I am often amazed to see that there are many forex traders out there that don’t know how to use the basic tools of the platform. Unless you’re sitting in front of the screen 24 hours a day – there are some features on our platform that you must master, otherwise losing seems to be a very logical outcome.
The first thing that you need to understand is the different options you have to open a new position. There are 4 different ways to open a position:
1. Market Order – This is the simplest way to open a position. It means that I want to enter the market right now at the current price.
2. Entry Stop Order – This order allows you to enter the market at a future price, and to join the trend. For example, let’s assume that the current price of the EUR/USD is 1.3700. I think that if the EUR/USD will reach the 1.4000 level, it will probably continue to rise. So I will set an entry stop order for a EUR/USD buy position at the rate of 1.4000.
3. Entry Limit Order – This order allows you to enter the market at a future price, and go against the trend. For example, again, let’s assume that the price of the EUR/USD is 1.3700. I think that if he EUR/USD will reach the 1.4000 level, the uptrend will probably halt, and the EUR/USD will later drop. So I will set an entry limit sell position at the rate of 1.4000.
4. An OCO Order – The OCO is exactly like placing both entry limit and entry stop orders for the same currency pair, with one big benefit: Once one of the orders is triggered, the other one is automatically cancelled. For example, I’m setting the following OCO order – an entry stop sell at the rate of 1.3200 and an entry limit sell at the rate of 1.4000. Now if the market will reach one of these prices, this will trigger one order, and cancel the other.
Now that you know how to open positions, let’s understand what our options are in terms of closing a position.
Once again, we have 4 different ways to close a position:
1. Market Order – Remember the market order for opening a position? Well this is exactly the same. This means that I want to exit the market right now at the current price.
2. Limit (take profit) Order – The limit order gives me the ability to determine how much I wish to profit from a position. For example, if the EUR/USD is currently trading at the 1.3700 level and I have a buy position open, I can then set a limit for 1.4000 – this means that once the pair will reach the 1.4000 price level, my position will be automatically closed by the trading platform.
3. Stop (stop-loss) Order – The stop order allows me to determine how much I’m willing to risk from a position. For example, if I have a sell EUR/USD position that was opened at the 1.3600 price level, and I’m willing to risk as much as a 300 pip drop – then I will set a stop order for the price of 1.3900.
4. Trailing Stop Order – The trailing stop order is a dynamic stop loss order. Instead of setting a specific level that you are not willing to reach below, you can automatically let the platform readjust the level of your stop according to movement of the market. Let’s say that we opened a long EUR/USD position at the price of 1.4000, and we set a trailing stop order for 30 pips. So now, the trailing stop is located at 1.3970. However, if the market moves in our direction and the pair is now traded at 1.4040, then the trailing stop relocates itself in accordance, and is now placed at the 1.4010 level. The beautiful thing about it is that it will never go lower then its highest high. In our case, the worse scenario for us is that it will close the position if the pair will reach the 1.4010 level again, leaving us with a 10 pips profit. In a better scenario, the pair will continue its bullish momentum and reach above the 1.4040 level. The trailing stop will then move in accordance, of course, adding further to your profits.
