Methods of Setting Stop Loss Indices Orders in Stock Indices Trading
Traders using a indices trading system must have mathematical calculations that reveal where to set stop loss & take profit in indices trading.
A trader can also place set stop loss & take profit orders according to the technical indicators used to set these set stop loss & take profit orders. Certain indices technical indicators use mathematical equations to calculate where the set stop loss and take profit order should be set so as to provide an optimal exit point for stock indices trades. These indices trading technical indicators can be used as the basis for setting these set stop loss and take profit orders.
Other traders also place these set stop loss & take profit orders according to a predetermined risk to reward ratio specified in their indices trading strategy. This method of setting stop loss and take profit is dependent upon certain mathematical equations. For example a ratio of 20 pips indices stop loss can be used by a trader if the trade has potential to make 60 pips in profit: this is a risk:reward ratio of 3:1
Other traders just use a predetermined risk percent calculation of their total indices trading account balance.
To set stop loss and take profit in indices trading it is best to use one of the following methods:
How to Calculate Stop Loss Indices Order & Take Profit Stock Indices Order in Indices Trading
This technique is based on the percent of indices trading account balance that the trader is willing to risk & the risk : reward ratio.
If a trader is willing to risk 2% of account balance then the trader decides how far he will set the stop loss order level based on the position size that he has bought or sold - the trader also use the risk reward ratio to calculate where to set take profit order for this trade.
Example:
If a trader has a $10,000 account & is willing to risk 2%
- If the trader buys 1 contract
1 pip = $10
Then setting risk at 2 %
2% is $200
Stop Loss = $200
If Stop Loss Indices Order = $200 then using risk : reward 3:1 the take profit will be set at $600
How to Calculate Stop Loss Stock Indices Order & Take Profit Indices Order in Indices Trading
Another technique to set stop loss & take profit in indices trading is to use supports and resistance levels, on the stock indices trading charts.
Given that stop loss stock indices orders & take profit orders tend to congregate at key points, when one of these levels is touched by the indices price, others are set off, like dominos. Stop loss orders & take profit orders tend to accumulate just above or below the resistance or support levels, respectively. Traders should use these levels to set stop loss and take profit in indices trading depending on which side of the trade they are in.
A resistance or a support area should act like a barrier for stock indices price movement, this is why these resistance and support levels are used to set stop losses and take profits, if this stock indices price barrier is broken the stock indices price movement can go toward the opposite direction of the original indices trade, but if this barriers (support & resistance levels) are not broken the stock indices price will continue moving in the intended direction. This means that these support and resistance levels can be used as good points to set stop loss and take profit in stock indices trading.
Stop Loss Indices Order vs Take Profit Stock Indices Order - Stop Loss Indices Order Examples Sell Order Buy Order - Take Profit Indices Order Example Sell Order Buy Order
