The lesson on YouTube
Watch. Then work through the idea.
Watch the English lesson first, then use the worked example and quiz below to check the idea. The article is a companion, not a transcript.
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What is actually happening?
True range is the largest of high minus low, absolute high minus previous close, and absolute low minus previous close. ATR averages that history using a specified method and length; it describes past range, not the next bar’s maximum.
Guided example · Declared ATR inputs · gross arithmetic, no fees
Wider stop, same budget
Compare two declared ATR inputs with the same cash budget and point value.
Restart & example assumptions
Authored synthetic observations, shown in sequence. Every comparison uses only the revealed data. This is a worked learning example, not live prices, broker execution or a profitability backtest. Follow the article’s exact definitions; measurements and pattern names alone do not authorize a trade.
For charts: tap a candle or swing to inspect it; drag horizontally to browse; wheel or +/− to zoom; arrow keys to inspect; Home to restore the step view.
Make the conditions explicit.
Fix length, smoothing method, timeframe and data feed. Check the instrument’s price increment and cash point value separately.
Example research rule: use 1.5 times completed-bar ATR as a candidate stop distance, only where it fits the setup premise. Then calculate quantity from the fixed cash budget.
Skip if the smallest unit breaches the budget, the stop conflicts with the premise, or the available target no longer fits your declared exit plan.
The quoted rules are illustrative research specifications. Parameters are not recommendations and have not been presented as profitable backtest results.
What can this cost?
Fees and adverse slippage reduce allowed quantity. ATR can lag sudden changes and does not cap gaps or stop losses.
How the idea can fail.
A volatility-based stop may lie inside an obvious structure boundary, or so far away that the trade is unsuitable for the chosen instrument and budget.
Practical habit
Do not preserve the old quantity when volatility increases. Recalculate from distance, point value and costs.
Go one level deeper
Compare structure-based and volatility-based stops on the same entry sample; record both execution assumptions rather than selecting the winner trade by trade.
Check your understanding
Ignoring costs, what happens to size if stop distance doubles at a fixed budget?
Further reading & boundaries
These examples are original educational exercises. General background: CME Group: position sizing; Fidelity: technical analysis. Neither endorses these example rules. No hypothetical result establishes future profitability.
Editorial revision: 13 October 2026 · Synthetic data · Educational use