Volatility-based stops are a type of stop-loss order that adjusts its distance from the entry price based on how much the market is moving, rather than a fixed price level or percentage. For example, in a highly volatile market like a major news release, a volatility-based stop might be placed further away to avoid being prematurely stopped out by large price swings. Volatility-based stops use indicators like Average True Range (ATR) or standard deviation to determine an appropriate stop-loss distance. Instead of setting a fixed 50-pip stop, a trader might set a stop at 2 times the current 14-period ATR. For instance, if a stock like AAPL has an ATR of $2.50, a volatility-based stop might be placed $5.00 below the entry price for a long position. If AAPL's ATR then increases to $3.00 due to heightened market activity, the stop would automatically adjust to $6.00 below the entry, giving the trade more room to breathe within the increased volatility without being stopped out by typical price fluctuations. This dynamic adjustment helps a trader stay in a profitable trend longer while still defining maximum risk.