market correctly

---

Knowing how to enter and exit the market correctly is what makes a winning or a losing trade. Enter the market in a wrong manner and find your trade in the red the minute you enter the market. Learning new trading strategies and views on the market is all well and good. But if you don’t know how to properly enter your positions in an orderly manner than you might as well say goodbye to forex trading.

Many new traders don’t know how to enter the market and build the position. How to enter a marker and build your position? It is a common knowledge that the best way to enter a position is to enter gradually. Good theory. Then as your targets are met gradually exit. Easier said than done! It is beautiful to know this but how to do it. Most traders don’t know how to do it practically.

Many traders can’t sit still and see their P/L swing like a kite in the wind. The psychological and the emotional aspects of trading are often too great. It is real hard for many to add to a losing position and hard not to take profits once it moves into the black.

Profit taking breeds a positive mentality that all traders need. Taking profit is good for your confidence. But this should not make you overconfident. At least you have some pips to soften the blow in case the trade turns against you and you took a loss. Taking profit in a trade is very important for you. Not only for your balance sheet but also for your psyche!

Professional traders focus more on figuring out the price range for their entry. Professional traders know that they can never enter at the exact top or bottom. In fact it is really hard even for the professionals to predict the exact top and the bottom of the swing. Perfect entry/exit is a fruitless exercise engaged by traders that serves only to hinder them in their trading.

Then how should the new traders build a position in each trade. Let’s take a practical example. Suppose you are interested in trading the currency pair GBP/USD, one of the most liquid and highly traded pairs in the forex market. First establish your bias about the pair GBP/USD. Your bias depends on what is your market sentiment? Your market sentiment is bearish as you expect the cable (GBP) to fall. So you plan to enter a short position. But where to enter the market!

Application of good money management rules is what matters the most in forex trading or for that matter any other trading or business. Good money management rule stipulates that never risk more than 2% on a single trade. Never ever forget this rule even if you are having consistent and consecutive winning trades. Suppose you have $10K equity in your trading account. 2% on $10K means $200 or 20 pips. What are your options? You can trade a 100K lot with 20 pips stop loss. You can also trade multiple mini lots with varied stops. A mini lot comprises of $10K.

What is the better method of building your position? One lot and one entry or multiple lots and multiple entries! You can immediately see the flexibility in trading smaller lots. Your total risk should be more important to you than making a perfect entry into the market. Multiple lots give you the flexibility to lower your risk. This is exactly the reason why most new traders should trade mini accounts.

You decide to trade 5 mini lots. For a mini forex account you just need a deposit of $50 to trade a $10,000 mini lot. It means that with $250, you can take a position of $50,000 in the market. For a mini forex account, 1 pip is equal to $1. So $200 loss means you can lose 200 pips. Many forex platforms automatically calculate your average cost so figuring out the risk on multiple positions is fairly easy to accomplish.

You decide to risk the same amount $200 but at a lower risk profile. If you trade all of these 5 mini lots together you will have to set a stop loss of 40 pips for each lot.

Start by establishing the daily range for the pair GBP/USD. Chart the day’s trading levels which you will use to enter and exit the trade before making the entry. The more comfortable you will become in varying your entries and stops, the more experienced you get with your trading.

Suppose you decide to go short one lot of $10K at 1.3520. Remember you have a bearish view of GBP/USD pair. Enter incrementally higher amounts once entry price is reached with five mini lots to trade. By making multiple entries you are getting your feet wet, making sure you have an interest in the market. You have a much lower level of risk in fact it is one tenth of that on a standard lot.

You have started small by using the mini lots. 1 pips loss is equal to only $1 on a mini account. You have lowered your risk level. Now two things can happen. Many traders have seen this happen most of the time. The most likely thing to happen is the price shooting up as you enter a short position.

Starting small provides you with an opportunity to make a win-win position! Not a bad place to be in case the price further plummets. This is what you had anticipated. Suppose the GBP/USD pair moves up not down. Suppose the GBP/USD pair moves higher to 1.3535. You are getting a better price. You short two more mini lots of $10K.

Suppose the cable moves more up and it is sitting at 1.3545, 25 pips above our entry point. You can choose to exit your positions with a meager loss if you feel uncomfortable with the trade. In this case just $25+$10+$10=$45. If the cable continues to climb up, we still have 2 more lots to better our cost.

You must have been definitely stopped out by now if you had traded one standard lot. You should have lost 25 pips or $250 by now using a one lot strategy. The GBP/USD pair finally begins to come off and gains downside momentum. You short the final two mini lots at 1.3523.

You were able to get a better cost for shorting five mini lots (36 compared to initial 20) and you were able to ride the price action higher that might have stopped out most of your fellow traders. This is how you should build a position as a new trader with a lower risk level in order to get more experienced.

None of the stop losses were triggered. In this case you had set the stop loss as 40 pips for each mini lot. The price went up by 25 pips before reversing and going down the way you wanted the market to move. The trade has room to move onto the lower side once the topside stops are taken out. Exit according to your support level taking out 2/3 and leaving the rest with a stop at entry looking for lower levels.

How do the big traders and hedge fund manager trade? Big traders make entry and exit decisions according to price action. Big traders rarely trade with fixed order in the market for the fear of revealing their intentions. However, this style of trading is best suited for experienced traders.

How should a new inexperienced trader trade in the beginning? Building a position means establishing ranges for you to trade off of instead of defining absolute values for a perfect entry. New traders are better off trading with multiple fixed orders in the market which lets them focus on tweaking their analysis more.

There is a lot of volatility in the forex market. This noise can easily take out tight stops. There is so much intra-day noise that trying to find the perfect entry and exit of any trade is practically impossible in the forex market. You should think what is a good 10-15 pip range to enter/exit my position instead of thinking at what price I should make an entry?