Methods of Setting Stop Loss CFDs Orders In CFDs

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

A trader can also set a stop loss order according to the 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 trade technical indicators can be used as the basis for setting these orders.

Other traders also place these orders according to a predetermined risk to reward ratio. This strategy of setting is dependent upon certain mathematical equations. For example a ratio of 50 pips stop loss can be used by a 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 percent of their total trading account balance.

To set a stop loss order it is best to use one of the following techniques:

1. Percentage of account balance

This is based on the percent of account balance that the trader is willing to risk in cfd trading.

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

Example:

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

2. Setting Stop Loss CFDs Order using Support and Resistance Areas

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

Given that stop loss orders tend to congregate at key points, when one of these levels is touched by the price, others are set off, like dominos. Stoploss orders tend to accumulate just above or below the resistance or support levels, respectively.

A resistance or a support area should act like a barrier for price movement, this is why they are used to set stop losses, if this barrier is broken the price movement can go towards the opposite direction of the original cfd trade, but if this barriers (support and resistance levels) are not broken the price will continue moving in intended direction.

Stop Loss Order level using a resistance level

Setting order above the resistance

Stop Loss Order level using a support Level

Setting order below the Support Line

3. CFDs Trend Lines

A cfd trend line can be used to set stop losses where the order is set just below the cfd trend line. As long as the cfd trend line holds the trader will be able to continue making profits while at the same time set this order that will lock his profit once the cfd trendline is broken.

Setting order below the cfd trend line

Examples of where to set this order using trend lines.