The Tools of the Trade – Forex Trading
This week at the request of our loyal readers, I am going to be highlighting some of the best tools to use and how to use them in our Forex trading. I will be focusing on pretty much the most important thing we need to use in trading beyond the charts themselves, namely the trading platform. During Online Trading Academy’s on-location classes and during the Live Online Extended Learning Track (XLT) sessions we analyze charts, execute and teach our students on the FXCM Trading platform. Our relationship with FXCM has been in place for quite some time now and as an education company, we are very happy to be recommending the FXCM platform and brokerage services to our currency students. It should be noted that our students and graduates are in no way obliged to open an account with FXCM. They can open an account with anyone they wish to use, however because it is our responsibility to ensure that our students and grads get the very best service and execution in their FX trading, we do highly recommend considering FXCM as their platform of choice.
FXCM operates with no dealing, meaning that their traders enjoy a fully Electronic Communication Network (ECN) to execute their buying and selling. This means that the broker is not trading against their clients, as is a common situation with many brokers in the world of FX today. FXCM’s ECN ensures that any traders order is matched in real-time with another trader who wishes to take the other side. This level playing field ensures that the market remains as trader against trader, with the broker just providing the environment and technology for us to trade. This is without doubt the most level playing field a currency trader could hope to enjoy in speculative activities.
So how do we use a trading platform in the most effective manner? As you will know from previous articles I have written, I like to encourage students to approach the market with as much of a “set and forget” mentality as possible. I believe that the more we can plan ahead of time and define our actions when taking a trade as a pre-set series of rules, the less our emotions are at risk of messing with our trading results. We should always know exactly how much money we could possibly lose if we get our trade wrong, as well as knowing how much we could possibly win if the position goes in our direction. Once these parameters have been established, it is simply down to doing the analysis objectively, calculating our position size (which will be in accordance with our pre-defined risk as per the trade plan), knowing the Entry price, Stop Loss price and Target price and then putting this information into the trading platform. That’s the “set” part. When that has been done, we need to do the “forget” part and walk away and leave the trade in the hands of the market. All we know from this point on is that the trade may or may not get filled but if it does we know that there will be one of two outcomes: A small loss or a big win.
Using examples of the FXCM platform, let’s take a look at an example of a trading setup and how this would be placed into the system, thus allowing the trader to set and forget.
In the above example I have highlighted a low risk, high potential reward opportunity on the AUDCHF. What we can see is a setup which respects the Online Trading Academy Core Strategy. The above setup is a Demand level where institutions were previously attempting to buy in high numbers. Clearly there was a major imbalance between the buy and sell orders, resulting in the move we can see form the level. My strategy tells me that the next time prices return to this area, I will be a willing buyer with a tight stop loss for protection and a decent reward on the upside if prices do indeed rally. I have calculated on the chart my Entry price of 0.8292, my Stop Price of 0.8262 and finally my target price of 0.8450. This is a trade with a strong risk to reward profile of just over 1:5. Now we have the information we need, let’s place the trade in advance, so we can have it in the system ready to go if it does indeed trigger.
On the platform we need to click on the top menu button which says “Trading” and then simply click on the drop-down menu which says “Create Entry Order”. It should be noted that if you are looking to set up an order for entry at a price in the future, then you must select this option. If you wanted to enter the market now, then you would select the option above “Create Market Order.” In this example, we want the Entry option. We are then presented with the following box:
This field allows us to enter the specific prices for the trade, which we have already planned and worked out when we analyzed the trade. Make sure the areas marked off with green boxes, contain the correct information. “Rate” is where we input our entry price to buy or sell, in this case we are buying. “Stop” is where we input the Stop Loss price if we are wrong, so as to prevent further losses on the account. Finally, “Limit” is where we input our target price. The only other information we need to be aware of, is for the “Amount” section. This shows our position size in multiples of 1000 units of the currency we will be trading or (K). In this case, we have placed a 100,000 unit, meaning the PIP cost is $11.09 and the margin is $2,400, which needs to be maintained in the account for the duration of the trade. Once all information is deemed as correct, we hit the OK button and the order is placed, showing up like this on the chart:
One of the nice features of the platform is that it actually shows your orders on the price chart itself as horizontal lines as above. You can also see the orders in the system like this too:
This view also has a blank box under “Expiry” meaning that this order is composed of “Good Till Cancelled” Orders or GTC. None of the orders will be cancelled, unless we do it ourselves. I would strongly suggest getting in the habit or making sure your own orders are GTC to save yourself any nasty surprises in the future! All that is left to do now is to go and get on with your day. The orders are set, risk managed and potential targets set. There is nothing more to do but leave it in the hands of the market forces. I hope this helps if you have been struggling with using a platform in the past. Now you know how easy “set and forget” can actually be.
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