Best Stop Loss Order Strategy for Trading

Stop Loss Example

Stop Loss Order is a type of order that is positioned after opening a trade that's designed to minimize losses if the market goes against you in the opposite market direction.

Stop Loss is a pre-determined point of getting out of a losing trade & it's meant to control losses in xauusd trading.

A stop loss is an order placed with your broker which will automatically close your open trade order when the price of your open trade order reaches a pre-determined price. When the given level is attained, your open trade is liquidated.

These orders are meant to minimize the amount of money that a trader can lose: by closing the trade position if a specific price that's against the trade transaction is reached.

For example, one may open a buy trade & put a stoploss order of 20 pips, if the price moves against the trader by 20 pips the stoploss order will be filled & the trade will be liquidated thereby limiting the loss to 20 points (pips) - Setting Stop Loss Order Techniques.

Regardless of what you may be told by other traders, there's no question about whether these stoploss orders should or should not be used - stop loss orders should always be implemented.

One of the most challenging things in gold trading is setting these stop loss orders - Best Stop Loss Order Strategy - Best Stop Loss Order Strategy for Trading. Put the stop loss order too close to your entry price and you are liable to exit the trade due to random volatility. Place the stop loss too far away & if you're on the wrong side of the market trend, then a small trading loss could turn into a large loss.

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

Skeptics also will argue that in setting stop loss order orders you are susceptible to exit a trade order just before the market moves in your favor. Most traders have had the experience of setting a these stoploss orders & then seeing the price retrace to that stop loss level, or just a couple of points below it, & then go in the direction of their original price trend analysis. What might have been a profitable trading instead turns into a trading loss.

Professional traders always use stoploss orders as these trade orders are an important part of discipline that's required to succeed in gold trading because stoploss order orders can prevent a small loss from becoming a big loss. What's more, by purposefully putting these stop loss orders whenever you enter a trade position, you end up making this important decision at the point in time when you are most objective about what is really happening with the market, this is because most objective analysis is done before opening a trade order. After entering the market a gold trader will tend to analyze the xauusd market differently because they now have a bias toward a particular side of the market, the direction of their analysis - Best Stop Loss Strategy for Trading.

Unexpected economic news reports can come out of the blue and dramatically affect the price: this is why it is so important to have a stoploss order set for your open trade transaction. It is best to cut losses early when a trade is going against you, it's better to cut your losses immediately rather than waiting for the loss to become a big one. Again, if you set your stop loss orders when you are entering a trade, then that is when you are most objective as a gold trader - Best Stop Loss Strategy.

Best Stop Loss Order Strategy

A key xauusd question is exactly where to place this stop loss. In other words, how far should you as a xauusd trader place this stop loss order below your purchase price? Many traders will tell you to set a pre-determined - max acceptable loss per trade, an amount depending on your equity balance rather than use technical indicators for calculating where to place the stop loss order - Best Stop Loss Order Strategy for Trading.

Professional money managers advice that you should not lose more than 2 % of your equity on any 1 single trade order. If you have $10,000 in gold trading capital, then that would mean the max loss you should set for any one trade order is $200 - Best Stop Loss Order Strategy.

If you open a trade then that would mean that you'd limit your risk to no more than $200 dollars for that specific xauusd trade. In which case you'd set your stoploss order at 200 or the equal number of pips based on your position size of trade that you've opened - SL Order Example - StopLoss Order - Stop Loss Order Calculator. The topic of risk management is a wide topic and it's explained under learn trading equity management strategies topics.

Stop Loss Order Example

The most important question is how close or how far this stoploss order should be set from the price where you entered the trade. Where you set the stop loss order will depend on various factors:

Because there are no guide-lines set in a stone as to where you should put these stoploss orders on a chart, we follow general stop loss order setting guidelines used to help place these stoploss order orders in the correct way.

Some of general stoploss order setting rules used are:

1. Risk Percentage - How much is one willing to lose on a single trade transaction. The general stop loss order setting rule is that a xauusd trader should never lose more than 2 percent of the total gold trading account funds on any one single trade order.

2. Market Volatility - market volatility refers to the daily price range movement of gold that you're trading. If a price routinely moves upwards and down in a range of 50 pips or more over the tutorial of the day, then you cannot set a tight stop loss order when you open a trade position. If you do, you will be taken out of the trade by the normal market volatility.

3. Risk to Reward Ratio - this is the measure of potential risk to reward calculated before opening a trade position. If the market conditions are favorable then it's possible to comfortably give your trade more room. However, if the market is too range-bound it then becomes too risky to open a trade order without a tight stop loss order - then don't make the trade at all. The trading risk reward ratio is not in your favor and even setting tight stop losses will not guarantee profitable results. It would be wiser to search for a better trade to next time.

4. Trade Position Size - if the trade transaction size opened is too large then even the smallest decimal price movement will be fairly large in risk % terms. This means that you have to set a tight stop loss order for your trade which might be taken out more easily. In most cases it's better to adjust to a smaller trade size so as to give your trade more space for price volatility movement, by setting a reasonable stoploss order level for this stoploss order while at the same time reducing the risk for the trade transaction.

5. Account Equity Capital - If your trading account is under-capitalized then you will not be able to set your stoploss orders accordingly, because you'll have a big amount of your funds that is invested on one trade which will force you to set tight stoploss orders. If this is the scenario, you should contemplate seriously about whether you have sufficient capital to trade Gold in the first place.

6. Trend Conditions - If the price is trending upwards, a tight stop might not be necessary. If on the other hand the price is choppy and has no clear trend direction then you should use tight stop loss or not open any transactions at all.

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

Best Stop Loss Order Strategy

The technique of setting stop loss orders that you choose will significantly depend on what type of trader you are. Most oftenly used method to determine where to set stop loss orders is - resistance & support areas. These support and resistance zones give good points for setting these stoploss order orders as they are most reliable levels to set stoploss orders, because the support & resistance levels won't be tested many times.

Stop Loss Example

The procedure of how to set these stop loss orders that you select should also follow the stop loss setting rules above, even if not all these guide-lines apply to your trade strategy try to implement the guide-lines which will apply to your trading strategy depending on what type of trader you are.

Best Stop Loss Order Strategy - Best Stop Loss Order Strategy for Gold - Setting Stop Loss Order Techniques - Stop Loss Example - StopLoss Order - Stop Loss Order Calculator

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