Breakeven stop in gold trading

A breakeven stop is a stop-loss moved to the entry price (sometimes slightly beyond it to cover spread and commission) after the trade has moved in your favor. From then on, if price reverses, the trade closes at about zero rather than at the original loss.

How it applies to gold trading

The appeal is obvious: a “risk-free” trade. The cost is less obvious. Gold often retests its breakout or entry area before moving on, so a stop at entry gets hit by normal noise on trades that would have reached the target. Moving to breakeven too early can turn winners into scratches and lower expectancy.

A common rule is to move to breakeven only after price has made a new swing in your favor or has moved at least 1R, rather than after a fixed few dollars. Remember that a sell stop on a long closes on the bid, so a breakeven stop on a long that ignores the spread will close at a small loss.

Worked example

Example (hypothetical numbers): long at 4,000 with a $6 stop and a $18 target. Rule A moves the stop to 4,000 after a $3 gain; Rule B after $6 (1R). If gold rises to 4,005, dips to 3,999.50 and then runs to 4,018, Rule A is stopped out flat while Rule B makes the full $18.

A common mistake

Treating breakeven as a goal in itself. The goal is the best expectancy, and a test of both rules on your own trades tells you which wins.

See also: Trailing stop, Partial close, Stop-loss, R multiple.

Frequently asked questions