One of the few things we have some control over in the markets is in defining our risk. We don’t want to use some out of touch arbitrary stop method to define risk. There are no perfect formulas but if we can develop an understanding of volatility and market structure, we can come up with logical places to place stops. In this video, I show 2 simple methods for calculating stops using swings and ATR, and these are based on price flow itself and adapt to its everchanging volatility. Traders seem to devote all their time to entries but we should study everything we can about stops because a well thought out stop can also be an entry idea. It’s a matter of seeing where buyers/sellers made effort and where that effort got reversed.
When volatility changes so must our stops and we need to keep in touch with this. Here I review how to calculate stops using a simple Average True Range method (ATR) that I mentioned in Foundations of Trading Part 6 Risk Management. I also go over the current 20-minute currencies to show how to keep in touch with this volatility.