Stop Loss Trading Summary: Points to Remember When Setting Stop Loss Orders

The key to setting stop losses in XAUUSD trading isn't to set too tight or too far and not precisely on the support or resistance levels.A few pips below support or above resistance levels are the best place which to set stops.

If you are going long (buying Gold pair), just look for a nearby support level that is below your entry point and set this stop loss order about 20 to 30 pips below that support area. The example below shows the level where a gold trader can set up their stops on the Gold price chart just below the support level.

Support Level for Setting Stop Loss Level for Buy Trade on Gold Chart

If you are going short (selling Gold pair), just look for a nearby resistance level that is above your entry point and set this order about 20 to 30 pips above that resistance area. The example below shows the level where a trader can set up their stops just above the resistance level on a Gold trading chart.

Resistance Level for Setting Stop Loss Level for Sell Trade on Gold Chart

You also can use stop loss orders to lock in profits, Not Just for Preventing Losses

The advantage of a stop loss order is that you don't have to monitor on a daily basis how the XAUUSD price chart is performing. This is especially handy when you are in a situation that prevents you from watching your trades transactions for an extended period of time, or when you want to go to sleep after trading Gold the whole day, but leave that 1 XAUUSD trade open.

The disadvantage of a stop loss is that the market price at that you set these orders could be activated by a short-term fluctuation in XAUUSD price. The key is picking a stop loss percentage that allows the Gold price to fluctuate within the day to day range while preventing the downside risks.

These stop loss orders are traditionally thought of as a way to prevent losses thus the name. Another use of these orders is to lock in profits, in which case it is known as a trailing stop loss order.

For a trailing stop loss it is set at a percentage% level below the current XAUUSD market price. This trailing stop loss order level is then adjusted as the trade unfolds. Using a trailing stop loss level allows you to let profits run while at the same time guarantees that should the market turn you'll have locked in some of your profits.

These stop loss orders can also be used to eliminate risk if a XAUUSD trade becomes profitable. If a trade transaction makes some reasonable gains then the stop loss order can be moved to breakeven point, the point at which you bought the Gold pair, thereby ensuring that even if the trade goes against you, you will not make any loss, you'll breakeven on that XAUUSD trade.

Trailing stop loss orders are used to maximize and protect profit as the Gold price rises and limit losses when price falls.

A good example of an indicator that can be used to set a trailing stop is when you use the parabolic SAR chart indicator & keep moving your stop loss order to the parabolic SAR level.

Parabolic SAR Trading Indicator for Setting Trailing StopLoss in XAUUSD Trading

Another example is where a trader moves his stop loss by a certain amount of pips after every few hours or after every hour or after every 15 minute depending on the XAUUSD chart time frame that the trader is using.

In the above example the parabolic SAR which had a setting of 2 and 0.02 was used as the trailing stop loss order level for the above chart. The trader would have kept moving the trailing stop level upward after every SAR was drawn until the time when the Parabolic SAR was hit and the trend reversed.

Conclusion

A stop loss order is a simple tool yet so many traders & investors fail to use it. Whether it's used to prevent excessive losses or to lock in profits, nearly all investing styles can benefit from this trading tool.

Points To Remember When Setting These Stop Losses

Here are some crucial points to remember:

Be careful with the points where you set these stop loss orders. If Gold price normally fluctuates 50 points, you do not want to set your order too close to that range else you'll be taken out by the normal market volatility.

Stop Loss orders take the emotion out of trading decisions and by setting a sop loss order one you set a predetermined point of exiting a losing trade, meant to control trading losses & preserve your trading equity.

Gold traders can always use technical indicators to calculate where to set these stop loss order levels, or use the concepts of Resistance & Support levels to determine where to set these stop orders. Another good MetaTrader 4 indicator used to set these orders is the Bollinger bands indicator where traders use the upper & lower band as the limits of price henceforth setting these stop loss orders just outside these bands.

Learn More Tutorials and Courses:

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• What Does it Mean to Go Long a Gold instrument?
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