Forex Indicators for Setting Stop losses In Trading
Some indicators are used for setting stoploss orders taking away the need for traders to carry out complex calculations on where to place these stop loss orders.
A systems trader also can set a stop loss order in accordance to these indicators. Some indicators use mathematical formulas to calculate where the trade order stop loss order should be set so as to provide an optimal exit for a trade. These indicators can be used as the basis for setting stop losses. These indicators follow price action of a currency closely and define the boundaries which the currencies should move along in. When the price moves outside these boundaries it's henceforth best to close the open trade positions because price stops moving in that particular direction.
Some of the indicators that can be used to set stoploss orders are:
Parabolic SAR - Automatic Stop Loss and Take Profit Indicator
Parabolic SAR is like an Automatic Stop Loss and Take Profit Indicator used to set a trailing price stop loss
Parabolic SAR provides excellent exit points.
In an upward trend, you should close long buy trades when the price falls and drops below the Parabolic SAR trading indicator
In a downwards trend, you should close short sell trade positions when the price rises above the Parabolic SAR indicator.
If you're long then the price is above the parabolic SAR indicator, the parabolic SAR will move up each day, regardless of the direction in which the price is heading. The amount the Parabolic SAR indicator moves up depends on the amount that the prices moves.
Parabolic SAR for Setting Stops - Automatic Stop Loss and Take Profit Indicator
Picture of parabolic SAR indicator & how this Parabolic SAR is used
Bollinger Band - Indicator for Setting Stop Losses
Bollinger Band use standards deviations as a gauge of the volatility. Since standard deviation is an estimate of the volatility, the Bollinger band are self-adjusting meaning they widen during periods of higher forex volatility and contract during periods of lower forex volatility.
Bollinger Bands indicator consist of three bands designed and intended to encompass majority of a instruments price action. The middle band is a basis for the intermediate-term trend, mostly it's a 20 day period SMA, which also serves as the base for calculating the upper band & lower band. The upper band's & lower band's distance from the mid band is determined by volatility of the price.
Since these Bollinger Bands are used to encompass the instrument price, the bands can be used to set stoploss orders just outside the areas of these bands.
Bollinger Band Setting Stop Loss Level - Bollinger Band for Setting Stop Losses
Fib Retracement Areas Trading Indicator - Automatic Stop Loss and TakeProfit Indicator
Fib retracement levels provide levels of support & resistance, these can be used to set stoploss order levels.
Fibonacci Retracement level 61.80% is the most oftenly used level for setting stoploss orders. A stoploss order should be set and placed just below 61.8% Fibo retracement level
The 61.8 % Fib retracement is used to set these stop loss orders since its rarely hit.
Fib Indicator StopLoss Setting at 61.8 % Fibonacci Retracement Level
Fib retracement level 61.8% - Fibonacci Indicator
Support & Resistance Levels Lines
Support and resistance levels can be used to set stop loss order levels where the stop losses are set just above/below the resistance/support.
- Buy Trade - Stop Loss order set a few pips below the support level
Buy Trade - Stop Loss set a few pips below the support level
- Sell Trade - Stop Loss order set a few pips above the resistance level
Sell Trade - Stop Loss Order set a few pips above the resistance zone
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