Courses / Volatility and Volume Indicators

Position Sizing with ATR

Use volatility to keep risk equal across markets.

Decide the percentage of your account to risk, such as 1%. Set the stop at, for example, 2 ATR. Position size equals risk amount divided by the stop distance in money per unit.

This makes a quiet market get a larger position and a wild market a smaller one, keeping the dollar risk constant.

Recalculate when volatility changes significantly.

Key takeaways

• Risk a fixed percent
• Stop = multiple of ATR
• Size = risk divided by stop distance

Quiz

• Equal dollar risk across markets requires: Answer: Sizing from the stop distance. Volatility-adjusted size.
• A volatile market gets a: Answer: Smaller position. The stop is wider so size is smaller.
• Formula for size: Answer: Risk amount / stop distance. Divide risk by the stop distance.

Educational content, not financial advice.