Methods of Setting Stop Loss Stock Indices Orders in Indices

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

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

Other stock indices 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 Stock Indices 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 is best to use one of the following methods:

1. Percentage of Stock Indices account balance

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

If a stock indices trader is willing to risk 2% of account balance then the stock indices trader determines how far he will set the order level based on the position size that he has bought or sold.

Example:

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

2. Setting Stop Loss Stock Indices Order using Support and Resistance Levels

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

Given that stop loss 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 tend to accumulate just above or below the resistance or support levels, respectively.

A resistance or a support level should act like a barrier for stock index price movement, this is why they are used to set stop losses, if this 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 and resistance levels) are not broken the stock index price will continue moving in the intended direction.

Stop Loss Stock Indices Order level using a resistance level

Setting order above the resistance

Stop Loss Stock Indices Order level using a support Level

Setting order below the Support Line

3. Indices Trend Lines

A stock indices 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 stock indices 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

Example of where to set this order using stock indices trend lines.