Methods of Setting Stop Loss Commodities Trading Orders In Commodity Trading

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

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

Other traders also place these orders according to a predetermined risk to reward ratio. This method 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 the 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's best to use one of the following methods:

1. Percent of Commodity trading account balance

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

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

2. Setting Stop Loss Commodity Order using Support & Resistance Areas

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

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

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

Stop Loss Commodity Trading Order level using a resistance level

Setting order above the resistance

Stop Loss Commodity Trading Order level using a support Level

Setting order below the Support Line

3. Commodities Trend Lines

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

Setting order below the trend line

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