Stop distance

The interval between where a position is opened and where its stop loss order rests, expressed in pips, points or ticks depending on the instrument. Measured that way it is a property of the chart and of the instrument: it is decided by where the level sits relative to structure or to recent range, and it is the same number whatever size the position is eventually written in.

It is the input that converts a decision about risk into a decision about size. The money at stake is the distance multiplied by the value of one increment for the size dealt, so once the amount to be risked is fixed, the distance determines the size rather than the other way round. A wider distance produces a smaller position for the same risk, a narrower one a larger position, and neither is safer than the other: the amount at risk is identical by construction and only the sensitivity to each point of movement differs.

Two limits are worth stating with it. Measuring the distance in a fixed number of points assumes conditions that a change in volatility can remove, which is why some traditions state it as a multiple of average true range instead. And the distance describes an instruction rather than an outcome: a stop level is not a guaranteed exit, so in a gapping or fast moving market the position closes beyond the level by whatever the market skipped, and the realised loss can exceed the distance and is not limited to the amount deposited.