1. What is the Thinkorswim ATR Stop?

The Thinkorswim ATR (Average True Range) Stop is a volatility-based stop-loss method that adjusts stop levels according to market volatility. It helps traders set stops that account for normal price fluctuations while protecting against excessive losses.

2. How Does the Calculator Work?

The calculator uses the ATR Stop formula:

Where:

• \( Entry \) — Entry price of the trade ($)
• \( Multiplier \) — Risk multiplier (unitless)
• \( ATR \) — Average True Range ($)

Explanation: The stop price is calculated by subtracting a multiple of the ATR from the entry price. Higher multipliers create wider stops that account for more volatility.

3. Importance of ATR Stops

Details: ATR stops adapt to changing market conditions, providing more effective risk management than fixed-dollar stops. They're particularly useful in trending markets with varying volatility.

4. Using the Calculator

Tips: Enter your entry price in dollars, select an appropriate multiplier (typically 1-3), and input the current ATR value. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a typical ATR multiplier value?
A: Common values range from 1.5 to 3, with lower values for tighter stops and higher values for more volatile instruments.

Q2: How do I find the ATR value in Thinkorswim?
A: Add the ATR indicator to your chart (default period is 14) and note the current value.

Q3: Should I use ATR stops for all trades?
A: ATR stops work best for trades where volatility management is important, but may not suit all trading strategies.

Q4: Can I use ATR stops for long positions?
A: Yes, for long positions the formula would be: Entry + (Multiplier × ATR).

Q5: How often should I adjust my ATR stop?
A: Ideally, recalculate whenever you get a new ATR reading, though trailing stops can automate this process.