The ATR (Average True Range) based position sizing calculator is a tool that helps traders determine the appropriate size of their trades based on the volatility of the asset they are trading. It uses the ATR indicator, which measures the average range of price movement over a specified period, to calculate a position size that aims to risk a fixed percentage of the trader's capital.

When It Helps

This method is particularly useful for traders who want to control their risk consistently across different assets and market conditions. Volatility varies; a fixed number of shares might represent vastly different risk levels for different stocks. Using an ATR based position sizing calculator can help in these scenarios:

• Adapting to Volatility: When markets become more volatile, the ATR increases, leading to smaller position sizes and reduced risk per trade. Conversely, in calmer markets, position sizes may increase.

• Comparing Assets: It allows for a more apples-to-apples comparison of risk across different assets with varying price levels and volatility.

• Maintaining Consistency: Helps maintain a consistent risk profile, preventing over-leveraging during winning streaks or becoming overly cautious after losses.

How To Try

Many trading platforms offer ATR indicators and basic calculators. Here's how to use it in TradingView:

1. Add ATR Indicator: Search for and add the "ATR" indicator to your chart.

2. Note ATR Value: Observe the current ATR value for the asset you are trading.

3. Use the Formula: Position Size = (Account Risk % * Account Size) / ATR Value. For example, if you want to risk 1% of a $10,000 account, and the ATR is $2, the calculation is (0.01 * $10,000) / $2 = 50 shares.

4. Adjust as Needed: Recalculate your position size each time the ATR value changes significantly, or at the start of each trading day.

Key Settings

The main inputs are:

• ATR Period: The number of periods used to calculate the ATR. A common setting is 14. Shorter periods react faster to price changes, while longer periods provide a smoother average.

• Account Risk %: The percentage of your trading account you are willing to risk on a single trade. Common values are between 0.5% and 2%.

• Account Size: The total value of your trading account.

Tips & Risks

While an ATR based position sizing calculator can be a valuable tool, it's essential to be aware of its limitations:

• Discipline is Key: Stick to your risk percentage, even when you feel confident about a trade.

• Consistency Matters: Use the same settings and formula consistently across all trades.

• Avoid FOMO: Don't increase your position size based on fear of missing out (FOMO).

• Not a Holy Grail: This is a risk management tool, not a profit-generating system. It won't guarantee winning trades.

• Backtest: Test it on historical data to see how it would have performed in different market conditions.

Quick Checklist

• Calculate position size before entering a trade.

• Use a consistent ATR period.

• Never risk more than your predetermined percentage.

• Adjust position size as ATR changes.

• Understand it's a risk management tool, not a guarantee of profit.