Stop Loss Order Summary: Points To Remember When Putting

The key to placing top loss orders in cfd trading isn't to set too tight or too far and not exactly on the support or resistance areas.

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

If you're going long (buying a cfd instrument), just look for a nearby support level which is below your trade entry point and put this order about 10 pips to 20 pips below that support level. The example shown below show the level where one can put their stop orders just below the support level on a chart.

Support Level For Setting Stop Loss Order Level For Buy Trade

If you're going short (selling a cfd instrument), just look for a nearby resistance level which is above your entry point & set this stop order about 10 pips to 20 pips above that resistance level. The example shown below show the level where a trader can set their stop loss orders just above the resistance level on a chart.

Resistance Level For Setting Stop Loss 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 market is performing. This is especially handy when you are in a situation which prevents you from watching your transactions for an extended period of time, or when you want to go to relax after trading the whole day.

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

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

For a trailing stop loss order it's set at a percentage level below the current market price. This trailing level then shifted as the trade position unfolds. Using a trailing stop loss level allows you to let profits run while at the same time ensures that should the cfd market turn you'll have locked in some of your profits.

These cfd orders can also be used to eliminate risk if a CFD trade transaction becomes profitable. If a trade position makes some reasonable gains then the stop loss can be moved to break even point, the place at which you opened buy, thereby ensuring that even if the trade position moves against you, you won't make any loss, you will break even on that trade.

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

A good examples is when you use the parabolic SAR Indicator & keep moving your stop loss order to the parabolic SAR level.

Parabolic SAR CFD Technical Indicator for Setting Trailing StopLoss Order in CFDs Trading

Another example is where one moves his stop loss order by a certain number of pips after every few hours or after each hour or after every 15 minutes depending on the CFD Trading chart timeframe that the trader is using.

In the cfd example above the parabolic SAR Indicator which had a setting of 2 & 0.02 was used as the trailing stop loss for the above chart. The trader would have kept moving the trailing stop loss order level up after every SAR was drawn until the time when the Parabolic SAR was hit & the cfd trend reversed.

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

Points To Remember When Placing These Stop Loss Orders

Here are some important points to remember:

• Be careful with the points where you put these stop orders. If a cfd instrument normally fluctuates 20 points, you do not want to put your stop order too close to that range else you will be taken out by normal market volatility

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

• Traders can always use indicators to calculate where to set these zones, or use the trading concepts of Resistance & Support to work out where to put these stop orders. Another good indicator used to set these stop loss orders is the Bollinger bands indicator where traders use the upper and lower band as the limits of price therefore placing these orders outside the bands.