on your timeframe, including gaps. A 14-period ATR is the common default, and every charting platform can display it.

The math: distance = k × ATR, where k is the ATR multiplier. Stop for a long = entry price − distance; stop for a short = entry price + distance. Distance in percent = k × ATR ÷ entry price × 100. Enter the price and ATR in the same units (dollars, points or pips); the multiplier ranges from 0.5 to 5.

The multiplier is a trade-off. A small k (1–1.5) gives a tight stop that noise triggers more often; a larger k (2.5–3 or more) lets the trade breathe but makes each stopped-out loss bigger. A range of roughly 1.5–3 ATR is widely used.

Worked example

Defaults: entry 100, ATR 2.5, multiplier 2. Distance = 2 × 2.5 = 5 points, or 5 ÷ 100 × 100 = 5%. The stop for a long is 95, for a short 105. If you risk 1% of a $10,000 account ($100) per trade, the position size is $100 ÷ $5 = 20 shares.

Things to keep in mind

• Use ATR from the timeframe you trade: daily ATR for swing trades, hourly or shorter for day trades.
• Size the position from the stop: dollar risk ÷ stop distance. The calculator does not output position size itself.
• An opening gap can jump past your stop, and the fill may be worse than the stop level. A stop limits risk but does not guarantee the exact loss.
• Avoid parking stops exactly on round numbers or obvious levels where orders cluster; placing them slightly beyond is often better.
• This is a technical calculation, not investment advice.