What is a limit order

Limit Order simply put is a place that you want to exit WITH PROFIT.

It is opposite of stop-order which is used also for EXIT - but with loss. Stop-order is used to cut your losses. Limit order is used to take your profits.

What is a trailing stop

Trailing stop simply put "is the number of pips the market should move your stop-order"

Let's say you place a buy-order for gbp/usd at 1.9500 - and the your stop-order is at 1.9450 (stop-order is nothing but stop-here-and-get-me-out-of-the-trade order)

Scene 1: A few hours (mins) later you realize that your order started making your profit - the market moved up to 1.9575 - profit = 75 pips.

Scene2: You return again - after a few more hours - and see that the market is now at 1.9620 - netting you a profit of sweet 120 pips.

Now, let's see what happens with the trailing stop:

scene #	Opened at:	stop-order	Trailing Stop	Current Market Price	Profit-locked
1	1.9500	1.9450	50
2	1.9500	1.9500	50	1.9550	0
Notice when the market hit 1.9550 (50 pips from your original opening price) - the trailing stop which was also set at 50 - moved your stop-order up to 1.9500 - so should the market turn around come back to 1.9500- your order would be removed with NO LOSS to you.
3	1.9500	1.9500	50	1.9575	0
The market went further to reach 1.9575 - 25 pips more than scene #2 - but since it has not reached 50-pips from the scene #2 - you stop-order is still at 1.9500
5	1.9500	1.9550	50	1.9600	50
Now, the market moved to 1.9600 - that's 100 pips away from your opening price - the stop-order has been moved to 1.9550 - locking in 50 pips. However, you won't get out of the trade unless the market reaches 1.9550 - say the market keeps moving up to 1.9650...
6	1.9500	1.9600	50	1.9650	100
If the market reached 1.9650 - you would have locked in 100 pips profit - again, your trade is not closed yet - you just locked the profits - the market could still go up and give you more profit or turn back and close your trade for a sweet 100 pips profit.
7	1.9500	1.9600	50	1.9650	100
The setting is same as scene #6 - you locked 100 pips in profit, but look at the trade - at this point when the market is at 1.9650 - thats 150 pips profit - if you close the trade NOW. 50 pips more than your locked-profit. Since, we don't expect to be at the computer all day - you can use लिमिट order to get out here - making an extra 50 pips that just using trailing stop.

Now all this profit would have been lost - if you didn't use trailing stop - the market could have hit 1.9625 - that's 125 pips from your opening price and turned right around and came back to test 1.9500 again - its wise to lock in your profits.

Again, if you think that the market has certain potential - which you happen to know - based on daily-range or other variables - you can use "limit order" - which we discuss in the next lesson - as an exit for your order.

However, we stronly recommend that you use BOTH the trailing stop (which cannot be used without a stop-order) - and a Limit order - you have better chance of making profit - albeit small - a profit is still a profit - who knows, you might actually hit your limit order and make the "desired" profit - which we should be first to tell you - doesn't happen always - but it DOES happen - its not impossible.

What is a stop loss

Stop loss or stop order is a point in the market where you tell your forex broker to take you out of the market when you order isn't going the way you expected.

Let's look at an example for EUR/USD pair:

You are placing an Entry order:

• You want to buy order @ 1.3400: cause you believe that the market will move up when it hits 1.3400
• Now, if the market comes down INSTEAD of going up - you want to save your capital. So, you tell your forex broker (using your trading station software) that you want to be removed from the market if the market comes down 1.3350 - THIS IS CALLED AS A STOP LOSS.

Trading forex is not just about winning - yes! you need to place winning trades - but it is also about cutting your losses when you placed a wrong trade.

Stop loss is mechanical and does not have any emotions - however, most people once they placed the order - keep moving the stop loss - this is a VERY BAD IDEA.

Stop loss is provided for ONE single purpose - to remove you from the market when it isn't going the way you predicted - thus saving your capital and this allowing you to place more trades.

in conclusion STOP LOSS is just that - it STOPS your LOSSES.

Stop loss is the opposite of LIMIT ORDER - read more about it in the next chapter

Placing an order

Ok! you are ready to place an order - you might think what's the big deal - I will click a few buttons and its done! - technically, yes its just pushing few buttons - but you should look for few things before you become click-happy.

First things first. What type of order would you like to place? - huh?! - ok here are two types.

• Market Order
• Entry Order

Market Order: literally means that - you are in the market and you see something that you want - you place an order - just like buying groceries - you only order when you are in the market (I know, I know you can order groceries online now - sheesh!! its hard to come with analogies these days - he!he!)

Your market order is placed IMMEDIATELY!! - remember that - you won't have time to second guess or debate your strategy - nothing - you say you want it - they'll give it to you.

Its one thing to buy a few tomatoes and throw them away without using them (we all did that at some point in life) - its another thing to buy currency - you will have to live with the consequences.

If you get my drift - you'd probably guess that i'd say: Market order is NOT a good idea.

Entry Order On contrary Entry order is setting criteria for your order to be executed - you are telling your broker/trading platform - that you need to get in "IF AND ONLY IF" - the market reaches this point (say 1.9500 in gbp/usd - buy me in).

The beauty of this is - you can second guess and even remove your order without ANY penalities - if you think that you might have a made a mistake or something happens to the market and it starts going the other way - get out - without any loss - its easier to end a trade before you are in the market - than otherwise - if you are in the market, you will have to deal with emotions & the sort.

Again, your chance of second guessing is only limited till the time the order is execucted - that is till the market reaches the point you specified.

Entry order - gives you time to set your Stop-order, trailing stop and even limit order - and you can walk away knowing that your order will be executed - except in rare occasions such as "news" - they you might get filled at a later point - say at 1.9525 instead of 1.9500 following the above example.

TIP: its never a good idea to fill in order at a round number (like 1.9500) - always do it just below or above it. Why you ask? - because round numbers tend to act as support and resistance by default - not everytime - but they do take on that role involuntarily.

Meaning and value of a PIP

Meaning and value of a Price interest point - PIP. It is the lowest denominator in currency trading - the actual value of a pip is based on your type of account - usually for

standard accounts - ONE pip=$10

for mini accounts - ONE pip=$1

Before we get into this more - let's cover some topics that will make it easier for you to understand and appreciate the value of a PIP.

Choosing a Forex Broker and a Charting package

These are TWO distinct subjects.

1. Forex Broker (who handles your transactions and keeps a record of them)
   
2. Charting Package (a tool that fits your personality)
   

Okay, here's a radical idea: you DON'T have to use your forex broker's charts. Radical maybe a stretch but from what we gathered most people use (atleast for the lack of creativity) the broker's charting package.

Between your broker and charting package - your broker would be the first one you'd boot (let go) - then your charting package.

Yes! its important to have a reliable broker - who has enough NET assets that allows the brokerage to liquidate your account easily.

However, your charting package is the "DECISION MAKER" - you make your decisions based on what the charts are showing you and your ability to read them correctly.

It is VERY important to get a charting package - which has atleast a few of the following:

1. Tools that you know you need (will use).
   
2. Tools that you MIGHT want to use in your back-testing
   
3. Tools that generate "alerts" when needed - for example, you might have drawn what you think is an IMPORTANT support or resistance on the chart - what good is it gonna do you - if it doesn't "ring a bell" when the market hits that price? - maybe your in the other room - or maybe you on the same computer reading an interesting article about Obama vs McCain (?) - shouldn't your charting package "alert" you of a moving market?
   
4. I personally would prefer a package that would alert me a few PIPS - BEFORE my support or resistance is hit - either it can make noise on my computer or send me a text message - so far, I am yet to realize this joy in my life.
   
5. You also need a charting package that doesn't use much of your computer's resource - who wants something that freezes up your computer every now & then?
   
6. Last but not the least - you will need something that you "enjoy" or atleast "tolerate" looking at - that's only achievable if the charting package allows you to change backgrounds, candlestick colors, trendline, channel colors etc..

Prepare a list of "what my charting package SHOULD be" - and then compare it with what's available. Take them for a test drive - almost all of the package subscriptions can be taken for a test drive - just make sure to cancel them (if you don't like it)

Forex Brokers on the other hand - the only test drive you can do - is use their demo accounts - and "feel" their trading platform and execution.

All the best in your setup.

Forex Leverage and Spreads

Forex Leverage and Forex Spreads are TWO distinct features of Forex Market.

Let's deal with Forex Spread first.

A spread is the difference between BUY and SELL price of a currency pair.

Your broker will give you TWO different prices for the same currency pair - example:

Eur/Usd: 1.5586 (sell) and 1.5589 (buy)

so, if you want to SELL the EUR/USD currency (because you think USD dollar is going to go up) - then you will be able to sell it at 1.5586

IF you are going to BUY the EUR/USD currency(because you think EURO is going up) - then you wil be able to buy it at 1.5589

The difference between buy and sell (1.5589-1.5586) = 3 pips is called the SPREAD.

Spread is basically the broker's fee for opening your trade.