Let's start from the top. The idea of a stop loss is to cut your losses at a certain price. You choose this price. Say you enter a trade at 50cents. If you want to only risk 5% of your capital, you would put in a stop loss at 47.5cents.
But you can be a bit more technical than that. Look at your charts. Do you see a definitive support level? Perhaps set your stop loss just below this support level. That way, you won't be stopped out by one or two sells into the support price. You want to give yourself a 1% or 2% buffer just below the support price just incase the sell into support was a blip on the radar.
To put this into an example. This time you enter a trade at $2. There is clear support a $1.92, but to make sure you only get stopped out if support is clearly broken, put your stop loss in at, say, 2% lower than $1.92...about $1.88. This way, you are only risking 6% of your capital in this trade, and if you're target to the upside is at $2.20, then you have yourself a nicely positioned risk vs. reward trade.
Now, how do you set these stop losses. Well I don't use Westpac, but there should be an option somewhere on the trading platform to set a "conditional order". In your case, this conditional order is going to be a SELL, i.e. a stop loss.
You have a few decisions to make.
1. What is the trigger price going to be? In the first example it is 47.5cents, in the second example it is $1.88.
2. What is your sell price? You won't neccessarily be able to sell at 47.5cents or $1.88 if a big seller has wiped the bid at these prices. Perhaps take away 0.5c or 1c from the trigger price to make sure that your sell is accepted. So you would have your sell price at 47cents or $1.87.
3. Do you want a volume condition? In some illiquid stocks, price can move up and down 5% with ease on very little volume. You can put in a condition that your order will only be triggered if the trigger price is traded at a certain volume. So for a stock with 400M shares on issue, you might want a minimum of 500k shares to be traded at this price. This concept is hard to master, but can be helpful if you get it right.
I hope that helps!
But do your own research. Don't take my 5% risk factor as textbook. It is just what I would do, but I'm sure many others have a different opinion on this, hence why a discussion on this topic would be good in my opinion.
