Last time we started part I of a two part series on Forex Trading Basics. –Top To Bottom Part I. I decided to do this for you out there who are itching to jump into the trade but don’t have enough ammunition to do so. Today is the second and final part, Forex Trading Basics – Top To Bottom Part II. Yeah, I know wish this series could go on and on. But all good things must come to an end. But does doesn’t mean your interest in the forex trade comes to an end. You can apply what you learn here in your price action analysis/trading. So onward:
First meal on the menu today is:
Types of Forex Orders
What do we mean by “Order” in the forex trade? Well, order merely refers to how you enter or exit a trade.Except that we’ll be looking the different types of forex orders that are placed in the forex market. Some of you’re probably wondering ”When are you going to show us how to place these orders?” Well, easy easy. I’ll show you how to place each order-After I’ve explained what each one of them is about of course.
First in line.:
A market order is just simply simply to buy or sell at the best available price. Let’s say bid price for EUR/USD is currently at 1.2140 and the ask price is at 1.2142. If you want to buy EUR/USD then it will be sold to you at the ask price of 1.2142. Your trading platform will then execute your order at the sound of you clicking to place your order. Let me show you a pic of this scenario:
Here is an example of a market entry exit and exit with EUR/JPY currency pair. Here,we have a pin bar set up in motion. The order to sell is executed because the bulls are losing momentum.The stop loss is executed when the market does a reversal.
Limit Entry Order
A limit entry order s a bit more conservative than the full market order.Here,you place your order below the market price or sell above the market at a specific price. Let say EUR/USD is sold to 1.2050. You opt to go short(sell) if the price hits 1.2070. The way I see it, you have two choices: You either sit in front of your PC and wait for it to 1.2070(In this case you click a sell market order).Or you set a limit entry order at 1.2070 and go for your morning jog. Once the price hits 1.2070,your trading platform will execute a sell order at the best available price. However,you only choose this option if you believe in your heart of hearts that the market will do a 360 on the price you chose. Let seen an illustration of the limit order.
Ladies and gentlemen,This is the limit order in action.As you can see, buy limit order is set below market price while the sell limit order is set above market price. You can either wait for priceto hit the intended target, or go out for a bit while your platform executes the order after the intended target is reached.
By the way.I’ll take up the second option if I were you.You;d be better off smelling the fresh air than sitting in front of your PC all day.
A stop order is the complete opposite of the limit order.Here you want to buy above the market or sell below the market at a specific price. Say, GBP/USD is going for 1.5050 and is heading for the hills. You’re betting your last dollar that the price will keep marching outwards if it hits 1.5060. I n that case,and as in most cases in life,you have two options: you sit in front of your PC(That PC again) and watch the price hit 1.5060, or set a stop-entry order at 15060 and go out and smell the roses. Let’s see the stop-entry order in action.
This is the classic example of the stop entry order being activated once the asking(buy) price hits entry price. Same stop order is also activated when the bid(sell) price also hits his target. Just make sure you’re nowhere near the PC when the price hits. There is so much fresh air out there. Feel it blowing through your nostrils.
Okay who is next in line?
Stop Loss Order
A stop loss order is like an insurance policy against your trading position. You place a stop loss order for the purposes of preventing additional losses if the market does a 360 on you. Keep this order in mind because you’ll definitely need it when the market starts sneezing. Let’s say you go long(buy) EUR/USD at 1.2230. To avoid sustaining a massive hit set your stop loss order at 1.2200. So that in case, against your better instincts, EUR/USD drops to 1.2200, your trading platform will automatically trigger a stop loss at a 30 pip loss(Ouch! I feel the pain). And if you don’t want to pull your hair out worrying whether you’ll blow all your money, well I’ve got a simple solution for you. LEAVE YOUR PC ALONE! Just set a stop loss against all your positions and go to the gym.Your trading platform will cover for you while you’re gone. Let’s see how a stop loss works using GBP/USD.
As you can see, the stop loss has been set at the resistance level. Like I said earlier, you will definitely need the stop loss when the market goes into reversal mode, Failure to trigger the stop loss could be deadly for your cash register.
The trailing stop is a stop loss order with a difference. This is only attached to a trade when price fluctuates. Let’s say you decide to sell USD/JPY at 90.80 with a trailing stop of 20 pips. This sets your stop loss at 91.00.So that if the price drops and hits 90.60, your trailing stop will move back to 90.80(or breakeven). By the same token, if USD/JPY hits at 90.40, your trail stop moves to 90.60-giving you a 20 pip profit. Let’s see a trailing stop in action with EUR/USD
As you can see,the trail stop has been set at the resistance level during the downtrend – which is bears territory. As I said earlier, as price fluctuates,trail stop widens – creating profit opportunities for you. However, I have to warn you;if the market turns against you,your trail stop remains the same. This of course,will hurt your cash register(Your forex account). So keep that in mind.
Now that we’ve gotten the entry orders out of the way,
Should You Start With A Demo or Live Account?
Conventional wisdom dictates that you’d be better off getting started with a demo account. Now before you accuse me of denying you the opportunity to feel real cash in your hands, hear me out. First off, a demo account is absolutely free.Sure,the cash on demo account is virtual, and not real.But it does have the functionality of a live account where you get to practice your trading skills without any stress. In fact,you can afford to lose a few thousand dollars and learn from your mistakes. Even more important, you get to learn the ins and out of your broker’s trading platform without much risk before deciding to take the plunge into the lion’s den with real cash.
And while you’re practicing, do me a huge favour. Stick to one currency pair. You don’t want to give yourself too much work to do trading several currency pairs at once when you start demo trading.Sticj with one of the major currencies(like GBP/USD) since they are more liquid,and you’ll get tighter spreads and more constituency. Plus, by starting with one currency,you’ll develop better trading habits and creating a solid trading system. These should stand you in good stead when you decide to go live into the lion’s den. It’s possible to be a successful trader, but just like any other endeavor you have to start from somewhere. And you need to be focused,patient, and develop sound judgement.
Now there is one hard truth you need to learn about forex trading. And that is:
Forex Trading Is Not A Get-Rich –Quick- Scheme!
Yes, you heard it from me! Forex Trading is not a get-rich-quick scheme. When I started trading, I thought, “hmmmm….I could be hit the jackpot within days.” I found out the hard way within minutes of entering my first trade.You see a lot of rookie traders trade the forex market as if they’re playing black jack. They think they can risk $10,000 and make 50 times what they invested. Well,I’ve got news for you black jack traders! You have to treat your forex account as a business.You are the CEO of your account and you must hold yourself accountable for every trading decision that you make. Even more important, you must develop a trading strategy and perfect it before you enter the lion’s den. Because if youdont, you will be eaten alive. This why you need to get started with a demo account so you can perfect your trading strategy before going live into the lion’s den called the forex market.
Because of the forex market’s humongous size,it’s easily prone to speculation. And it’s this speculative that makes so called black jack traders that they can make an instant killing. WRONG! You can’t succeed with a short term mentality on the forex market. You need solid discipline, patience,and focus to make it in the lion’s den. You need to develop a trading strategy devoid of inconsistencies and massive losses. If you can’t do this,then you’re nothing but a gambler.
Eager to get started on a demo account, sign up with EasyMarkets
If you’ve staggered on to this post curious about the forex trade, find out Why Forex Trade Is So Popular
That’s a wrap for Forex Trading Bascis – Top To Bottom Part II. It’s also the end of our two part series on Forex Trading Basics-Top To Bottom.Hopefully all of you out there now have a solid foundation on how to get started as forex traders. Now that you’ve gotten the milk you can start chewing the bones. Once you’ve figured your way around you can then follow my price action posts where you can add more grease to your trading elbows.
Til next time take care.
Do You Want To Join The Forex Trading Gravy Train?
If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do . First, look up Why Forex Trade Is So Popular. Next, you learn the fundamentals of forex trading by reading Forex Trading Basics – Top To Bottom Part I and Forex Trading Basics – Top to Bottom Part II .Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns, Dual Candlestick Patterns, and Triple Candlestick Patterns . Also You Need To Know Ten Of These Candlestick Patterns . And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis, instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading?
Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels. And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know How To Read Candlestick Patterns using Support and Resistance Levels.
However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch of several weeks, consult How to Spot High Probability Trades. And if you are still not sure about price action trading, find out Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the suggested posts above are the most important posts to get you started.
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P.S. If you want to know everything there is to know about price action trading Download for free The Ultimate Guide To Price Action Trading by Rayner Teo .This brilliant ebook will change your life as a trader. It sure did mine. And if you want a place to put your price action trading strategies into practice(IncludingForex Trading Bascis – Top To Bottom Part II ) , and get a simulated feel of live forex trading conditions before trading live, open a free demo trading account with Easymarkets. And if you believe you are ready to trade live on the forex markets, open a forex trading account with EasyMarkets and get a free forex trading ebook