David Waring

In our last lesson we continued our forex trading course by learning about the bid ask spread. Now that we have some of the terminology and basic logistics out of the way it is going to get a little exciting as we look at actually placing some forex trades.

At the end of our last lesson I gave the homework assignment of placing a trade which reflected an opinion that the Euro is going to strengthen against the US Dollar.

If you remember from our lesson on currency rate movements, if the rate for a particular currency pair is going up this means that the base currency in the pair is getting stronger and the counter currency in the pair is getting weaker. With this in mind, if we are seeking to place a trade which reflects the opinion that the Euro is going to strengthen against the US Dollar, then we want to place that trade so we benefit from an increase in the quote for the EUR/USD currency pair.

If you think of all currency pairs in terms of the base currency then you can use the same rationale to trade the forex market as you would any other market. If my analysis tells me that the base currency should strengthen against the counter currency, this means that I am expecting the quote for the currency pair to increase, which means I want to buy to enter the position.

Conversely, if I my analysis tells me that the base currency should weaken against the counter currency then this means I am expecting the quote for the currency pair to decrease, which means I want to sell to enter the position.

With this in mind we should now know that to execute a trade which reflects the opinion that the Euro is going to strengthen against the US Dollar, we are going to buy to enter the position.

Let’s go ahead and login to our real time demo trading accounts and do just that. If you have not registered for a free demo trading account yet then I encourage you to pause this video and click the free demo registration link directly above this video if you are watching on InformedTrades.com or to the right of this video are watching on Youtube so you can get a free demo and follow along as well.

Luckily, most forex trading platforms including this one make it very easy to execute a trade once logged in. There are several ways to do this on this particular platform but the easiest in my opinion is to simply left click on the buy rate for the EUR/USD currency pair in the dealing rates window, which will bring up a market order window already filled out with everything you need to enter the trade. Once that is up simply click ok and you have executed your first real time virtual currency trade!

As noted above we will now benefit if the quote for the EUR/USD increases which would indicate that the Euro has strengthened against the US Dollar.

If we were expecting the Euro to weaken against the US Dollar this would have meant that we were expecting the rate to decrease so we would have sold to enter the position. The key thing to remember here is that if you are expecting the base currency in any currency pair to strengthen then buy to enter. If you are expecting the base currency in any currency to weaken then sell to enter.

For tonight’s homework assignment establish a fake or real opinion on what you think is going to happen with a particular currency pair and place some trades which reflect that opinion. If you would like to list your trades in the comments section below we would love to see them.

That’s our lesson for today. In tomorrow’s lesson we are going to be covering something which is known as a PIP as well as the different contract sizes in the forex market so we hope to see you in that lesson.

As always if you have any questions or comments please feel free to post them in the comments section below, and good luck with your trading!

rocketman7

Hey Dave,
I checked my EUR/USD trade from yesterday and "bam" I was up $497.50. Too bad it's only play money. I was wondering, does a currency pair of the USD/EUR exist? For that matter, do reverse currency pairs exist? I looked at the additional currencies section of the Trading Station and didn't see it.

My trades today:

Sold 100k USD/JPY and sold 100k EUR/CHF.

Rocketman7

David Waring

Hi Rocketman7,

Yeh the EUR/USD chart looks pretty interesting at this point if it can break above 1.5850 a lot of people are saying to the moon from there. We shall see.

The quoting convention in the spot fx market is standardized as you see on the trading station so when trading currencies in the cash market you are always going to see them quoted the same way and not in reverse.

If you would like to know the reverse quote however you can get this from Yahoo Finance at the below link:

Currency Converter, Currency Exchange, Currency Exchange Rates

Gaffa

Sell 500 AUD/CAN (.9466)

Gaffa

Unregistered

I only see button to Buy at Ask and Sell at Bid.

Does forex allow to Buy at Bid and Sell at Ask?

Thanks.

David Waring

Hi,

On most forex platforms you can only be a price taker you cannot be a price maker which means that you can only buy at the offer and sell at the bid.

There are several platforms out there that offer a more ECN type of trading model which allows you to be a price maker however many of them do not offer very good liquidity. The reason here is because the forex market is over the counter only the firm which is offering the ECN only has access to the liquidity of their firm.

Two you can check out are Hotspot and MB Trading if you are interested in investigating this further.

Best Regards,
Dave

jcvictory

It was my opinion that the USD was going to strengthen against the Yen so I bought 100 USD/JPY at 107.748 on 6/12/08 at 23:54. The USD did strengthen overnight until my position was stopped out at 108.265 on 6/13/08 for a gross P/L of $469.26.

It was my position that the EUR was going to weaken against the USD so I sold 100 EUR/USD at 1.54503 on 6/12/2008 at 23:54. The EUR did weaken overnight until my position was stopped out at 1.53307 on 6/13/2008 at 08:08 for a gross P/L of $1,196.00.

So, I guess it was a pretty good night.

JCV

David Waring

Hi JCV,

Glad to hear these trades worked out for you.

If you don't mind my asking how did you go about forming these opinions and deciding when to enter the trades?

Best Regards,
Dave

jcvictory

No problem . . . glad to share.

EUR/USD Trade

30 minute chart of the EUR/USD shows market in general downtrend.
15 minute chart shows support at approximately $1.54483
I was looking at the 1 min. chart and there was a large drop at 23:53 to $1.54496. This showed a pronounced long and red candlestick, so I figured this might be a good indication that the support was breaking so I sold 100k at market.
I was also watching the 1 minute MACD and the signal lines had crossed earlier and were continuing down so I figured this was a pretty good breakdown.
I rode it down overnight until my stop was triggered after the market rallied above resistance in the 1.53270 range. You can see it on the one minute chart – there’s a huge green candlestick at 8:08 on 6/13 where my stop was hit.

USD/JPY Trade

30 minute chart of USD/JPY shows the market consolidating from an uptrend. There seems to be some near term support at the 107.630 level.
5 minute chart shows resistance at 107.785 level
1 minute chart shows that at 23:53 the resistance is broken and I buy 100k at market.
1 minute MACD is a bit oversold but I still pulled the trigger.
My position was closed on 6/13 at 8:08 when my stop at near term support at 108.265 was hit. You can see the red candle with the long tail on the one minute chart.

Can I get your thoughts on my handling of these trades?

James

David Waring

Hey James,

I like how you are using multi time frame analysis to get a feel for the overall markets and then using the shorter term timeframes to pick your entry point. I also like how you seem to have an entry point and level picked out before your stop before you enter the trade.

You actually sound like you have traded before, are you new to trading in general or just to the FX Markets?

For the EUR/USD trade what I don't see in your explanation is a target for the trade. It sounds like you may have just been trading the break and then bumping the stop up behind it as it moved in your favor. While I like managing the trade like that personally I like to have a target picked out so I know when to pass on trades that present a poor risk/reward. It does n't have to be a hard target since in this instance if I were trading your style I would be bumping my stop up behind it so I could let it run past the target but would be taken out on the stop if it traded against me.

I personally also feel that the 1 minute timeframe is a little too minute for indicators to be the only one that you use it on. I would like to have confirmation on at least the 5 min if not the 15 as well for any indicator I was basing my decision on.

Outside of that, assuming you did not breach any of the money management rules that I outline in module 6 of the basics of trading course, then I personally feel that this is a broad overview of a good strategy.

Same goes for the USD/JPY trade. Anytime you would like to post your analysis and trades as you have here I would love to have the opportunity to follow your progress as I am sure the community would benifit from watching you develop your style as well.

If there is anything I can do to help let me know.

Best Regards,
Dave

***Disclaimer: All of my posts are for educational purposes only. I am not an investment or trading adviser so please do your own research before entering any live trades.