Volatility based stoploss:

Pre-fixed percentage stop-loss does not factor in the daily fluctuation of the
stock prices. There is a very good chance that the trader places a premature
stop-loss, well within the noise levels of the stock. This invariably leads to
triggering the stoploss first and then the target.

Volatility accounts for the daily ‘expected’ fluctuation in the stock price. The
advantage with this approach is that the daily noise of the stock is factored in.
Volatility stop is strategic as it allows us to place a stop at the price point which
is outside the normal expected volatility of the stock. Therefore, a volatility SL
gives us the required logical exit in case the trade goes against us.

We can calculate Volati lity Based Stoploss as follows:

Step 1: Estimate the daily volatility

Step 2: Convert the daily volatility into the volatility of the time period we are
interested in. To do this, we multiply the daily volatility by the square root of
time.