The Safest Stop Loss Placement?
44sOpens with a universal trading pain point—where to put a stop loss—and promises a simple solution.
▶ Play ClipAI Summary
This video explains how to place stop losses using the Average True Range (ATR) indicator, specifically through a multiplier of ATR, to adapt to current market volatility. The creator demonstrates a free TradingView indicator called ATR Bands that visualizes these levels, making the process simple and repeatable.
Chapters
[00:00]
The Problem with Fixed Stop Losses
The market doesn't care about your entry or desired risk; fixed pip or percentage stops fail because volatility changes, making a 10-pip stop too tight on volatile days and too wide on quiet days.
[00:44]
Solution: ATR Multiplier
The simplest way to place a stop loss is using a multiplier of the ATR (Average True Range), which measures current market volatility. This adapts the stop distance to market conditions.
[01:09]
Why Structural Stops Fail
Placing stops under previous lows makes structural sense but the distance varies with volatility; a 10-pip stop might be fine today but get destroyed tomorrow if volatility increases.
[02:03]
ATR Explained Simply
ATR is based on a ton of information; you don't need the formula, just know that low ATR means low volatility and high ATR means high volatility. It tells you how much the market is currently moving.
[02:45]
How ATR Multiplier Works
If ATR is 5 pips, a 1x multiplier puts the stop 5 pips away, 1.5x = 7.5 pips, 2x = 10 pips. When volatility rises and ATR hits 10, a 1.5x stop becomes 15 pips—same method, different conditions.
[03:31]
No Magic Multiplier
There's no single best ATR multiplier; tighter stops get stopped out more easily but risk less, wider stops give more room. Timeframe, market, and strategy matter—test for your style. 1.5 ATR is a good starting point.
[04:20]
Simple Formula
Entry, 1.5x ATR for stop loss, and a 1:2 risk-reward ratio for target. This creates a repeatable, volatility-adjusted trading plan.
[04:36]
Free ATR Bands Indicator
The free TradingView indicator 'ATR Bands' by TTF visualizes ATR levels on the chart. You can adjust length and multiplier, and see exactly where stops should go without manual math.
[06:01]
Backtesting and Consistency
Backtest ATR bands against past trades to see if they would have prevented stop-outs. The bigger lesson: there's no perfect stop loss; aim for a repeatable reason, not a never-losing stop.
Stop losses should adapt to market volatility using ATR multipliers, not fixed pips. Use the free ATR Bands indicator on TradingView to visualize levels, start with 1.5 ATR, and backtest to find what works for your strategy—consistency is key.
Mentioned in this Video
Tutorial Checklist
5
06:01
Backtest ATR bands against past trades to find a suitable multiplier for your asset and strategy.
💡 Key Takeaways
🔧
ATR as the Answer
Introduces a volatility-based method that adapts to market conditions, solving the fixed-stop problem.
00:44
📊
Adaptive Stop Distance
Demonstrates how the same methodology yields different stop distances based on volatility, making it universally applicable.
02:45
⚖️
No Magic Multiplier
Cautions against a one-size-fits-all approach, emphasizing testing and strategy-specific tuning.
03:31
💡
Consistency Over Perfection
Shifts focus from finding a perfect stop to building a repeatable process, a core trading principle.
06:50Full Transcript
[00:00] Where exactly are you supposed to put your stop loss to have the safest trade possible? Because this sounds like one of the most basic questions in trading. You enter a trade, you put your stop loss somewhere underneath if you're buying,
[00:13] or somewhere above it if you're selling. Pretty simple, except where exactly? Do you put it underneath a previous low? Do you use 10 pips? 20 pips? Do you use a percentage?
[00:25] Or do you just put it wherever you get the best risk to reward ratio? Because here's the problem. The market does not care where you entered, and it definitely doesn't care that you only wanted to risk 20 pips. So today I want to show you probably the simplest way I know of, of placing a stop loss, based on what the market is actually doing at that time.
[00:44] And weirdly enough, despite doing this for years, this is something that I even overcomplicate myself. And usually the answer to all my problems is the ATR, but more specifically, a multiplier of the ATR.
[00:57] If you don't know what ATR is, don't worry, I'm going to explain in just a second. And I'm going to show you a free indicator on TradingView that does all the calculations for you because there's really no need to sit there and do all the math yourself. First, let's look at the obvious way of doing it.
[01:09] Let's say I buy here. I could put my stop loss underneath this previous low. And structurally, that makes sense. If price comes down and breaks that low, maybe my idea isn't valid anymore. But there's a problem.
[01:21] Let's look at another market or even the exact same market on another day. The distance could be completely different. On a quiet day, price might even barely be moving. On a day that's super volatile, the candles could be two or three times larger.
[01:34] So a 10-pip stop loss might give me plenty of room to breathe today, but could get completely destroyed tomorrow if the market is more volatile. The number on your stop loss stayed exactly the same, but the market didn't.
[01:48] And that's the part that ATR fixes. ATR stands for the Average True Range And forget the complicated definition for a second It not important You don need to know this information You just need to know that ATR exists and is calculated based
[02:03] on a ton of information. You don't need to know why. If the soup tastes great at the restaurant, you don't need to know the recipe. All I really care about for this purpose is how much the market is currently moving. If the ATR is relatively low, that means that volatility in the market
[02:18] is relatively low. If ATR increases, volatility has therefore increased as well. And that gives us something extremely useful for a stop loss. Instead of saying, I'm always going to use a 10
[02:31] stop loss, I can say, I'm going to put my stop loss, a certain multiple of the market's current volatility away from my entry price. Now the stop loss actually adapts to current market conditions.
[02:45] Let's say ATR is showing 5 pips. If I use a 1x multiplier of the ATR for my stop loss, my stop loss is 5 pips away. If I use a 1.5 ATR multiplier, it's 7.5 pips away. Bumping it up to 2x multiplier, it's 10 pips away. But then volatility increases and ATR goes to 10 pips.
[03:06] I'm not still using that original 5 or 7.5 pip stop loss. And at 1.5 ATR, I'm now giving the trade 15 pips. Same methodology, different market conditions.
[03:19] And that's what I like about this. You're not trying to predict exactly how far price is going to wiggle against you. You're allowing the market's own recent movement to determine how much breathing room the trade gets.
[03:31] Now, there's an important point here. There isn't one magical ATR multiplier. I don't want somebody leaving this video thinking that every single trade they take needs a 1.5 multiplier of the ATR for their stop loss.
[03:43] A tighter multiplier generally means you'll get sopped out more easily, but your risk distance is also smaller The larger multiplier gives the trade more room but obviously your stop is further away And time frame matters here Markets matter Strategy matters That something you should test
[04:01] for the way that you trade. For me, 1.5 ATR is a really useful starting point. And if I'm targeting a two to one risk to reward ratio, the target would simply be twice the distance of the soft loss. So now I have an incredibly simple formula. My entry, 1.5 times ATR for my stop loss, and a
[04:20] one to two risk to reward ratio for my target. Now, technically, you could put the built-in trading view ATR indicator on the bottom of the chart, read the number that it's showing on that specific candle, multiply it by 1.5 to work out the price where your stop loss is going to be.
[04:36] But I don't want you to have to do that every single time that you enter a trade. And the great part is you don't need to. There's a free indicator on TradingView called the ATR band. This indicator is made by TTF. And basically, it turns what I've been saying into something
[04:50] visual. I can change the ATR length here. I can change the ATR multiplier. And instead of calculating where 1 or 1.5 or 2 ATR is myself, I can literally see the levels on the chart.
[05:03] So if I take an entry here, I immediately have volatility adjusted reference for where my stop loss should go. Change the multiplier and the bands adjust. Volatility changes and the bands adjust. And that's really the whole point. I'm allowing the stop distance to respond to the
[05:19] market rather than me forcing the market to fit some arbitrary stop distance I decided beforehand, like 10 pips. Again, the indicator is completely free. You can just search it on TradingView or
[05:32] I'll leave the link down below. And the cool thing is PTF actually makes several indicators, a lot of buy and sell indicators, of which I've actually covered quite a few of them on this channel. So if your problem isn't necessarily figuring out where to put your stop loss,
[05:45] but you still struggling with where you can enter you can take a look at those because it tells you exactly what candle to enter on My favorite personally is Happy Trail but there seven to choose from But for what I'm trying to teach you here, you don't need any of those. ATR bands is free and
[06:01] you can put it up on your chart, play around with it, adjust the length of the multiplier, because if you do that on different assets, you will see that the ATR bands will sit comfortably outside of price, that they rarely touch it, and that's going to be your baseline for a good ATR
[06:18] multiplier on that specific thing that you're trading, whether it's Euro USD, whether it's gold, whether it's Bitcoin. And more importantly, you should go and backtest it yourself against trades that you've already taken. Let's say you place an arbitrary 10 pip stop loss. Go back to that trade
[06:36] and put the ATR bands on there and see if it would have prevented your stop loss getting hit if you had adjusted it for the proper APR distance. Because I think there's a bigger lesson here. We tend to make stop losses way more complicated than they need to be.
[06:50] We'll stare at every little high and low to find the perfect place where price absolutely cannot touch us. But there's no perfect stop loss. Sometimes you're going to get stopped out and price will immediately reverse.
[07:02] That's trading. What I'm looking for isn't a stop loss that can never lose. I'm looking for a repeatable reason for why my stop loss is there. Because if you can justify it consistently over time, that will add more consistency to your trading,
[07:16] and consistency is the name of the game. And saying something like, the market moves this much normally, so I'm giving my trade one and a half times that amount of room,
[07:28] makes a lot more sense than, I think this trade needs 10 pips. So the next time you enter a trade and find yourself staring at the chart, wondering where the hell the stop loss should go, pull up the ATR bands, start with a multiplier, and let the market tell you how much room you need to breathe.
