Techniques of Setting Stop Loss Orders in Index

Traders using a trading system must have mathematical calculations that reveal where the order must be placed.

A trader also can place a stoploss order according to the indicators used to set these orders. Certain indicators use math formulas to calculate where the stop loss stock order should be set so that to provide an optimal market exit point. These indicators can be used as the basis for setting these orders.

Other traders also set these orders according to a pre-determined risk:reward ratio. This strategy of setting is dependent upon certain math formulas. For examples a ratio of 50 pips stop-loss can be used by one if the trade has potential to make 100 pips in profit: this is a risk reward ratio of 2:1

Others just use a pre-determined % of their total equity trading balance.

To set a stoploss order it is best to use one of the following strategies:

1. % of trading equity balance

This is based on the percent of account balance that the trader is willing to risk when trading.

If a trader is willing to risk 2% of account balance then the trader decides how far he will set the order level based on the trade size that he has bought or sold.

Example:

If a trader has got a $100,000 account and is willing to risk 2% then the position size of trade that they will open for Indices will be determined by this 2% stop loss level.

2. Setting StopLoss Order using Support & Resistance Levels

Another way of setting stop loss stock orders is to use supports and resistance areas, on the charts.

Given that stop losses tend to congregate at key points, when one of these technical levels is tested & touched by price, others are set off, like dominos. Stoploss orders will tend to accumulate just above/below the resistance or support zones, respectively.

A resistance or support level acts as a barrier to the movement of stock prices, which is why traders often use these levels to set stop-loss orders. If the price breaks through this barrier, it may shift in the opposite direction of the initial market trend. Conversely, if these support and resistance zones are maintained, the market will likely continue along its intended path.

Stop Loss level using a resistance area

Stop Loss Order Level Setting Using a Resistance Line

Putting order above the resistance

Stop Loss Order level using a support Level

Stop Loss Order Level Using a Support Line

Putting order below the Support Line

3. Stock Trend Lines

A trend line can be used to set stop loss orders where the order is set just below the trendline. As long as the trend line holds the online trader will be able to continue to make profits while at the same time place this order that will lock in his profits once the trendline is broken.

Stop Loss Order Level Set Below The Trend Line

Putting order below the trendline

Examples of where to set this order using trend-lines.

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