Volatility-Based Sizing
Adjusting position size inversely to market volatility so that each trade has a consistent dollar risk regardless of how much the asset moves.
Formula
Shares = (Account × Risk%) / (ATR × Multiplier)
Volatility-based sizing scales position size up when volatility is low (so the stop can be tight) and down when volatility is high (stop must be wider). The result is consistent risk exposure per trade in dollar terms, regardless of the asset or market regime.
The most common implementation uses ATR as the volatility proxy: dollar risk ÷ (ATR × multiplier) = number of shares. This approach is used by systematic CTAs and trend-following funds as the standard position-sizing method.
Related Terms
Average True Range Stop
A stop-loss level set at a multiple of the Average True Range to account for normal market volatility and avoid premature stop-outs.
IntermediatePortfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
IntermediatePosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
BeginnerRisk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
Beginner