How to Calculate Stop Loss Commodity Trading Order

The most important question about setting your commodity stop loss trade order is how close or how far the stop loss order should be set from the commodity price where you entered the position. Where you set this stop loss order depends on several factors:

Since there are no commodity rules set in stone as to where you should place your stop loss order, we follow general guidelines used by Commodity traders to help them calculate where to place a this stop loss order correctly.

Some of the general guidelines used to set commodity stop loss trading orders are:

1. Percent Risk Per Commodity Trade - How much a trader is willing to lose on a single commodity trade. The general trader rule is that a trader should never lose more than 2 percent of the total trading account capital on any single commodity trade.

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

3. Commodity Trading Risk to Reward ratio - risk reward ratio this is the measure of potential reward to risk. If the commodity market conditions are favorable then it is possible to comfortably give your commodity trade more room when setting stop loss orders. However, if the Commodity Trading market is too choppy it then becomes too risky to trade commodity without a tight stop loss order then do not make the trade at all. The risk to reward ratio is not in your favor and even setting a tight stop loss will not guarantee profitable results. It would be wiser to look for a better commodity trading to trade at another time.

4. Commodity Trading Position Size - if the commodity position size traded is too big then even the smallest decimal commodity price movement will be fairly big in risk percentage terms. This means that as a trader you have to set a tight stop loss order which may be taken out more easily by the commodities trading market. In most cases it's better to adjust to a smaller commodity position size in order to give your commodity trade more space for fluctuation, by setting a reasonable stop loss while at the same time reducing the risk percent per trade.

5. Commodity Trading Capital - If your commodities trading account is undercapitalized then you will not be able to set your stop loss orders accordingly, because you will have a large amount of your commodity capital invested in a single commodity trade position which will force you to set tight stop losses. If this is the case, you should start thinking seriously about whether you have enough trading commodity capital to trade the commodity market in the first place.

6. Commodities Trading Market Trend Conditions - If the commodity market is trending upwards, a tight stop loss order might not be necessary. If on the other hand the commodity market trend is range bound and has no clear direction then you should use a tight commodity stop loss trading order or not trade at all.

7. Commodities Trading Chart Time Frame - the bigger the commodities chart time frame you trade, the bigger the stop loss level should be. If you were a scalper commodity trader then your stop loss orders would be set tighter than if you were a commodity day trader or a commodity swing trader. This is because if you are a commodity swing trader and you determine the commodity price will move up it does not make sense to set a very tight commodity stop loss trading order because if the commodity market swings a little your tight stop loss order will be hit.

The method of setting a commodity stop loss trade order that you choose will significantly depend on what type of trader you are. The Method of how to set a stop loss order, that you choose should also follow the above guidelines, and as a trader you should apply these guideline to your Commodity Trading Method.