forex-scalping.com

Fixed-pip stops are simple, but the market isn't the same every day. An ATR-based stop adapts. Which works better is testable.

Two versions to compare:

• Fixed: 5 pips on EURUSD, every trade.
• ATR-based: for example 1.5 × ATR(14) on M1, calculated at entry, with position size adjusted so risk in money stays the same.

What changes with ATR stops:

• On quiet days, stops are tighter and positions bigger. Costs become a larger share of the stop.
• On busy days, stops are wider and positions smaller, so fewer trades get stopped out by noise.

A worked example: with ATR(14) on M1 at 2 pips, the stop is 3 pips; at 5 pips, the stop is 7.5 pips. With 0.8 pips of costs, the quiet day's cost is 27% of the stop, the busy day's 11%.

A floor helps: never less than, say, 4 pips, so costs don't eat the trade.

Has anyone compared both methods on the same setups?