For a long entry:
- What is the trading account size? For example $100,000
- How much are you willing to lose on this trade? For example, 1% of the trading account, i.e. $1,000.
- What is the ATR for this market? For example, $2.5.
- How many ATRs away from the purchase price do you want to put your stop-loss? For example 2 ATRs, therefore 2*$2.5 = $5 below the entry price.
- What should be the size of your position? $1,000/$5 = 200 shares.
If your stop-loss is triggered, you will lose $5*200 = $1000.