Jul 14 2009
Stop Loss Orders: Stop loss orders are critical to your trading survival. The traditional stop loss order does just that. It stops losses by closing out an open position that is losing money. Stop loss orders are used to limit losses if the market moves against your position. If you don’t use stop loss orders, you are leaving yourself at the mercy of the markets. A dangerous proposition!Understand the
forex market.
Get good
forex training.Stop loss orders are on the other side of the take profit orders but in the same direction. If you are long, your stop loss order would be to sell but at a lower price than the current market price. If you are short, your stop loss order would be to buy but at a higher price than the current market price.
Trailing Stop Loss Orders: A trailing stop loss order is a stop loss order that you set at a fixed number of pips from your entry rate. The trailing stop order adjusts the order rate as the market price moves but only in the direction of your trade. Understand
candlestick patterns.
Suppose you are long on EUR/CHF at 1.2654. You set the trailing stop loss order at 30 pips. The stop will initially become active at (1.2654-30=) 1.2624. The trailing stop loss order continues to adjust itself higher as the market moves higher. The stop adjusts itself and will become active at 1.244 if the EUR/USD rate goes up to 1.2674.
Your trailing stop will be 30 pips below the top when the market puts in the top. The trailing stop loss order will be triggered and your open position closed if the market ever goes down by 30 pips. So in our example, you are long at 1.2654. You set the trailing stop loss at 30 pips and it became active at 1.2624.
Suppose the market never ticks up. Instead goes straight down. You will be stopped out at 1.2624. Suppose the market first rises to 1.2664. Then it declines 40 pips. Your trailing stop loss order will first rise to (1.2664-30=) 1.2634. That’s where you would be stopped out.
You must have heard the saying: “Cut your losses and let your winners run.” A trailing stop loss order allows you to do just that. The idea is that when you have a winning trade on, you wait for the market to stage for a reversal and take you out of your trade by using the trailing stop loss order instead of picking the right level to exit on your own.
Use of stop loss orders is critical in money and risk management. Never ever, trade without the stop loss orders! So the key to successful trading is to cut losing positions quickly and let winning positions run. This function is nicely performed by the trailing stop loss order.
Jul 14 2009
Understand the
forex market. Just to remind you that forex markets are open 24 hours a day, five days a week. A market move is just likely to happen while you are asleep or in the shower as while you are sitting in front of your computer screen. Currency traders use market orders to catch market movements when they are not in front of their screens.Get good
forex training.
Understand
candlestick patterns.Market orders are very critical to your trading success. Think of the different types of market orders as trades waiting to happen. If you enter an order and the subsequent price action triggers its execution, you are in the market so be as careful as possible while playing with the market orders. Trading can be very difficult without these market orders.
Professional currency traders routinely use market orders to capture sharp short term price fluctuations, limit risk in volatile or uncertain markets, implement a trade strategy from entry to exit and preserve trading capital from unwanted loss. Market orders are essential for maintaining trading discipline.
Forex markets can be notoriously volatile and difficult to predict. While limiting the impact of any adverse price movements, using market orders can help you capitalize on short term price movements.
If you don’t use market orders, you probably don’t have a well thought out trading plan. While there is no guarantee that the use of market orders will limit your losses and protect your profits in all market conditions, a disciplined use of market orders will help you quantify the risk that you are taking. It will also give you the peace of mind in trading.
Multiple types of market orders are available in forex markets to forex traders. However, you should know that not all market orders are available at all online forex brokers. So when you open an account with a forex broker, you should add the market orders to the list of questions you need to ask the broker.
Take Profit Orders: An old market saying, “You can’t go broke taking profits.” Use the take profit order to lock in profits when you have an open position in the market. Suppose you are short EUR/USD at 1.2354. Your take profit order will be to buy back the position and be place somewhere below 1.2334 making a profit of 20 pips. If you are long GBP/USD at 1.8845, your take profit order will be to sell the position somewhere higher close to 1.8875.
Limit Orders: Don’t forget the saying, “Buy low and sell high”. A limit order is any market order that triggers a trade at more favorable levels than the current market price. If the limit order is to sell then it must be placed somewhere above the current market price.
If the limit order is to buy, it must be entered somewhere below the current market price.
Jul 14 2009
In forex trading, stop loss execution policy is somewhat different than in equity trading. If the broker bid price reaches your stop loss order rate, stop loss orders to sell are triggered. Suppose, your stop loss order to sell is 1.2540! The broker’s lowest price quote is 1.2540/1.2543. Your stop loss order will be executed. Almost the same goes for buy orders. Understand the
forex market.
Get good
forex training.The benefit of this practice is that some brokers will guarantee against slippage on your stop loss order under normal trading conditions. Most of the brokers will never guarantee stop losses around the release of economic reports. The downside of this is that your stop loss order will be executed earlier, so you will have to add in extra cushion when placing them on your forex platform.Understand the
candlestick patterns.
One-Cancels-the-Other Orders: A one cancels the other order (abbreviated as OCO order) is a stop loss order paired with a take profit order. An OCO order is the ultimate insurance policy for any open position! Your position stays open until one of the order levels is reached by the market and closes your position. When one order level is reached and triggered, the other order is automatically cancelled.
OCO orders are highly recommended for every open position. Let’s make it clear with an example. Suppose you are short USD/JPY at 120.00. You think that if it goes up beyond 120.00, it’s going to keep going higher. That’s where you decide to put your stop loss buying order.
You believe at the same time that USD/JPY has downside potential to 118.50. So you place your take profit buying order at 118.50. As long as the market trades between 120.00 and 118.50, your position remains open. You now have two orders bracketing the market. Your risk is clearly defined. Suppose 118.50 price is reached first, your take profit order is triggered and you buy back at a profit. However, suppose 120.00 price is hit first, your position is stopped out at a loss.
Contingent Orders: A contingent order is an order where you combine several types of orders to create a complete currency trading strategy. Contingent orders are also referred to as if/then orders. If/then orders require the If order to be done first. Only then the second part of the order becomes active. So they are sometimes also called If done/then orders.
Your order is only filled based on the price spread of the trading platform. This is the key feature of most forex broker order policies. If the trading platform offer rate reaches your buy rate that means that your limit order is only executed. Similarly, a limit order is only executed if the trading platform bid price reaches your sell rate.
Let’s use an example to make it clear. Suppose you have a buy order to sell CHF/USD at 1.2855. Your broker’s spread on CHF/USD pair is 2 pips. If the trading platform price is 1.2852/1.2854, your buy order will be filled. If the lowest price is 1.2853/1.2855, the limit order will not be filled as the broker’s lowest rate of 1.2855 does not match your buy rate of 1.2855. Almost the same thing happens with limit orders to sell.
Jul 5 2009
Learn
swing trading.If a trader is to maintain a degree of profitability over time, managing risk and using systems that helps evaluate price changes is critical. You should understand how to select stop orders to limit your potential losses and how to let profits ride.
Discover a revolutionary new
forex robot.Managing risk should be your number one job. The descriptions of the types of stops and the pros and cons of each should help you make the right decisions for the different market conditions. Capturing as much profit as possible from winning trades should be your utmost goal.
Get good
forex training.You should know the various types of stop loss orders and where and when to place them. Predetermined stop loss orders help you conquer your emotions. Stops should be part of the trading system and included in your trading rules.
Set a stop objective. Weigh the risk/reward ratio before entering each trade. Stop orders can be placed close to the entry level when volatility is low. However, when the volatility is high, stop orders should be placed further from the entry level.
When entering a trade make sure you know where and why to put the stop order. Initially you will form an opinion based on your gut feelings that is substantiated by a trade signal.
However, you will undoubtedly get caught in the news driven price shock events that make the markets highly unpredictable in the short run. These news releases cause price spikes that may make an adverse move against your position.
Stop orders can also be placed to enter positions. Stop orders that you place online if the market trades at a certain price, then the order is triggered and become a market order to be filled in by the next best price available. Stop orders are placed to protect against losses.
Sell stops are placed below the current market price. Buy stops are placed above the current market price. Protective stops are used to offset a position and to protect against losses and against accrued profits.
You can set a daily dollar amount on the loss limit. If you want to risk only $250 per $100,000 standard lot position then your stop loss will be placed 25 pips from your entry point. Stops can be placed on a dollar amount per position.
You can also use a certain percent of your overall account size as your stop loss. Traders use 2-5% of the overall account size as their stop loss. If your trading account size is $10,000, this comes out to be $200-$500.
Swing traders can use the automatic trailing stop. This makes the decision making process fully automated. Many traders tend to turn winners into losers as they get in the let it ride mindset. The trailing stop reduces the chance to let trades ride.
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