How to set a stop-loss: using structure and ATR
A stop-loss goes where your trade idea stops working, not where the loss feels bearable. Here are two practical ways to find that spot and how to fit your position size to it.
4 min read · Updated: 2026-10-19
In short
A Stop-loss is an order that closes your position if the price moves against you to a set level. The right order of steps is:
- Find the level on the chart where the trade idea is proven wrong.
- Place the stop a little beyond that level.
- Size the position so that a stop-out costs you a sum you chose in advance.
Stop first, then size. Never the other way round.
Method 1. A stop based on market structure
Market structure is the sequence of highs and lows. In an uptrend the price makes higher highs and higher lows. As long as the last significant low holds, the trend is intact.
- Long: stop below the last significant swing low or below the support level you are buying from.
- Short: stop above the last significant swing high or resistance level.
- Breakout and retest: stop beyond the level the price broke and retested, plus a small buffer. More in the breakout and retest guide.
You need the buffer because other traders' stops cluster just beyond obvious highs and lows. Price often pokes into that zone briefly and reverses, which is called a liquidity sweep. A stop exactly on the low or on a round number like $60,000 gets hit first.
Example. ETH is rising and the last swing low is $2,920. You go long at $3,000 and put the stop at $2,900, just below the low. The stop distance is $100, or 3.3%.
Method 2. A stop based on ATR
ATR (Average True Range) shows the average candle range over the last N candles, usually 14. It answers the question: how much does the price normally wander on this Timeframe?
Stops are placed 1–2 ATR from the entry. Normal market noise then leaves them alone, while a real move against you takes them out.
Example. On the ETH 4-hour chart ATR(14) is $60. A 1.5 ATR stop is $90. For a long at $3,000 the stop sits at $2,910.
ATR adapts to Volatility: in a calm market the stop is closer, in a jumpy one it is wider. It works best together with structure: find the swing low, and let ATR tell you how much room to leave beyond it.
How to size the position from the stop
Pick your Risk per trade, the share of your account you are willing to lose if the stop is hit. Beginners are usually advised 0.5–1%.
Formula: position size = risk amount ÷ stop distance.
| Item | Example |
|---|---|
| Account | $2,000 |
| 1% risk | $20 |
| Entry / stop | $3,000 / $2,910 |
| Stop distance | $90 per 1 ETH (3%) |
| Position size | $20 ÷ $90 ≈ 0.22 ETH ≈ $667 |
A wider stop means a smaller position, and the other way round. The loss on a stop-out is the same: $20 plus fees and any Slippage.
Place your Take profit so the potential gain is at least 1.5–2 times the risk. This ratio is called risk/reward. More examples in the position sizing guide.
Stop-market or stop-limit
- Stop-market: when the price is reached, a market order is sent. The exit is almost certain, but in a sharp move the fill can be worse.
- Stop-limit: when the price is reached, a limit order is placed. You control the price, but if the market gaps past your level the order may not fill, and the loss keeps growing.
To protect a position, a stop-market is safer for beginners. Exiting a little worse beats not exiting at all.
The most common mistakes
- Stop from a dollar amount, not the chart. Saying I will stop out at −$50 puts the stop in a random place. Chart level first, position size second.
- Stop too tight. Inside normal noise even a correct idea gets stopped out. Check the distance against ATR.
- Stop exactly on the low or on a round number. Other stops sit there, and price often spikes into them before reversing.
- Moving the stop away as price approaches. A small planned loss turns into a big one. Only move a stop to reduce risk, for example to Breakeven or with a Trailing stop.
- A mental stop. I will close it manually almost never works: when the loss arrives, emotions and Loss aversion take over.
- Stop beyond the liquidation price. On high-leverage futures Liquidation comes before the stop. Lower the leverage so the stop is closer to the price than liquidation is.
- Ignoring gaps and slippage. On news, or in markets that close, the price can open straight past your stop.
Checklist before you enter
- Where does the idea break on the chart?
- Is the stop beyond that level with a buffer, and not on a round number?
- Is the distance at least about 1 ATR?
- Is the size calculated from the stop, with risk no more than 1% of the account?
- Is the target at least 1.5–2 times further than the stop?
- Is the stop placed as an order, not just in your head?
Questions and answers
What percentage should a stop-loss be?
There is no fixed percentage. Place the stop beyond the level where the idea breaks, then size the position from that distance. What you fix in percent is the risk to your account, usually 0.5–1%.
Why does my stop-loss keep getting hit before the price goes my way?
Most likely the stop is too tight or sits right on an obvious low where liquidity gathers. Move it beyond the level with a buffer and cut the position size so the risk stays the same.
How do I set a stop-loss with ATR?
Read the ATR(14) value on your timeframe and place the stop 1–2 ATR from entry. If a swing high or low is nearby, put the stop beyond it and use ATR as the buffer.
Can I trade without a stop-loss?
You can, but then one bad entry can cost a lot, and with leverage the whole collateral. A stop turns an unknown loss into a known one.