Tips and Tricks - Part I

In this post I’m going to clean up all the loose ends and answer any questions you might be asking at this point.

For example, how do you know when prices are peaking or bottoming out? If I knew the answer to that I wouldn’t be telling anyone. But there are a few clues.

One of them is simply exhaustion. Prices run out of gas. They may rise dramatically, fall back, and try again to go higher. If they can’t, and instead start to fall, that’s a pretty good sign the upswing is over.

You’ll often see this on the fifteen minute chart. The “wick” at the top of the bar is unusually long. Like this Trading Day - Chart 2.

Remember I also mentioned on the post Constructing Our Charts how I hide the jerky line but often look at the number on the lower left part of the chart as it rises and falls. It often peaks and bottoms at the turns.

I also keep track of the previous swings, as I’ve shown you, so I can anticipate a top or bottom. I can also see that on my P&F chart, especially when prices are in a congestion phase.

All of these things help me judge a turnaround, but of course are never a sure thing. That’s why I use very tight stops.

If I do get stopped out, I can always get back in. That’s the beauty of the Forex markets. There’s always another train coming through the station.

How do I handle “add-ons?” These are additional trades, usually on a “long roll” move that I add on when I’ve already got a good profit going for me.

If I am adding to my trade, I’m very careful not to let it interfere with my original position. I treat them separately. About halfway through the trade if I’m pretty sure things are going my way I may add half of what I originally bought or sold to the trade.

If I started with 100,000 units I may add another 50,000 units roughly half way from my entry point to the target. I place a stop on this new position just as I would if it was an original trade. I also make sure my stops are tight enough so the whole package doesn’t turn into a loss.

I’m also constantly aware of how much I’m going to make. As soon as I see prices are getting close to earning five percent, I quickly revise my target accordingly. I can’t emphasize this enough. Make your five percent and go home! 

This also brings to mind the automatic default “stop loss” and “take profit” found in the preferences which I touched on previously. Go to Tools=>User Preferences=>Trading.

What we are doing is selecting the number of pips we initially want to appear when we place our order. I use a default stop loss of 10.0 and a default take profit of 5.0. Then, when I select a limit order these figures are automatically calculated for the price I select. 

Another thing we saw when opening our account was the need to select what margin or leverage you wish to use. What this means is basically how large a position you can carry for the amount of money you have in your account.

OandA has a very conservative approach to leverage which I heartily endorse. The maximum leverage you can use is 50:1, compared to some firms that allow up to 100:1 and more. A higher amount can often result in a margin call, in which case your entire position is closed out to protect your funds.

You can change your leverage by going to Account=>Change Leverage and log in to change your figure. I use the highest, 50:1, since I use stops at all times. I’ve never had a margin call.

Visit http://fxtrade.oanda.com/fxtrade/margin_rules.shtml for more info.

Previously, I also mentioned how you can often use a “long roll” day to help you trade the latitude lines. Many traders simply can’t handle the stress of holding a position which may be moving in the right direction but swinging wildly.