Stop Loss Trading Summary: Points and Factors To Remember When Placing

The key to putting stop orders in indices trading is not to put too tight or too far & not exactly on the support or resistance levels.

A few pips below the support or above the resistance areas is the best place.

If you are going long (buying a financial instrument), just look for a nearby support level which is below your entry point & set this order about 10 pips to 20 pips below that support level. The illustration explained & shown below show the level where a trader can put their stop orders just below the support level on a stock chart.

Support Level for Placing Stop Loss Order Level for Buy Trade

Support Level for Putting Stop Loss Order Level for Buy Trade

If you're going short (selling a financial instrument), just look for a nearby resistance level that is above your trade entry point and put this stop loss about 10 pips to 20 pips above that resistance level. The example presented & shown below show the level where a trader can set their stop loss orders just above the resistance level on a stock chart.

Resistance Level for Putting Stop Loss Order Level for Sell Trade

Resistance Level for Placing Stop Loss Order Level for Sell Trade

You can also use stop loss stock orders to lock in profits, Not Just for Preventing Losses

The advantage of a stop loss stock order is that you do not have to monitor on a daily basis how the stock market is performing. This is especially handy when you're in a situation which stops you from watching your trades for an extended period of time, or when you as a trader want to navigate to sleep after trading the whole day.

The disadvantage is that the stock price at which you set and place these orders could be activated by a short-term fluctuation in price. The key is picking a stop loss percent which allows stock price to fluctuate within the day to day range while capping the down side risks.

These stock orders are traditionally thought of as a way to cap losses thus the title. Another use of these stop loss orders is to lock in profits, in which case it is known as a trailing stop loss.

For a trailing stop order it's put at a percentage level below the prevailing market price. This trailing level then shifted as the trade transaction position unfolds. Using a trailing stop loss level allows you to let profits run while at the same time ensures that should the stock trading market turn you will have locked in some of your profits.

These stock orders can also be used to eliminate risk if a trade becomes profitable. If a trade makes some substantial gains then the stop loss order can be moved to break-even point, the point at which you opened buy, therefore ensuring that even if the trade position goes against you, you'll not make any loss, you will break-even on that position.

Trailing stop stock orders are used to maximize & protect profit as stock price rises and limit losses when the stock price falls.

A good example is when you use the parabolic SAR Stock Indicator & keep moving your stop order to the parabolic SAR level.

Parabolic SAR Indicator for Putting Trailing StopLoss Order in Indices

Parabolic SAR Technical Indicator for Placing Trailing StopLoss Order in Indices

Another example is where a trader moves his stop loss by a specific number of pips after every few hours or after every 1 hour or after every 15 min depending on the chart time frame that the Stock Index trader is using.

In the stock trading example above the parabolic SAR which had a setting of 2 and 0.02 was used as the trailing stop loss order for the above chart. The trader would have kept shifting the trailing stop loss level upwards after every SAR was drawn until the time when the Parabolic SAR Indicator was hit & the trend reversed.

Conclusion A stop order is a simple trading tool, yet so many investors fail to use it. Whether it's used to prevent excessive losses or to lock in trading profits, nearly all trading styles can benefit from this trading tool.

Factors To Remember When Setting These Stop Loss Orders

Here are some important points to remember:

Be careful with the points where you set these stop-losses. If indices normally fluctuates 20 points, you don't want to set your stoploss order too close to that range else you'll be taken out by the normal market volatility

StopLoss Orders take the emotion out of a trading decisions & by setting one you set preset point of exiting a losing trade, intended to control losses.

Traders can always use indicators to calculate where to put these levels, or use the concepts of Resistance & Support to decide where to set these stop loss orders. Another good technical indicator used to set these stop loss order orders is the Bollinger bands where traders use the upper & lower band as the limits of stock price therefore putting these orders outside the bands.

Study More Topics and Tutorials:

Trade Stock Indices

Stop Loss Trading Summary: Points and Factors To Remember When Placing

You can also use stop loss stock orders to lock in profits, Not Just for Preventing Losses

Factors To Remember When Setting These Stop Loss Orders