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TradingCurrencyOnline.com Presents...
Forex Trading Training: Rules For
Placing Orders - by Michael A. Jones
If you have
started your Forex trading training you may
initially have a challenge with understanding how
orders are placed. I remember when I first started
reading about the Forex and practicing in a demo
account, it took me a while to understand how stops
and limits worked in relation to price.
This article
sets out the main rules governing the placement of
orders with a free graphic download in the resource
box at the end which you can keep on your desktop
and refer to at anytime until the rules have 'sunk
in'. You will find this lesson extremely important
if you are in the early stages of your forex trading
training.
Here are the
basics:
1. In each
currency pair, the first currency is the base
currency which you either buy or sell. For example,
in the case of EUR/USD, if you believe the euro is
going to strengthen against the US dollar you would
place a BUY order (go long). If you believe the
dollar will strengthen against the euro, you would
place a SELL order (go short) for the EUR/USD
currency pair.
2. In your
dealing station you will notice two prices quoted
for each currency pair, a BID price and an ASK
price. The difference in the two prices is known as
the pip spread the dealer takes from every trade.
For the major currency pairs this can be between 3-5
pips. NOTE: When you place a BUY order you will
enter the trade at the ASK price. When you place a
SELL order you will enter the trade at the BID
price.
3. There are
two types of orders you can use to enter a trade:
* Market
Order
* Entry
Order
A market
order is an order to buy or sell at the market price
the moment you enter the trade by clicking your
mouse button.
An entry
order is an order to buy or sell when the market
price reaches a certain target or level you
anticipate from your technical analysis.
Note: Avoid
market orders as they seldom give you the best entry
point unless you really understand the market. An
entry order allows you time to analyze key price
levels and set the order to be executed only if
price pulls back or reaches that level. This way you
enter the trade at an optimum level.
Stops and
Limits
Once you
have calculated your trade and anticipated how far
you think price will go, you need to enter a limit
order so the trade will automatically exit at that
profit level. In the case of a buy order, your limit
will be set above the entry price. In the case of a
sell order, your limit will be set below the entry
price.
For your
protection you then need to set a stop order. If
price goes against you your trade will exit at a
loss according to the number of pips you have
calculated that you can afford to lose taking into
account your equity. In the case of a buy order,
your stop would be below the entry price. If the
case of a sell order, your stop would be above the
entry price.
As part of
your Forex trading training, it is important to get
very familiar with the software you are provided
with from your online broker. Practice, practice,
practice, making entry orders, and setting the entry
price and the stop and limit levels.
It is easy
in the early days of Forex trading training to get
mixed up with direction. You may wish to place an
entry order to sell (go short) and inadvertently put
a buy order in instead only to get a shock when you
see a minus figure under the pip column steadily
growing.
The details
explained above are available in a graphic you can
keep on your desktop and refer to at any time you
are trading. Just go to the link in the resource box
below and get a copy.
Then as part
of your daily Forex trading training, refer to it
each time you place a trade in your demo account
until your understanding of the rules of order
entry, bid and ask price, stops and limits, come
automatically without thinking.
You will be
laying a solid foundation for more advanced Forex
trading training steps so you can concentrate your
mental energies on price and chart analysis rather
than being sidetracked by confusion over basic order
rules.
About the
Author
The powerful
200 EMA strategy - easy for newer traders:
http://www.vitalstop.com/Forex/Advisor/200EMA-forex-strategy.htm
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