How to use limit orders to increase your forex profits ? - Key Benefits.

It would be great if we were all able to sit next to our computer screens for 24 hours per day, watching the market and ensuring that all of our trades were profitable ones. Unfortunately, we all have to sleep however, so no matter how hard we try, there will always be a period where we are unable to keep track of action on the market. ( Check description below )

Just like we have stop loss orders which are able to cancel out loss making position before those losses have a chance to grow, there are also things which fulfil the opposite objective.

That is – if you have already made a profit on a trade, something called a limit order is able to close out the trade for a profit when it reaches a particular level. Therefore, if you are sitting on a healthy profit, you can protect that profit automatically, without having to spend every waking moment at the screen.

Let's take a closer look at how this works.

How Do Limit Orders Work ?

Basically, limit orders work in exactly the same way that stop loss orders work. That is – they are placed in advance so that the computer system can execute the trade of and when the currency pair you are trading hits a particular level. As we did with stop loss orders, let's take the time to go through an example of where limit orders might be useful.

You enter a long (buy) trade on the USD/JPY currency pair at 85.00
The currency pair moves up to 86.00 and you are sitting on a 100 pip profit
You don't want to lose this profit, so you set your limit order at 85.80
Here – you have placed a protective limit order. There are actually two different types of orders. The first is an order which is above the current market price (for a long trade) – in the hope that the market will eventually reach that level.

This is called a target limit order, and it is solely designed for taking profits at particular stages of the trading cycle where you have specific targets in place.

The other limit order type is the one we placed in our example – which is referred to as a protective limit order. This is designed to protect capital and allow you to conserve your account capital by locking in an existing profit.

Which Type of Limit Order is Best ?

Ultimately, it depends on your trading style to choose which limit order is best. They are both extremely useful when it comes to trading both quiet and volatile currency pairs, so you should be able to utilize them in almost any trading strategy that you could conceivably come up with.

HOW TO USE TRAILING STOPS PROPERLY ?

To move or not to move my stop order—that is the question. Emotions are a powerful thing to overcome when you are watching the market move against a profitable trade. Many traders live by the advice “Never let a winner turn into a loser,” and use trailing stop losses to protect profit or at least remove risk by moving their stop order to a breakeven price. But many traders struggle with when to move the stop order, how far to move it, and whether they should use a trailing stop loss at all. Using trailing stops is a balancing act between potential risk and potential reward. 

Although you might cut the risk out of your trade by moving a stop order to break even, you could also cut out the profit. Many traders are too aggressive with trailing stops and end up making nothing on a breakeven trade that would have made a healthy profit if they had given themselves more room. Whether you are going to use a trailing stop should be decided before you open a trade. 

The risk management section of your trading plan should detail whether trailing stops are acceptable, how to determine new stop levels, and when you should move the stop. Without a written plan you’ll be left to decide what to do while the trade is open and your emotions are active, which is never a good place to be.

Enter and Manage on the Same Timeframe

When you are using a trailing stop, use the same timeframe you entered the trade with to determine when and where to move your trailing stop.Traders commonly use a lower timeframe to manage their trailing stop, but this practice doesn’t put your trailing stop in tune with the timeframe you are trading. If you use a lower time chart to manage the trailing stop,
you might not be giving the trade enough room to maneuver. Assume for a moment that you planned a trade using the daily chart and then use an hourly chart to trail the stop order. If you place stop orders on the hourly chart, you might be stopped out during the several fluctuations that price goes through in order to create one daily chart candle. Trailing stops should be managed on the same timeframe with which you planned the trade.

Trailing Price Action

Using price action on the timeframe with which you planned the trade is an excellent strategy for trailing your stop loss. As each candle closes on your chart, you have all the information you need to move the stop. Using price action, a trader will move her stop every couple of candles once her trade has been profitable for at least one candle. This strategy allows the trade room to become profitable without being stopped out at breakeven too soon and gives the trader an opportunity to profit from each trade by trailing just below or just above price action. Occasionally the market will reverse and the trader might be stopped out at breakeven or at a smaller loss than initially planned, but that is just the nature of this trading game when you use a trailing stop.

HOW TO USE STOP & LIMIT ORDERS ?

There are many lessons to be learnt in the foreign-exchange market, many of which can only be discovered with time. However, in this article, we want to share just a few extremely important ideas, which you should incorporate into your Forex trading instantly.

The idea is based on the fact that you should limit your losses, whilst allowing your profits to run and accumulate. So many people fail in Forex trading because they do the opposite of what we just said. That is, they allow their losses to accumulate, and take their profits too early.

But many people will argue that it is impossible to allow profits to accumulate, whilst limiting losses if they are not at their computer the whole day. Indeed, it would seem on first glance that if you weren't able to execute a trade at a moment's notice, you would run the risk of missing a particular opportunity, and therefore face either a large loss, or a "been and gone" profiting opportunity.

The Trader's Solution

A solution to this dilemma was thought up long ago by the foreign-exchange industry. Thanks to the clever innovations of technology, you are now able to use something called stop and limit orders on each of your open trades, which regulates the levels to which you will allow the currency pair to approach before the trade is closed.

Let's illustrate stop and limit orders with an example.

Currency Pair = EUR/USD
Entry Price = 1.3200

This is a simple trade, whereby we have bought the EUR/USD currency pair, hence we are wanting the quoted price to rise in order to make a financial profit. Let's say that we only have a limited amount of capital in our account, and hence only want to face a maximum loss of 100 pips.

Our stop order would therefore be placed at: 1.3100 for Buying.

This means that if the quoted price for EUR/USD touched 1.3100, our open trade would be automatically closed, with a loss of 100 pips. Even if the price continued downwards to 1.3100 whilst we were sleeping, our trade would have been automatically executed at the 1.3200 level.

The same is the case for profits. Let's say that we wanted to take profit at 1.3250 – for 50 pips profit. We could place a "limit" order at this level, so that as soon as 1.4550 was touched, our trade would be closed and we would realize a profit, regardless of whether it was day or night.

HOW TO CONTROL FOREX RISK WITH STOP LOSS ORDERS ?

Forex trading can be a risky sport – with many people betting against each other to move currencies on a daily basis. Latest statistics show that the FX markets are now trading over 4 trillion dollars' worth of currency each and every day, making this the largest financial market in the world.

For retail investors such as yourselves, you need to at least admit that you don't have as much influence over prices as institutional buyers and sellers. In fact, the likelihood is that you only have a couple of thousand dollars to invest, and this won't have any influence on the market whatsoever.

Therefore, you are technically a victim of the price movements if and when they happen. Therefore – the most important thing you can keep in mind is that you should always, no matter what, trade with a stop loss order in place.

What is a stop loss order ?

To put it simply, a stop loss order is a way you can protect your Forex trading account from amassing a large loss. Essentially, it is a way for you to place a barrier on your own trade, which lets the computer know that this is the level where you will tolerate no more losses.

Let's run through an example of where you might use a stop loss order.

For example . USD/JPY is currently at 90.00
You believe that the currency pair will rise to 92.00 in the next few days
You place a long order at market, and place a stop loss order at 88.50
Let's take a look what would happen in this situation. Say for example that the USD/JPY currency pair rises up to 92.00 straight away. At this point, your objective has been reached, and you are therefore free to close the trade out for a profit.

However, imagine if you were wrong about the trade and the currency pair moved against you. In this case, imagine that it moved to exactly 88.50. At this level, you have told the trading computer that you are tolerating no more losses on the account. You have already lost 150 pips, and enough is enough.

Hence, the computer automatically closes out your trade for you. Now, imagine that the currency pair continues to fall down to 86.00. This is 400 pips from the level where you originally entered the trade.

Thankfully, you will not suffer a loss of 400 pips however, because you had a stop loss order in place which closed the trade for you.

The Effects of Stop loss orders

As you can see, the effect of a stop loss order is to protect the capital in your account. There is nothing worse than leaving a trade open without a stop loss order, only to wake up the next day and find that the market has significantly moved against you.

Hence – ensure that you incorporate stop loss orders in to your next trade to always be on the safe side.