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What is volatility-based position sizing?

Volatility-based sizing adjusts trade volume according to market volatility. In volatile markets, traders use smaller position sizes to limit risk, while in calm markets, they may increase size. One method involves using Average True Range (ATR) to measure volatility and set stop-losses accordingly. This approach keeps risk consistent regardless of market conditions. It prevents oversized losses during turbulent periods and allows more flexibility during stable times. Volatility-based sizing is popular among professional traders who adapt dynamically to changing environments.