Where to Place Stop Loss Order in Indices Trading

Where to Put Stop Loss Order Trading

Stop Loss Order is a type of order which is placed after opening a trade that's intended to cut losses if the market trend goes against you.

Stop Loss Order is a pre-determined point of getting out of a losing trade & it is meant to control losses in stock indices trading.

A indices stop loss (SL) order is an order placed with your online broker which will automatically close your open trade when the stock price of your open trade order reaches a predetermined price. When set level is reached, your open trade is liquidated.

These stock orders aim to cap the sum of funds that trader can lose: by closing trade if a specific price that is against the trade is reached.

For example, a trader may open a buy trade & put a stop loss of 20 pips, if the stock price moves against the trader by 20 pips the stop loss trading order will be filled and the trade will be liquidated therefore limiting the loss to 20 points (pips) - Where to Set Stop-Loss Orders Examples.

Regardless of what you may be told by other stock traders, there no question about whether these stop loss trading orders should or should not be used -indices stop losses should always be used.

One of most troublesome things in stock indices trading is setting these stop loss orders - Where to Calculate Stop Loss Order - Where to Set Stop-Loss Order. Put the stop loss trading order too close to your entry stock price and you're liable to exit the trade due to random volatility. Place the stop loss trading order too far away and if you are on wrong side of the trend, then a small loss could turn into a big loss.

Critics will point out several disadvantages of these stop loss orders: that by placing them you are guaranteeing that if should your open trade position move in wrong direction, you'll end up selling at lower prices, not higher.

Skeptics will also argue that in setting stop loss orders you are vulnerable to exit a trade just before market moves in your favor. Most traders have had the experience of setting a these stop loss orders & then seeing the stock price retrace to that stop loss trading order level, or just a few points below it, and then go in the direction of their original market trend analysis. What might have been a profitable trading instead turns into a loss.

Experienced traders always use stop loss orders as they are an important part of discipline required to succeed in indices trading because stop loss orders can prevent a small loss from becoming a large loss. What's more, by purposefully putting these stop loss trading orders whenever you enter a trade position, you end up making this important decision at the point in time when you're most objective about what's really happening with market, this is because most objective technical analysis is done before opening a trade transaction. After entering market a trader will tend to interpret the stock trading market differently because they now have a bias towards one side of stock trading market, the direction of their analysis - Where to Set Stop-Loss Order.

Unexpected economic news can come out of the blue & dramatically affect the price: this is why it is so important to have a stop loss trading order set for your open trade. It is best to cut losses early when a trade is moving against you, it is best to cut your losses immediately rather than waiting for loss to become a big one. Again, if you set your stop loss orders when you are entering a trade, then that is when you are most objective as a trader - Where to Calculate Stop Loss Order for Trading.

Where to Place Stop Loss Order in Stock Indices Trading

A key stock indices question is precisely where to set this stop-loss order. In other words, how far should you place this stop-loss below your purchase price? Many traders will tell you to set predetermined - max acceptable loss per trade, an amount depending on your account equity balance rather than use indicators for calculating where to place the stop loss trading order - Where to Set Stop-Loss Order.

Professional money managers advice that you shouldn't lose more than 2 % of your trading account equity on one single trade. If you have $10,000 in capital, then that would mean that the maximum loss you should set for any one trade is $200 - Where to Calculate Stop Loss Order for Trading.

If you open a trade then that would mean that you would limit your risk to no more than $200 for that particular trade. In which case you would set your stop loss trading order at 200 or equivalent number of pips based on your position size of trade that you've opened - Where to Put Stop Loss Order in Market - Where to Put StopLoss Order Trading. The topic of risk management is a wide topic & it is discussed under learn money management topics.

• Stock Funds Management Tutorial - Factors to Consider When Placing Stop Loss
• Stock Money Management Strategies - Where to Put Stop Loss Order in Market - Where to Put StopLoss Order Trading

Where to Put Stop Loss Order Trading

Most important question is how close or how far this stop loss trading order should be set from the stock price where you entered the trade position. Where you set the stop loss will depend on several factors:

Because there aren't any rules set in stone as to where you should set these stop loss trading orders on a chart, we follow general stop loss trading order setting guidelines used to help place these stoploss orders in the correct way.

Some of general indices stop loss trading order setting guidelines used are:

1. Risk Percentage - How much is one willing to lose on one trade. The general stop loss trading order setting rule is that a trader should never lose more than 2 percent of the total account capital on any single trade.

2. Market Volatility -market volatility refers to the daily stock price range movement of instrument that you are trading. If a instrument routinely moves up and down in a range of 50 pips or more over the course of the day, then you cannot set tight stop loss when you open a trade. If you do, you'll be taken out of the trade by the normal market volatility.

3. Indices Trading Risk:Reward Ratio - this is measure of potential risk : reward calculated before opening a trade transaction. If the market conditions are favorable then it is possible to comfortably give your trade more room. However, if the stock trading market is too range bound it then becomes too risky to open a trade without a tight stop loss - then do not make the trade at all. The risk to reward ratio isn't in your favor & even setting tight stop loss orders won't guarantee profitable results. It would be wiser to search for a better trade to next time.

4. Trade Position Size - if trading size executed is too large then even the minimum decimal stock price movement will be fairly big in risk percentage terms. This means that you have to set a tight stop loss order for your trade which might be taken out more easily. In most cases it is better to adjust to a smaller trade size so as to give your trade more space for fluctuation, by setting a reasonable stop loss level for this stop loss trading order while at the same time reducing the risk for the trade.

5. Account Equity Capital - If your stock account is under-capitalized then you will not be able to set your stop loss orders accordingly, because as an investor you will have a large amount of money that is invested in one single trade position which will force you to set very tight stop loss trading orders. If this is the case, you should contemplate seriously about whether you have adequate trading capital to trade Stock Indices in the first place.

6. Market Conditions - If the stock price is trending upward, a tight stop might not be necessary. If on the other hand the stock price is choppy and has no clear trend direction then you should use a tight stop loss or not open any stock transactions at all.

7. Chart Time-Frame - the bigger the stock chart timeframe you use, the bigger the stop loss trading order level should be. If you were a scalper trader your stoploss orders would be tighter than if you were a day trader or a swing trader. This is because if you are using longer chart timeframes and you determine the stock price will be move up-wards it doesn't make sense to set a very tight stoploss because if the stock price swings just a little, your open order will be hit.

Where to Place Stop Loss Order in Indices Trading

The method of setting stop loss orders that you choose will significantly depend on what type of trader you are. Most oftenly used method to determine where to set stop loss trading orders is - resistance and support areas. These support & resistance areas give good points for setting these stop loss orders as they are most reliable areas to set stop loss trading orders, because the support and resistance zones will not be hit many times.

Where to Put Stop Loss Order Trading

The technique of how to set these stop loss (SL) orders that you choose should also follow the stop loss trading order setting guide-lines above, even if not all these guide-lines apply to your trading strategy try to implement the guide-lines which will apply to your trade strategy depending on what type of trader you are.

Where to Calculate Stop Loss Order - Where to Set Stop-Loss Order - Where to Set Stop-Loss Orders Examples - Where to Put Stop Loss Order in Market - Where to Put StopLoss Order Trading