Methods of Setting Stop Loss Commodity Trading Orders In Commodities

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

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

Other commodity 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 Commodities 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 commodity account balance

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

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

Example:

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

2. Setting Stop Loss Commodity Trading Order using Support and Resistance Levels

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

Given that stop loss commodity orders tend to congregate at key points, when one of these levels is touched by the commodities 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 commodities price movement, this is why they are used to set stop losses, if this barrier is broken the commodities price movement can go towards the opposite direction of the original commodity trade, but if this barriers (support and resistance levels) are not broken the commodities price will continue moving in the intended direction.

Stop Loss Commodity Trading Order level using a resistance level

Setting order above the resistance

Stop Loss Commodity Trading Order level using a support Level

Setting order below the Support Line

3. Commodities Trend Lines

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

Setting order below the commodity trend line

Example of where to set this order using commodity trend lines.