ATR & Volatility: How Far Should Your Stop-Loss Be?

Here's the most common way traders lose money *while being right*: they buy a good stock, place a tight stop-loss "to limit risk," get stopped out by an ordinary daily wiggle — and watch the stock rally without them. The missing concept is ATR.

What ATR measures

ATR — Average True Range — is simply the stock's typical daily movement, averaged over 14 sessions (including any overnight gaps). A stock with ATR ₹2.76 travels about ₹2.76 between its daily extremes on a normal day. No prediction, just a measurement of the animal's temperament.

The rule that follows

Never place a stop inside one ATR of your entry. A stop 0.5% away on a stock that breathes 2.5% daily isn't risk management — it's a donation with extra steps. The market doesn't need to turn against you to hit it; it just needs to *exist*.

This is baked into SelectStock at the engine level: every Trade Plan stop is the 20-day support level with a 2.5×ATR risk cap, and every pattern signal's stop gets automatically widened if the pattern's textbook level sits inside daily noise (you'll see "widened to 1 ATR" in the signal's notes). We'd rather show you honest risk than a fantasy risk:reward ratio.

Volatility also decides position size

Two stocks, same price, different ATRs — they are *not* the same trade. The wilder one needs a wider stop, and a wider stop with the same rupee risk means fewer shares. Fixed rule: shares = (money you're willing to lose) ÷ (entry − stop). Volatile stock → wide stop → small position. Calm stock → tight stop → larger position. Same sleep quality either way.

ATR appears on every Trade Plan card. Respect the animal's temperament and it stops biting you randomly.