Methods of Setting Stop Loss Stocks Orders In Stocks Trading

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

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

Other traders also place these orders according to a predetermined risk to reward ratio. This technique of setting is dependent upon certain mathematical equations. For example a ratio of 50 pips stop loss can be used by a trader if the trade has potential to make 100 pips in profit: this is a risk : reward ratio of 2:1

Others just use a predetermined percentage of their total trading account balance.

To set a stop loss order it is best to use one of the following methods:

1. Percentage of Stock trading account 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 determines how far he will set the order level based on the trade size that he has bought or sold.

Example:

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

2. Setting Stop Loss Stocks Order using Support and Resistance Areas

Another way of setting stop loss stocks orders is to use supports and resistance regions, on the stocks trading charts.

Given that stop loss stock orders tend to congregate at key points, when one of these levels is touched by the stock price, others are set off, like dominos. Stop loss orders tend to accumulate just above or below resistance or support levels, respectively.

A resistance or a support area should act like a barrier for stocks price movement, this is why they are used to set stop-losses, if this barrier is broken the stocks price movement can go toward the opposite direction of the original stock trade, but if this barriers (support and resistance levels) are not broken the stocks price will continue moving in intended direction.

Stop Loss Stock Order level using a resistance zone

Setting order above the resistance

Stop Loss Stock Order level using a support Level

Setting order below the Support Line

3. Stock Trendlines

A stock trend line can be used to set stop losses where the order is set just below the stock trend line. As long as the stock trend line holds the trader will be able to continue making profits while at the same time set this order which will lock his profit once the stock trend-line is broken.

Setting order below the stock trend-line

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