What is a Silver Stop Loss Trading Order? and Factors to Consider When Setting

Stop Loss Trading Order is a type of order that is placed after opening a trade that is designed to minimize losses if the trading market moves against you.

It's a preplanned level of getting out of a losing trade transaction and it's designed to control losses.

A stop loss is an order placed with your trading broker that will automatically close your trade transaction when it reaches a predetermined price. When set level is reached, your open trade is liquidated.

These orders are intended to restrict the sum of money that one-can lose: by exiting the transaction if a specific price that's against the trade is reached.

Regardless of what you might be told by others, there's no question about if these orders should or should not be set - these orders should always be set.

One of the most troublesome things in in Silver is setting these orders. Put the stop loss too close to your entry trading price & you are liable to exit the trade transaction due to random market price volatility. Put it-toothe-stop-loss-order-too far away and if your'e on the opposite side of the trend, then a small loss may turn into a big one.

Skeptics will point out several disadvantages of these orders: that by placing them you are guaranteeing that, should your open position move in the wrong direction, you'll end up selling at lower trading prices, not higher.

The critics will also argue that in setting stops you are vulnerable to exit a transaction just before the market moves in your favor. Most investors have had the experience of setting a these orders and then seeing the trading price retrace to that level, or just below it, & then go in direction of their original market trend analysis. What might have been a profitable trade transaction rather turns into a loss.

Experienced traders always use stop loss orders as they are an important part of the discipline that is required to succeed because they can prevent a small loss from becoming a big one. What's more, by ardently placing these orders whenever you enter a position, you end up making this important decision at the point in time when you are most objective about what is really happening with market, this is because the most objective technical analysis is done before opening a trade transaction. After opening the trading market a trader will tend to interpret the trading market differently because now they have a bias toward one-sidea-particular-side, the direction of their analysis.

Unexpected news can come out of nowhere & dramatically affect the price: this is why it is so important to have a stop loss. Its best to cut losses early when a position is going against you, it's best to cut your losses immediately instead of waiting it to become a large one. Again, if you put your stop orders when you're opening a trade transaction, then that's when you're most objective.

A key question is exactly where to place a this order. In other words, how far should you place this below your purchase trading price? Many traders will tell you to set pre-determined - maximum acceptable loss, an amount that's based on your trading account balance rather than use technical indicators.

Professional money managers advice that you should not lose more than 2 % of your trading account equity on any one single trade. If you have $50,000 in trading capital, then that would mean the maximum loss you should set for any 1 single trade is $1,000.

If you opened a trade, then you would limit your risk to no more than $1,000. In which case you would put your stop order at the number of pips that are equal to $1000 & would have $49,000 left in your trading account if you exited the trade position at the max loss allowed. The topic of Silver risk management is wide and it's discussed under the money management topics.

• Silver Money Management Introduction
• Silver Trade Money Management Methods

Factors to Consider When Setting

The most important question is how close or how far this order should be from the price where you entered the position. Where you set will depend on several factors:

Since there aren't any rules cast in stone as to where you should place these levels on a chart, we follow general guidelines that are used to help put these levels correctly.

Some of the general guidelines used are:

1. Risk - How much is one willing to lose on a single transaction. General rule is that a trader should never lose more than 2 percent of the total account capital on any one single transaction.

2. Volatility - this refers to the daily trading price range. If silver regularly moves up and down in a range of 100 pips or more over the course of the day, then you can't put a tight stop order. If you do, you'll be taken out of the trade transaction by the normal market volatility.

3. Risk to reward ratio - this is the measure of potential reward to risk. If the market conditions are favorable then it is possible to comfortably give your trade more space. However, if the market is too choppy it then becomes too risky to open a transaction without a tight stop then don't make the trade at all. The risk to reward isn't in your favor and even placing tight stop orders won't guarantee profitable results. It would be more wiser to look for a much better trade transaction next time.

4. Position size - if the position size opened is too big then even the smallest decimal price movement will be fairly big in percent terms. This means that you've to set a tight stop which might be taken out more easily. In most cases it's better to move to a smaller trade position size so-as-tosothat-to allow your trade position more space for fluctuating, by placing a fair level for this order while at the same time limiting the risk.

5. Account Capital - If your account is under-capitalized then you'll not be able to set your stops accordingly, since you will have a big amount of money in a single trade transaction which will obligate you to put very close stops. If this is the scenario, you should consider very seriously about if you have adequate trading capital to trade XAGUSD in the first place.

6. Market conditions - If the trading price is trending upward, a tight stop might not be necessary. If on the other hand the price is choppy and has no clear direction then you should use a tight stop loss order or not execute any transactions at all.

7. Chart Time-Frame - the bigger the chart time-frame you use, the bigger the stop should be. If you were a scalping your stops would be tighter than if you were a day or a swing trader. This is because if you're using longer chart timeframes & you figure out the trading price will be move upwards it doesn't make sense to set a very tight stoploss because if the trading price swings a little, your order will be hit.

The technique of setting that you select will significantly depend on what type of trader you're. Most commonly used technique to determine where to set is - resistance & support regions. These areas give good points for setting these stop loss orders as they are most dependable regions, because the support and resistance levels won't be hit many times.

The technique of how to set these stops that you select should also adhere to the rules above, even if not all, those which to your silver strategy.