Methods of Setting Stop Loss Indices Orders in Stock Indices
Traders using a stock index system must have mathematical calculations that reveal where to set stop loss & take profit in stock indices trading.
A trader can also place set stop loss and take profit orders according to the indices indicators used to set these set stop loss and take profit orders. Certain indices 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 stock index trades. These stock indices 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 and take profit orders according to a pre determined risk : reward ratio specified in their stock indices strategy. This method of setting stop loss and take profit is dependent upon certain mathematical equations. For example a ratio of 20 pips indices 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 stock indices account balance.
To set stop loss & take profit in stock indices it's best to use one of the following techniques:
How to Calculate Stop Loss Indices Order and Take Profit Stock Indices Order in Indices
This method is based on percentage of stock indices 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 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 and 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 Stock Indices Order = $200 then using risk : reward 3:1 the take profit will be set at $600
How to Calculate Stop Loss Stock Indices Order and Take Profit Indices Order in Stock Indices
Another method to set stop loss & take profit in stock indices is to use supports and resistance levels, on the stock index charts.
Given that stop loss orders & take profit orders tend to congregate at key points, when one of these levels is touched by the stock index price, others are set off, like dominos. Stop loss orders & 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 stock indices depending on which side of the trade they are in.
A resistance or a support area should act like a barrier for stock index price movement, this is why these resistance and support levels are used to set stop losses and take profits, if this stock index price barrier is broken the stock index price movement can go towards the opposite direction of the original stock indices trade, but if this barriers (support & resistance levels) are not broken the stock index 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 stock indices.
Stop Loss Stock Indices Order vs Take Profit Stock Index Order - Stop Loss Stock Indices Order Examples Sell Order Buy Order - Take Profit Stock Indices Order Examples Sell Order Buy Order
