Stop-Loss Strategies: Fixed, ATR, and Structure-Based Stops (With Examples)
Learn the most effective stop-loss strategies: structure-based, ATR volatility stops, and time stops. See examples and avoid common stop mistakes.
A stop-loss is not a pain button. It is the line that defines when your trade idea is wrong. Good stops are tied to logic, not emotion.
Structure-based stops
Use market structure to define invalidation:
- Below support for longs.
- Above resistance for shorts.
- Beyond swing highs or lows.
Best for clean trend and breakout setups.
ATR-based stops
ATR measures typical movement. A volatility stop avoids normal noise.
Example: ATR(14) = $2, stop = 1.5 x ATR = $3 from entry.
Fixed stops
A fixed distance is easy but ignores structure and volatility. Use only if tested for your strategy.
Time stops
If price does not move within a set number of candles, the premise may be wrong. Time stops reduce dead-money trades.
Common mistakes
- Placing stops where everyone places them.
- Moving stops to avoid being wrong.
- Tight stops in highly volatile markets.
- Forgetting to resize after moving a stop.