Stop order in gold trading
A stop order buys gold above or sells below the current price once that level trades, becoming a market order; used for breakouts and for stop-losses.
Also called Buy stop, Sell stop, Stop entry
A stop order is a pending order that becomes a market order when price reaches the stop level. A buy stop sits above the current price and triggers on a move up; a sell stop sits below and triggers on a move down. Because it converts to a market order, the fill can be worse than the stop level in a fast market. A stop-loss is simply a stop order attached to an existing position.
How it applies to gold trading
Stop entries are the standard way to trade breakouts. With gold consolidating between 3,990 and 4,010, a buy stop at 4,012 enters only if price breaks above the range. If the breakout is a news spike, the fill might be 4,015 rather than 4,012, and if the range turns out to be a fakeout the trade is quickly underwater.
Stop orders also explain why obvious levels attract sharp moves. Clusters of buy stops above a high and sell stops below a low are the “liquidity” that Smart Money traders talk about; when price reaches them the stops fire as market orders and accelerate the move.
A common mistake
Placing a stop entry a few cents beyond a level that every other trader is watching. The order fills on the sweep and the reversal follows. Requiring a close beyond the level, or entering on the retest, are the usual alternatives.
See also: Stop-loss, Breakout, Liquidity, Slippage.
Frequently asked questions
Is a stop order the same as a stop-loss?
A stop-loss is one use of a stop order: a sell stop below a long position or a buy stop above a short. Stop orders can also open new positions on breakouts.
Why did my buy stop on gold fill above the level I set?
Once triggered it became a market order and filled at the next available price. In a fast move that price was higher. The difference is slippage.