Forex Is About Learning» Forex School

Orders That Are Used In Trading Forex

Tantalus — Mon, 08 Feb 2010 17:39:14 +0000

It is essential in Forex trading that you know the kind of orders that you can use to your advantage, as well as learn best forex trading strategies on when to use these orders. You should also be aware of the proper ways of using different orders. With this simple knowledge, you can have a great chance of making it in the market. If you use these orders improperly, it could cost you a lot of money.

These are the distinct respective order types one should know in Forex trading.

Market Order: This is the most commonly used type of order. This is a type of order which enables you to have the right timing and coordination on when to enter and exit in the market at the present costing. In the event that you need to sell, you will have to carry on at the offered price and in the event that you need to purchase, you will have to carry on at the requested price.

Limit Order: This allows you to buy or sell at a certain limit. It is an order type which helps to offer or buy a pair at a price. A purchase limit order is needed to determine the given cost if the market is even or it is at a lower given cost. On the other hand, a sell limit is given when the market is even or at higher than the limit price.

Stop Order: It is used for limitation of losses of a trader in a losing situation. This order type is held when offering or purchasing a pair at a certain price. A purchase stop order will only be extended when the forex market is even or beyond the stop price. A sell stop order as well only extends if the market trade is at the stop price or lower.

By learning the best forex trading strategies, you will be able to secure your place in the trading world.

A Day Trading Guide for the Over-Curious

Tantalus — Thu, 21 Jan 2010 19:16:38 +0000

Day trading is the white-knuckler of the speculating world. It’s fast and furious and the rewards or consequences are nearly immediate. For every trader there comes a time when they just can’t resist the temptation of jumping in and out of the market to try and catch some lightning quick roller-coaster profits. If you’ve already worn out that impulse, good for you. If not, I suggest you go ahead and get your hands dirty. You’ll never be over the curiosity until you’ve dug in and given it a try… at least just a little. Allow me to offer this brief day trading guide.

First of all, if you’re interested in trying your hand at day trading, don’t bother to paper trade. I know I’ll get flamed for saying that, but I’m serious. The truth is day trading is 90% emotional control at least, and perhaps more. You can have all the knowledge and great strategies in the world, but when the market starts to hum and you have to make split-second decisions, you’ll quickly find that you must live or die by your wits. You need to first determine if you have the emotional makeup for the fast lane, and you can’t do that without risking real money.

The funny (and very fortunate) thing is that you don’t need to use much money at all. Try this: Get yourself an account that allows you to trade .01 standard lot increments (equivalent to .1 mini lots). Then set a daily budget of just $10. You will try to gain $10 before you lose $10. When you’re up $10, you quit – when you’re down $10, you quit. You trade only .01 to .05 lots at a time (that’s 10 to 50 cents per pip). It’s a pittance, I know, but you’ll be absolutely astonished at how strong the emotions will be even with just that tiny amount of pocket change. You’ll win $1.50 and you’ll feel like Warren Buffet… then you’ll lose $1.75 and you’ll feel like crawling under the desk. It’s perfectly normal, and it just goes to show how powerful the emotions of day trading can be. Until you are able to master those emotions, they will be a constant source of trouble for you.

So, keep up the $10 (plus or minus) a day ritual until it bores you, which is a great sign that you’ve managed to numb the emotions somewhat. Then kick it up to $20 a day or even $50. Then $100. Then??? If you keep going that way one of two things will happen. Most likely you’ll wear yourself out from the emotional bull ride and decide to take your trading elsewhere, like a nice peaceful trend following system. OR, you’ll do well enough and become jaded enough to the emotions that you’ll start to feel a sense of confidence – even power about your dealings with the market. You’ll develop a sense of the flow of market action and you’ll find yourself making trades almost instinctively – and winning! If you’re in the small minority who reach this elite plateau, congratulations! You have the rare makings of a true Day Trader!

Profiting from Currency Trends

Aster MacInnerney — Thu, 21 Jan 2010 06:47:52 +0000

We’re all familiar with money. It’s a big part of our lives from early childhood right up to our later years. It’s the thing we strive for and the thing that makes our lives possible, but we generally only think of it in the conventional sense – as something we earn then spend within our own country and culture. We seldom consider money on a global scale or how the money from one place is related to money from another.

In fact, the relationship between different currencies of different countries is a vital issue, and one that becomes more and more important as we continue to expand the scope of the world wide commercial markets. Every company that sells its products to another country needs to be concerned with the relationship of their own money and its value to the value of their partner country’s currency. When they sell their products in Japan, say, a British company will be paid in Japanese Yen, but they need to convert those Yen to the local currency (traditionally the Pound, but these days it’s the Euro) so they can use it to pay their workers and purchase more raw goods. If the value of the Euro goes up vs. the Yen a British company will find that the money it receives from its Japanese customers is not as great, and they may need to consider raising their prices. Conversely, if the value of the Pound declines against the Yen, they will enjoy increases in their profits even if they leave their prices unchanged. They may in fact consider cutting their prices to increase their Japanese sales.

Converting the currencies in this way between one country and another is a multi-trillion dollar a day industry, and the fact that prices of currencies are in almost constant state of change creates an opportunity for profit. You can buy and sell currencies on the Foreign Exchange, or Forex market. With Forex, currencies are offered in pairs, for instance to trade the Pound against the Yen as we discussed above, you would trade the Pound/Yen, or GBPJPY as it’s notated.

If you think the value of the pound will rise against the Yen, you would ‘buy the GBPJPY’, which is equivalent to buying British Pounds and paying for them with Japanese Yen. Later you would close your position essentially by selling back the Pounds you bought and accepting Yen in exchange. If you were right, and the Pound rose against the Yen, you would receive more Yen than you originally paid and the difference would be your profit. If, however, you were incorrect and the Pound fell against the Yen, you would have lost money, because you would receive fewer Yen than you originally paid.

That’s the idea in a nutshell. There are a lot of details involved in really understanding the Forex market. I’ll cover other aspects such as brokers, order types and leverage in future posts.

Setting a Realistic Stop Loss Order

Tantalus — Fri, 15 Jan 2010 20:59:59 +0000

It’s easy to think about all the money you’ll make if your trades go well, but much harder to focus on all the money you could lose if things don’t turn out so well. A savvy trader knows that how you avoid losing your cash is a far more important concern than how you go about getting more. The primary tool in the arsenal of any serious trader is the stop loss order.

Stop loss orders serve two main functions. One is to get you out of Dodge before your balance is zeroed when your trade decisions go wrong, but the other is to keep you in a trade long enough to ride out the inevitable roller coaster whipsaws that will often plague even a good trade before it finally becomes profitable. It’s very important to remember the need to meet both of these goals when setting your stop losses. Here’s an important adage I try to keep in mind:

A stop loss is like a call to 911. It’s not designed to prevent you from pain or injury, but to keep you from dying.

Too many traders are prone to be over-optimistic and to assume that a good trading signal means the market will just take off in their chosen direction. They set their stops just a bit behind their entry points and enjoy the warm, comfortable feeling of knowing that they won’t lose very much if the market moves against them. Then they see their stops hit (for a small loss) just before the market turns around and steams off in the direction they were originally looking for. They see the profit they should have had slipping away while they are left with their ‘warm, comfortable’ loss. This will tend to happen often enough that these traders almost never make money.

The mistake they make is in not realizing that a stop loss saves your life, not prevents pain. If you decide to enter a trade, you must accept that you may need to suffer some pain, either in the short run before your trade develops, or in the end when your trade craps out on you. Pain and losing are an unavoidable part of market speculation, and you must learn to accept them and to deal with them in a realistic fashion.

The best strategy is to make your stop losses conform to what you see on the charts. You need to find a stop loss level that makes sense from the standpoint of the technicals that got you interested in the trade in the first place. Triggering a stop loss is an event that should occur when the market movement nullifies your previous sentiment. It should be a screaming red flag that says “You were wrong, and the reason you entered the trade is no longer valid!”

Consider as simple support level trade. If you saw price bounce off of a long-standing support level and begin moving up, you may have decided that is was a good time to buy. This could be a fine trade, but if the price moves down below that previous support level the importance of that support is significantly weakened, and the likelihood is now that the support is broken and the market will now head downward. Clearly that’s the time to call it quits and take your loss. In this example you would recognize that a breaking of the support level you were depending on would remove the technical justification for your long trade, and you would place your stop loss a few pips below that support level – far enough to avoid short term market spikes.

If that stop loss position looks to be too far away, don’t give in to the temptation to raise it… just adjust your trade size downward to reduce the overall loss risk. I cover trade sizing more in another post.

Forex Margin – Why You Shouldn’t Care

Tantalus — Thu, 31 Dec 2009 03:15:34 +0000

Way too much time is spent worrying about leverage. Traders sweat over questions like “Do I have enough leverage?”, “How can I take the most advantage of my leverage?”, and “Do I have too much leverage to be safe?” Not that these aren’t important considerations in their own light, but the truth is a prudent trader never needs to worry about leverage.

Why? Because even a ‘low leverage’ trading account – with, say, 50:1 leverage is more than you should ever need. If you follow a reasonable risk management strategy you will have plenty of headroom to play with. Let’s start with a quick summary of what leverage is.

Margin (sometimes referred to as leverage) is when a broker lets you buy (or sell) more currency than you actually have money for. If you have 50:1 leverage, you can buy $50 of currency by using only $1 of your account balance. This gives you the ability to make far more money than you otherwise would be able to if you had no leverage, but it also makes it possible to lose far more money if your trade decisions don’t pan out. Likewise, if you have 200:1 leverage (I’ve seen as high as 500:1) you can buy $200 of currency with your $1 of account balance. Basically you’re borrowing the extra money from the broker (which leads to interest rate charges, which I’ll cover in another post). They’re not at risk, though, because they have full control of your trading positions. They will close your trades for you if you incur enough loss to wipe out (or come close to wiping out) your account. This is called a margin call. If you trade correctly, you will never have a margin call. Avoid them at all cost.

Now let me explain why you need not worry about margin with a quick trip to Forex School: You should set the size of your trades as a percent of your balance – typically 5% maximum – and that ensures that you will never risk so much money that you will be in danger of a margin call, and therefore you have no need to be concerned about leverage. Here’s an example.

Your balance is $5,000. You want to risk 3%, which is a risk of $150. When you decide to make a trade, you should select a stop loss which makes sense in the current market. That is, you need to choose a price which tells you “You made a wrong decision, get out!” When the price hits that point, it no longer makes any sense to stay in your trade and you should close the trade immediately. Now, size your trade so that you will lose no more than $150 if that stop loss price is hit. If you choose 100 pips for a stop loss in EURUSD, you will size your trade to be equal to $1.50 per pip. That works out to a trade size of .15 mini-lots. That’s all you should trade.

Since a mini-lot is worth $10,000 you have a total trade value of $1500. Since you’re only paying 1/50 of that amount (50:1 leverage) your account will only see a hit of $30 to enter this trade. You have $5,000, so obviously you’re not coming close to running out of money even with a low margin account. So much for worrying about not having too much. Now consider what happens if you have a high leverage account of say 500:1. This is no greater risk, because the risk you take is based on how large your trade is and how wide your stop loss is. These values have nothing to do with your leverage, so having a high leverage account does not equate to having a higher risk.

So, in summary, the key to controlling your trading and maintaining safety is to plan your trades prudently, with a known risk amount. When you do this, you find that forex margin is essentially irrelevant. If you’re running out of leverage, you’re trades are too large. If you are at high risk in a high leverage account, again it’s because you’re trades are too large. Make a prudent plan and stop worrying about margin.