Stop Loss Order Trading Summary: Points To Remember When Placing

The key to putting stop orders in xauusd isn't to set too tight or too far & not exactly on the support or resistance levels.

A few pips below the support or above resistance zones is the best place.

If you are going long (buying a xauusd instrument), just look for a nearby support level that is below your trade entry point and put this order about 10 pips to 20 pips below that support level. The example shown below show the level where a trader can set their stop loss orders just below the support level on a chart.

Support Level for Putting Stop Loss Order Level for Buy Trade

If you are going short (selling a xauusd instrument), just look for a nearby resistance level that is above your trade entry point and put this top loss order about 10 pips to 20 pips above that resistance level. The example shown below show the level where a trader can put their stop orders just above the resistance level on a chart.

Resistance Level for Setting StopLoss Order Level for Sell Trade

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

The advantage of a stop order is that you do not have to monitor the market on a daily basis how the market is performing. This is especially handy when you are in a situation which prevents you from watching your transactions for an extended period of time, or when you want to go to relax after trading the whole day.

The disadvantage is that the price at which you set these orders could be activated by a short-term fluctuation in trading price. The key is picking a stop order percentage which allows trading price to fluctuate within the day to day range while capping the down side risks.

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

For a trailing stop order it is put at a percent level below the current market trading price. This trailing level then shifted as the trade transaction unfolds. Using a trailing stop loss level allows you to let the profits run while at the same time ensures that should the market turn you will have locked in some of your profits.

These orders can also be used to eliminate risk if a trade position becomes profitable. If a trade transaction makes some substantial gains then the stop loss can be moved to break even point, the place at which you bought, thereby ensuring that even if the trade transaction moves against you, you won't make any loss, you'll break even on that trade.

Trailing stop orders are used to maximize and protect profit as trading price rises & cut losses when the price falls.

A good examples is when you use the parabolic SAR Indicator & keep moving your stop loss order to the parabolic SAR Indicator level.

Parabolic SAR Indicator for Placing Trailing Stop-Loss Order in XAUUSD

Another example is where one moves his stop loss order by a certain number of pips after every few hours or after each hour or after every 15 min depending on the XAUUSD Trading chart timeframe that the trader is using.

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

ConclusionA stop order is a simple tool, yet so many 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 tool.

Points To Remember When Putting These Stop Orders

Here are some important points to remember:

• Be careful with the points where you set these stop loss orders. If a xauusd instrument normally fluctuates 20 points, you do not want to put your top loss order too close to that range else you'll be taken out by normal market volatility

• Stop Loss Orders take the emotion out of a trading decisions and by setting one you set preset point of exiting a losing trade position, intended to control losses.

• Traders can always use indicators to calculate where to put these zones, or use the concepts of Resistance & Support to work out where to put these stop orders. Another good technical indicator used to set these stop loss orders is the Bollinger bands where traders use the upper & lower band as the limits of price therefore putting these orders outside the bands.