Methods of Setting Stop Loss Commodities Trading Orders In Commodity

Traders using a commodities system must have mathematical calculations that reveal where to set stop loss & take profit in commodity trading.

A trader can also place set stop loss & take profit orders according to the commodity indicators used to set these set stop loss & take profit orders. Certain commodity 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 commodities trades. These commodities 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 commodity strategy. This method of setting stop loss and take profit is dependent upon certain mathematical equations. For example a ratio of 20 pips commodity stop loss can be used by a trader if the trade has the 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 commodity account balance.

To set stop loss & take profit in commodity it's best to use one of the following methods:

1. Percent of Commodities Trading Account Balance

This method is based on percentage of commodity 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 commodity 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 Commodity Trading Order = $200 then using risk : reward 3:1 the take profit will be set at $600

2. Setting Stop Loss Commodities Trading Order using Support & Resistance Areas

Another technique to set stop loss & take profit in commodity is to use supports and resistance levels, on the commodities charts.

Given that stop loss commodity orders and take profit orders tend to congregate at key points, when one of these levels is touched by the commodities price, others are set off, like dominos. Stop loss orders and 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 commodity depending on which side of the trade they are in.

A resistance or a support area should act like a barrier for commodities price movement, this is why these resistance and support levels are used to set stop losses and take profits, if this commodities price barrier is broken the commodities price movement can go toward the opposite direction of the original commodity trade, but if this barriers (support & resistance levels) are not broken the commodities 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 commodity.

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