Stop-loss on gold: how to set it with the ATR
"I always put my stop 10 dollars away." It is one of the most common mistakes on gold. A fixed stop is too tight when the market is volatile (it gets hit by a perfectly normal move) and too wide when the market is calm (you risk more than you need to).
The solution: a stop that adapts to volatility, using the ATR.
What is the ATR?
The ATR (Average True Range) measures how far price moves, on average, during one candle. It is calculated over a number of candles, most often 14.
For each candle, take the largest of these three ranges:
- high minus low;
- high minus previous close;
- previous close minus low.
The ATR is the average of these ranges. It says nothing about direction: it only measures how agitated the market is.
Example: if gold's H4 ATR is $20, price moves by about $20 on average during a 4-hour candle.
Placing the stop with the ATR
You place the stop at a multiple of the ATR from the entry price:
Stop distance = multiplier × ATR
With a multiplier of 1.5 and an H4 ATR of $20, the stop is $30 from the entry price: below it for a buy, above it for a sell.
When the market gets more nervous, the ATR rises and the stop automatically moves further away. When it calms down, the stop tightens.
Which multiplier should you choose?
- Around 1: a tight stop, often hit by simple market noise.
- Between 1.5 and 2: the most common compromise for trend following.
- 3 or more: a wide stop, hit less often, but each loss costs more in dollars.
In our tests of the Hybrid Or method on gold, 1.5 × the H4 ATR gave the best balance. The timeframe of the ATR matters too: an H4 ATR gives a stop that leaves room for a position taken on H1.
From stop to position size
The stop gives you the distance; you still need to decide how much to buy. The healthiest rule: risk a fixed percentage of your capital on each trade, for example 1%.
On gold (XAUUSD), a standard lot usually represents 100 ounces. At most brokers:
- 1 lot: a $1 move = $100 of profit or loss;
- 0.01 lot: a $1 move = $1.
Check the contract size with your broker, as it can vary.
A worked example
- Capital: $10,000, risk of 1%: you accept losing $100 if the stop is hit.
- Stop distance: $30 (1.5 × an ATR of $20).
- With 0.01 lot, a $30 move against you costs $30.
- To risk $100: 100 ÷ 30 ≈ 3.3, so 0.03 lot (rounded down).
With this rule, every loss costs roughly the same percentage of the account, whatever the volatility. That is what lets you get through a losing streak without serious damage.
The target, also as a multiple of risk
Once the risk is defined, you express the target in R, meaning multiples of that risk:
- a target at 2 R: you aim for a $60 move with a $30 stop;
- a partial take-profit at 1 R, then the stop moved to the entry price: see our article on partial take-profits.
Mistakes to avoid
- Moving your stop to "give the trade a chance". A stop is only useful if you respect it.
- No stop at all. On gold, an economic release can move price by $30 in a few minutes.
- A stop based on a timeframe that is too small. An M5 ATR gives a tiny stop that gets swept all the time.
The Hybrid Or indicator does this calculation for you: every signal displays the stop-loss (1.5 × H4 ATR), the partial take-profit and the final target directly on the chart.