Updated: Mar 13, 2019
This is how money is made in trading.
Prices move according to several economic reasons (e.g. Economic performance, Market assumptions, etc.). It may go up, down, or just about the same depending on those reasons. Your anticipation of where the prices will most probably go is where the magic happens.
The principle is pretty straightforward. BUY it on a LOW price, SELL it for a HIGH price.
Buy if you think that the price is at its low and it’s time to go up.
Sell if you think that the price is already at its high and it’s time to go down.
Your money will grow when you have the right position (buy/sell) on the right timing. Otherwise, when you have the wrong position in a particular time, you lose money. In addition, the size of the profit or loss depends on the % risk of your capital in relation to the price point movement or Pips. Let’s break this down a bit.
For example, you enter a Sell on price 0.9920 and if in case you guessed the direction wrong, you have your stop at price 0.9980 to save the rest of your account. The distance between your entry and stop is -60 pips. When you guessed the direction right on the same distance, which in this example it did, you have +60 pips.
The cost of pips depends on % risk. The usual recommended risk is 1 to 2% per trade. So, when you have $100 as your capital, that 60 pips distance may win you +$2 or lose -$2 on a trade. When you have $50,000 as your capital, you may win +$1,000 or lose -$1,000.
Types of Orders
This is how you enter a trade.
1. Limit Order
(Buy Limit and Sell Limit)
The way I see Limit Order is that it’s optimal. It’s as if you’re buying or selling at best value. Because it would mean that you will buy when the price goes back down to a lower price point (Buy Limit at price 0.9336 in the sample photo above). Or you will sell when the price goes back up to a higher price point (Sell Limit at price 0.9406).
2. Stop Order
(Buy Stop and Sell Stop)
This type of order may not be optimal. But if you enter through Stop Order, the assumption is as if the direction of the movement is decisive. Because it would mean that your buy entry is along the way an upward movement at a higher price point (Buy Stop at price 0.9406). Or your sell entry is catching a downward movement at a lower price point (Sell Stop at price 0.9336).
3. Market Execution
(Buy at market and Sell at market)
The first two orders are pending orders. You will have to wait for the price to go to the level you indicated. But in market execution, this type of order would make your trade go live in an instant. At the very price of the market upon clicking enter. It’s like when the bus is about to leave, you don’t wanna get left behind. So, you hop in and Buy at market price 0.9372 if you think it’s gonna do an upward movement. Or Sell at market price 0.9372 if you think it’s gonna go down.
Knowing where to enter and when to exit is another story. There are several strategies out there that you may utilize. I can only tell you about what I've tried. Til the next post.
Happy trading everyone!
@marilesaca || Trading Kitten :3
For comments, discussions, and to access exclusives: please sign-in. It’s free!