Stop Loss Stock Indices Order Trading Summary: Points To Remember When Setting

The key to setting stop losses in stock index trading isn't to set too tight or too far & not exactly on the support or resistance areas.

A few pips below support or above the resistance zones is the best place.

If you are going long (buying a stock indices instrument), just look for a nearby support level that is below your entry point and set this order about 10 pips to 20 pips below that support level. The example illustrated below show the level where a trader can set up their stops just below the support level on a stock index trading chart.

Support Level for Setting Stop Loss Stock Indices Order Level for Buy Trade

If you are going short (selling a stock indices instrument), just look for a nearby resistance level that is above your entry point and set this order about 10 pips to 20 pips above that resistance level. The example illustrated below show the level where a trader can set up their stops just above the resistance level on a stock index trading chart.

Resistance Level for Setting Stop Loss Stock Indices Order Level for Sell Trade

You can also use stop loss orders to lock in profits, Not Just for Preventing Losses

The advantage of a stop loss order is that you do not have to monitor on a daily basis how the stock index market is performing. This is especially handy when you are in a situation that prevents you from watching your trades for an extended period of time, or when you want to go to sleep after trading the whole day.

The disadvantage is that the stock index price at which you set these orders could be activated by a short-term fluctuation in stock index price. The key is picking a stop loss percentage that allows stock index price to fluctuate within the day to day range while preventing the downside risks.

These stock indices orders are traditionally thought of as a way to prevent losses thus the name. Another use of these orders is to lock in profits, in which case it's referred to as a trailing stop loss.

For a trailing stop loss order it is set at a percentage level below the current market stock index price. This trailing level then adjusted as the trade unfolds. Using a trailing level allows you to let profits run while at the same time ensures that should the stock indices market turn you will have locked in some of your profits.

These stock indices orders can also be used to eliminate risk if a Indices trade becomes profitable. If a trade makes some reasonable gains then the stop can be moved to break even point, the point at which you bought, thereby ensuring that even if the trade moves against you, you will not make any loss, you will break even on that trade.

Trailing stop stock indices orders are used to maximize and protect profit as stock index price rises and limit losses when the price falls.

A good example is when you use the parabolic SAR Stock Index Indicator & keep moving your stop loss to the parabolic SAR level.

Parabolic SAR Stock Indices Technical Indicator for Setting Trailing StopLoss Stock Index Order in Stock Indices

Another example is where a trader moves his stop by a certain number of pips after every few hours or after every hour or after every 15 min depending on the Stock Indices chart time frame that the trader is using.

In the stock indices example above the parabolic SAR which had a setting of 2 and 0.02 was used as the trailing stop for the above chart. The trader would have kept moving the trailing stop level upwards after every SAR was drawn until the time when the Parabolic SAR was hit and the stock indices trend reversed.

ConclusionA stop loss order is a simple tool, yet so many investors fail to use it. Whether it's used to prevent excessive losses or to lock in profits, nearly all investing styles can benefit from this trading tool.

Points To Remember When Setting These Orders

Here are some important points to remember:

• Be careful with the points where you set these orders. If a stock indices instrument normally fluctuates 50 points, you do not want to set your order too close to that range else you will be taken out by normal market volatility

• Stop Loss Stock Indices Orders take the emotion out of a trading decisions and by setting one you set a pre determined point of exiting a losing trade, meant to control losses.

• Traders can always use indicators to calculate where to set these levels, or use the concepts of Resistance and Support to determine where to set these orders. Another good indicator used to set these orders is the Bollinger bands where traders use the upper and lower band as the limits of stock index price therefore setting these orders outside the bands.