Foundations · Lesson 11 · Beginner

Setting stops with ATR

You place the stop behind a valid structure and use the ATR instead of fixed percentages.

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Setting the stop by chart structure

Place the stop behind a valid level, below support on a long, above resistance on a short. Never at an arbitrary price and never at the liquidation price.

ATR instead of fixed percentages

The ATR measures the average move. The preference is a stop at 1x to 2x ATR. Fixed percentages do not work in crypto because volatility fluctuates.

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Test yourself

You have the direction right but still get stopped out. What is usually the cause?

the stop sat in the noise or at the liq price
chart analysis does not work
the market was manipulated

The key points at a glance

Stop behind a valid level, never at an arbitrary price and never at the liquidation price.
Preference: stop at 1x to 2x ATR, not on round numbers.

Deep dive

What the ATR is and why fixed percentages fail

The average true range measures the average movement over a number of periods, often 14 or 30 days. In February 2024 BNB had an ATR of 10.8, so around 10.80 dollars per day. This number separates market noise from a real break.

Fixed percentages fail because volatility is constantly shifting. The ATR adapts: in wild phases it grows and your stop moves further away, in calm ones it moves closer. Your position size has to breathe with it.

1x to 2x ATR and the worked example

Goodman's preference is 1x to 2x ATR. Tighter produces many small stop-outs, wider costs a larger single loss per losing trade.

Account 10000 dollars, 1 percent risk is 100 dollars
Entry around 312, stop at 295, distance 17 dollars equals 1.57x ATR
100 dollars divided by 17 dollars gives a maximum of 5 BNB
Volatile coins automatically get smaller positions

Why the stop does not belong on the obvious number

The stop deliberately sits at 295, not at 297 on the visible low. Large market participants know where the crowd parks its stops, briefly push the price there, take them out and then reverse. Whoever places behind the obvious level is not the first one knocked out.

The most common frustration for beginners is getting the direction right and still losing. Almost always the stop was sitting in the noise or at the liquidation price.

Sources: Elder, Goodman, Murphy

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