Risk management

ATR Stop Loss Calculator: How to Set the Distance

Astron Team · 09/24/2026 · 4 min read

One of the most common questions for those starting to trade is how far away to place the stop loss. Placing it too close increases the chance of being stopped out by the asset's normal fluctuation. Placing it too far increases the loss when the trade goes wrong. A practical way to answer this question is to use the ATR, the Average True Range, as a reference for recent volatility to calculate the stop distance.

What the ATR measures

The ATR measures the average size of price movement over a given number of periods, usually 14. It doesn't indicate direction, only how much the asset tends to move. For each candle, the True Range is calculated as the largest value among three options: the difference between the current candle's high and low, the difference between the current high and the previous close, and the difference between the current low and the previous close. The ATR is the average of these values over the chosen period.

The ATR-based stop formula

Stop distance = ATR x multiplier

For a long trade: Stop = entry price - stop distance

For a short trade: Stop = entry price + stop distance

A worked example in reais

Suppose a long trade on a stock trading at R$ 50.00, with a daily ATR of R$ 1.20 and a multiplier of 2. The stop distance comes out to:

• Distance = R$ 1.20 x 2 = R$ 2.40
• Stop = R$ 50.00 - R$ 2.40 = R$ 47.60

Now suppose an account of R$ 20,000.00, with a maximum risk of 1% per trade, or R$ 200.00. Position size is calculated by dividing the risk in reais by the stop distance:

• Position size = R$ 200.00 / R$ 2.40 = approximately 83 shares

With this position, if the price falls to R$ 47.60, the loss stays close to the R$ 200.00 planned, before brokerage costs. A reference target of 2R, or twice the risk taken, would be around R$ 54.80, but that's just a mathematical reference, not a guarantee that the price will get there.

The ATR doesn't replace chart structure

The ATR answers the question of how much this asset tends to move. It doesn't answer the question of where my entry idea is wrong. That second question comes from chart analysis, such as a previous low or a support zone. The recommended sequence is: first mark the level that invalidates the trade, then measure the distance between the entry and that level, and only then compare that distance with the ATR to see if it makes sense given recent volatility. If the structural distance is much smaller than the ATR suggests, the stop may be too tight for the asset's normal noise.

There's no perfect multiplier

A low multiplier creates a closer stop and a larger position for the same risk in reais, but it stays more exposed to common fluctuations. A high multiplier creates a more distant stop and a smaller position, reducing exits caused by noise, but requiring the price to travel farther to reach the same result in risk multiples. The ideal multiplier depends on the asset, the timeframe traded, and the type of setup, and it's worth testing different values on historical data before adopting a fixed number for every trade.

Watch out for gaps and execution

The calculation assumes the position will be closed exactly at the stop price. In practice, gaps, news, and low-liquidity markets can cause execution to happen well away from the planned price, especially on assets that close overnight or over the weekend. The ATR helps size the expected risk under normal conditions, but it doesn't eliminate the risk of worse-than-planned execution during moments of market stress.

A final reminder before trading

Set the multiplier before seeing the resulting position size, not the other way around. Choosing the multiplier just to arrive at a position size that feels comfortable reverses the logic of risk management: it's the stop that should define the position size, not the desired size that should define the stop.