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A stop-limit order is basically an order that becomes a limit order once the currency reaches the designated stop price. Only when the specified stop price has been reached, the stop-limit order will instruct the broker to buy or sell at the specific price. At the specific price the stop-limit order becomes a limit order.

In the News Straddling strategy, the main advantage of using the stop-limit order is that the trader can decide ahead of time the price at which the trade will get executed. However, the stop-limit order may not get filled at all.

Due to the fast moving nature of the market, the currency price may not stay within the limit range for the order to get executed. Second reason could be there is not enough supply and demand at the price at which the order is to be filled.

We are instructing the forex broker that the entry price is either filled at the limit price or better by placing the stop limit order. Using stop-limit order helps us avoid risking slippage. . If the price that we want is not possible than the order is not executed at all! If we are not able to trade at the entry price that we want, it is better that the position is not filled at all.

However some brokers do not allow stop-limit orders on their platforms. Simply look for another broker that does allow it if the broker does not allow the use of stop-limit order. Simple as that!

Most often, a horizontal channel is formed prior to the release of the news. The news straddling approach is conceptually similar to a channel breakout strategy. This channel may be identified on the intraday 5 minute or 60 minutes chart.

First draw an upper line connecting the two highest points to form the resistance line. Second draw a lower line connecting the two lowest points, forming the support line. The two lines should form a channel. The channel should be roughly like 40 pips wide.

Once you have identified and drawn the channel on the 5 minute chart, monitor it for 20 minutes prior to the news release. A channel basically tells that neither the bulls nor the bears are over enthusiastic about their bias before an important new release.

Name of the game is that we either enter at the price that we want or we completely stay out of the market. Place your entry order not more than a few minutes before the news release. Place a stop limit long entry order a few pips above the resistance level and a stop limit short entry order a few pips below the support level of the channel.

For a long entry, a stop sell order is placed at least 20 pips below the resistance level. For a short order, a stop sell order is placed at least 20 pips above the support level. Each stop-limit entry order must be accompanied with a specified stop loss order and profit-limit orders.

The initial profit target could be equal to the width of the channel. A staggered profit taking could be considered. You can set your initial profit objective for half of your lot size. For the rest of the position, you could set profit target equal to the twice the width of the channel.

The risk of slippage is usually very high when trading the news. Currency prices tend to move very fast during such highly volatile market conditions. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price.

Placing stop loss or market entry orders under fast moving market conditions do not guarantee anything. These orders do get filled but mostly at different prices than you had intended. Slippage is the biggest problem when the market moves fast. There is no way you can avoid it. Some of it is genuine. During times when too many orders are placed by the traders, most forex brokers cannot offset these orders in the interbank market due to the small amounts involved. They have to take the opposite positions themselves. This gives them the chance to take the excuse of slippage.

Many market makers will wait till after the big move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.

Before filling your entry order with wide slippage, many brokers will fill your stop loss or take profit order. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.

Suppose you have set your long entry stop for EUR/USD at 1.2564 and your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594. Then fill your long entry stop at 1.2604 with a 40 pips slippage.

You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.

Suppose, you had set your long entry stop at 1.2564 and your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544 then fill your long entry stop at 1.2594 with a slippage of 30 pips. So instead of planned 20 pips loss, you now have a net loss of 50 pips due to slippage.

You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.

Many traders readily accept the risk of slippage as one of the realities of trading the news. However, they should know that slippage can eat up a huge chunk of profits and in the end affect their overall profit/loss. You can overcome the problem of slippage through the use of stop-limit entry order. More on it in the next article!

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When a particular currency rallies despite the poor economic performance of the country, it often makes new currency traders confused. Sometimes, the currency can depreciate on the release of positive news. All this happens due to the discounting effect taking place in the market. You should understand the discounting effect in the forex market.

These types of effects confuse and bewilder new forex traders. When there is good economic news about United States, commonsense says that US Dollar should appreciate. Similarly when there is bad economic news and there are signs of economic weakness, like unemployment and huge budget deficits, commonsense tell that US Dollar should depreciate.

These types of effects can be attributed to the discounting mechanism of the forex market. A currency can go up on bad economic news. It can also go down on good economic news. What is the reason that a particular currency goes down despite good economic performance of that country or goes up despite bad economic performance of that country?

The markets inbuilt discounting mechanism is formed by the anticipatory reaction of the traders. Traders try to take into consideration the future expectations about the currency in their present trading decisions.

If the traders think that Japan will suffer from the rising oil prices in the near or medium term, they will be bearish on JPY and go short now, thus pushing down the currency. But if the traders have a positive view of the Japanese economy, they will be bullish on JPY and go long now, thus pushing up the currency.

Currency prices integrate the markets expectations about the future in this way. You must have heard the famous saying: Buy on the rumor and sell on the news. This is somewhat similar to this saying. Market has already made up its estimates of those figures based on the work of analyst and economists in the major trading institutions like banks or funds even before the economic data is released for public consumption.

Suppose, the market thinks that the US Consumer Confidence Index to show a worse figure than the previous month. Market has already compounded that information in the exchange rate of say EUR/USD way before the US Consumer Confidence Survey results are released to the public.

The currency pair EUR/USD was rallying due to poor market sentiment for UAD. When the US Consumer Confidence Survey figures are released, what will move the market is the amount of deviation between the expectation and the actual figures.

This information has already been compounded into the currency prices. This is old news for the market if the released figures are almost the same as expected. No surprise was caused in the market. Markets dont like surprises. If the released figures and the expected figures had a wide variation, it would have caused a sudden volatile reaction in the markets. Once the surprise has been perceived and analyzed by the market, it stabilizes.

The release of the anticipated news or data can often cause the currency price to move in the opposite direction initially to where the market had positioned itself before the release of the news. After sometime the market adjust itself and the status quo prevails.

EUR/USD pair may even end up declining with the USD strengthening even in the face of a negative consumer confidence number if the US Consumer Confidence Index figures turn out to be almost the same as expected. When the news is released the news traders like to close their positions and take profit. This often causes the initial reaction in the market.

Thus the lack of any deviation between the expected and the actual figures may cause the currency pair to move sideways or even move in the opposite direction as the status quo remains. This contrarian market reaction is the result of traders who had gone long on EUR/USD closing their positions and taking profit on the news release.

There are no rules or restrictions against insider trading in the world of forex trading. Anyone who possesses information that is known only to a select few can and do trade that information in the forex market.

News is information. Information is what drives the forex markets. Publicly released news is disseminated to the various newswires. Any trader who has access to these newswire services can tap into that information and react accordingly in the forex market. Timely reaction to new information can be very profitable.

However, you must know that the institutional players do get information that retail traders dont have. Institutional players have access to the order book of their clients. They know the location of their market orders. They may also know something that others dont through their contacts in the industry.

At times, this isolated news access may not translate into real market action if other players dont have that information. However, sometimes the news may give an unfair advantage to the institutional players.

In nutshell, forex market is dependent on news. If there is no news, there will be negligible or little price movements in the market. Even if the currencies move based on the technicals, these technicals have been established previously by news or expectation of future news.

Now the market reaction to the news is staggered. The market reaction to the news is specific as it depends on both the type of medium that the news is transmitted on and the type of news that is being released.

Most active traders, get their information from electronic market news services. All of these online news service relay the information to the computer monitors of the traders at almost the same time as the market event occurs with very slight delay.

However, there are many other less active traders who feel they dont need real time news so they dont subscribe to these online news services. They rely on market commentaries written by analysts and published on websites or in newspapers. These traders may take time to react to the same news that may vary from a few hours to a few days to weeks. The market reaction can thus be staggered.

Market reaction may be immediate within the first few second from those who receive real time news to a more delayed reaction from those who obtain the same news hours or even days later.

The market reacts differently to different news. Some news may produce little or no reaction at all. Forex economic calendar is usually packed with an average of twenty to thirty economic news releases per trading day.

During times of scheduled news releases, currency prices adjust very rapidly to the released data. You have to be selective to what news to focus on as the market reacts to a varying degree in relation to the type of news that is released.

Currency market reacts to what of the news rather than the why. For example, the currency prices will move as the market reacts to the better than expected unemployment figures. The market will not have time to consider why the unemployment figures are better this month as compared to the last month.

Major short term currency moves are almost always preceded by changes in fundamental views influenced by the news. Traders around the world make a living by processing and translating information into money. The forex market is extremely sensitive to the flow of news related to it.

In an era where information can be extremely powerful and strategic asset, whether to individual or corporation and information equals money especially to a trader, shutting yourself off to the news can be suicidal.

The speed of the news dissemination is very important to traders. Traders especially the day traders require the latest up to the second news updates. This facilitates their trading decisions which have to be made at the lightening speed.

Online news services display the latest financial and economic news on their computer monitors. Many opt for instant online news services such as the Dow Jones Newswires, Bloomberg and Reuters.

News is important to currency trading. Each new piece of information can potentially alter the traders perception of the current or future situation relating to the outlook of certain currency pairs. Market work on perceptions! Perceptions change, expectations change and prices change.

News that is of great importance to forex traders is generally related to a countrys economic, monetary and political situations. Socio-political events that are happening around the world like in Middle East and North Korea also tend to affect the forex market in major ways.

It is expected that other traders see and interpret the same news in a similar fashion and adopt the same directional bias. A traders action is based on the expectation that there will be follow through in prices. These traders will be preparing to cover their existing positions or initiate new positions based on this news. It is all based on your perceptions. Sometimes you can wrong too! Market may not react the way that you had anticipated.

News is a very important catalyst of short term price movements because of the expected impact it has on other market players. This is in a way an anticipatory reaction on the part of the trader as he or she assumes that the other traders will be affected by the news as well.

If the news happens to be bullish for the USD, traders who reacts the fastest will be the first to buy USD followed soon by other traders. Other traders may be slower. They maybe were waiting for some technical criteria to be met before they jump on the bandwagon.

When they get hold of the delayed news in the morning newspapers or from their brokers, there will be many who will join in the frenzy at a later stage. This progressive entry of the US Dollar bulls over time is what sustains the upward move of USD against another currency.

Almost the reverse will happen on the surprise bearish US Dollar news. Traders who get the news first will start selling US Dollar instantly on the assumption that when other traders will hear the news, they will also start selling.

The US Dollar Index is traded on the New York Board of Trade at Finex and at the Chicago Mercantile Exchange (CME). The US Dollar Index is used by traders to get the big picture of the overall trend of the dollar. It is widely quoted in the press and on quote services.

The Federal Reserve Board had introduced the US Dollar Index in 2003. The index is the result of the Smithsonian Agreement that had replaced the Bretton Woods Agreement. The US Dollar Index is similar to the Feds Dollar Index which is a trade weighted index. The Fed gives value to each individual currency in the index based on how much it trades with the US.

However, the value of each index is different and it should not be confused with one another. The minimum tick on the US Dollar Index is 0.1 and equals $10. The futures contract expires on March, June, September and December.

Delivery is physical and means that you receive dollars based on the value of the index. Delivery is made on the second business day during the month of the expiring contract prior to the third Wednesday. The overall value of the futures contract on the index is 1,000 times the value of the index in dollars. Suppose the value of the index is 80. Its value in dollars will be $ 8,000.

No trading limits are placed on the US Dollar Index. Trading hours are from 8.05 AM to 3:00 PM. There is overnight trading also from 7 PM to 10 PM. Delivery day of the US Dollar Index Futures Contract is the third Wednesday of the contract month.

The US Dollar Index was modified at the inception of the Euro. It is weighted in a way thats similar to the Feds trade weighted index as follows: Highest percentage is for Euro 57.6%, second highest is Japanese Yen 13.6%, third highest is Great Britain Pound 11.9%, then comes Canadian Dollar 9.1%, Swedish Krona 4.2% and Swiss Franc 3.6%. The US Dollar Index is best used as an indicator of trends in the forex market.

However, the US Dollar Index is not as good a trading vehicle as the individual currencies. The best way to trade the index is by using the currency mutual funds. One of the secrets of knowing trading success is understanding what kind of a person you are.

Spot forex trading is not for the weak nerved. If you are afraid of taking a coffee or bathroom break for the fear the market will move against you and in a blink of an eye you will end up with a margin call, then you need to invest in currency mutual funds based on US Dollar Index and relax.

You are taking away the big part of the risk involved in trading currencies by trading these currency mutual funds. You can have a pretty good idea as to how your fund is going to close at the end of the day if you check the dollar index a few times during the day.

Understand from the get go that any action you take on a trading platform is basically your responsibility. You may have meant to click Buy but instead you clicked Sell. No one knows for sure except you.

If you dont want to blow your account repeatedly, double your demo accounts three times in a row only then trade live. First practice on your demo account instead of jumping into live trading!

Attempts to trade at the market can sometimes fail in very fast moving markets when the prices are adjusting quickly like after a data release or break of a key technical level or price point. Part of this stems from the latency effect on the internet.

You can experience these time lags so that you dont learn them during real trading by first practicing on your demo account. The time lag between the platform reaching your computer and your trade request reaching the platform server can cause your trade to fail in fast moving markets.

You are in the market by pulling the trigger. You opened your position. The forex market isnt a roulette wheel where you place your bets, watch the wheel spin and simply take the result. Dont think that you have pulled the trigger and now its time to sit back and let the market do its thing. You will have to constantly monitor your trade position on regular basis.

Always trade with a plan! New information and price developments are constantly creating new opportunities and changing previous expectations. Currency market is a dynamic and fluid environment. You should know how to exploit these newly created opportunities by changing your trading plan.

Before getting caught up in the emotions and noise of the market, you can improve your chances of trading success by thoroughly planning each trade. You should know in advance where to enter and when to exit a trade. Entry and exit at the proper time is crucial for making a winning trade.

How much managing your open position you need, it depends on your trading style and the overall market conditions. You will generally set wider stop loss and take profit targets and adopt the policy of set and forget if you are following a medium to long term trading strategy based on swing trading the currency markets.

But a lot can happen between you open a position and the price action hitting your target level. Staying on top of the market is still a good idea even for a longer term trade. So no matter what your trading style, it pays to keep up with the market news and price developments while trade is active. Unexpected news may suddenly impact your position. So you may require making changes to your trading plan.

When we talk of making changes to the trading plan, we are referring only to reducing the overall risk of trading by moving the take profit or stop loss order to reduce the risk. You need to learn and experience these things on your demo account first because if you try to learn them on your real account, your account will be blown up in a matter of hours or days.

Almost every forex broker offers a free practice account to new clients. This is used as a marketing gimmick by most of the brokers in order to entice new people to forex trading. All you need to do is to sign up with any good forex broker. The best way for new traders to get a handle on what currency trading is all about is to open a practice account.

Practice accounts are funded with virtual money. So you are able to make trades with no real money at stake and gain experience in how margin trading works. Practice accounts give you the great chance to experience the forex market. You can see how the price changes at different times of the day.

Without any fear of losing money, you can trade your practice account with real market conditions. Practice trading will teach you how various currency pairs may differ from each other? It will also teach you how the forex market reacts to new information when major news and economic data is released.

You will also learn using different market orders. How to manage an open position? Improve your understanding of how margin trading and leverage works and start analyzing charts and following technical indicators. You can experiment with different trading strategies and see how they work out in the real market conditions with any fear of losing your money.

Practice accounts are a great way to experience real forex markets. You can also test drive all the features and functionality of a brokers platform. However, one thing you will never be able to simulate on your practice account is the emotions involved in trading. Emotions will only come into play once you put your real money on the line.

You can trade the current price of the market using the click and deal feature of your brokers platform. You can also use market orders like the limit orders or the one cancels the other orders. There are many ways to pull the trigger in the forex market. Pulling the trigger means how to enter or exit a position.

Many traders like the idea of opening a position by trading at the market. Most prefer the certainty of knowing that they are in the market. They dont want to leave an order that may or may not get executed.

Most forex brokers provide live streaming prices that you can deal on with a simple click of your computer mouse. Just specify the amount that you want to trade. Click on the buy or sell button to execute the trade. The forex trading platform responds back within a second or two with a pop-up message either confirming or not confirming that the position was opened.

Attempts to trade at the market can sometimes fail in very fast moving markets. This happens when prices are adjusting quickly like after a data release or break of a key technical level or price point.

Trading is not investing. Trading is speculating. Trading can be challenging. Speculating is defined as taking business risk in the hope of profiting from market fluctuations. Successful speculating requires predicting outcomes and analyzing different market situations. It also requires putting your money on the side of the trade on which you think the market is going to go up or down.

If you are a trader, you should appreciate the fact that if you apply the correct techniques for analyzing trades, manage your money and protect your trading account, you can be wrong 70 percent of the time and still be a successful trader. How is that possible? It is only possible by entering a trade where the risk/reward ratio is les than1/3.

Opportunity keeps on shifting from one market to another. For example, forex and gold markets are really hot while stocks are down. Gold prices are going up. Those who entered the trend at the right time and ride the trend for maximum profits will make a lot of money in the gold markets. Right now countries, institutional investors, retail investors, in fact almost everyone is running and buying gold as a hedge against turmoil in the global markets.

Last year in 2008, oil prices had reached almost $140 per barrel in a matter of few months. Many hedge funds had made a lot of money by investing in crude oil futures in the year 2008. Then the bubble burst and oil prices came tumbling down to almost close to $35 per barrel. This situation may continue for some months or some years but suddenly you will find that crude oil futures have become a great investment opportunity again. Right now oil prices are down due to the reduced demand in the global markets.

As the global economy recovers and demand for oil increases, oil prices will again go up in a few years time. Timing for entering the market and the timing for exiting the market is very important for a successful trade. In trading it is the timing that is of essence.

A lot of people make the mistake of focusing only on one market. Many people end up spending time on only one market. In reality all the markets are interlinked. Successful trading requires mastering a strategy that enables you to trade multiple markets and multiple time frames. If something happens in one market, you will find the repercussions in the other markets.

They do testing, development, put on a million indicators, go and trade live. They do everything they can while spending all kinds of time trying to figure out one market and one timeframe. But then what almost happens is that market starts to go sideways or the opportunity shifts to another market.

There were so many stocks just a few years ago that were incredible to trade that either dont exist anymore or would not trade successfully today. So you really have to have the ability to be able to adopt the market conditions and not waste your time to really master one market which is critical.

Mastering different markets is counterintuitive. Many gurus will teach you that you really need to learn the ins and outs of one market. They will tell you to focus only on one market and then stick with it. But the problem with that philosophy is that opportunity keeps on shifting from one market to another. A good trader always follows where the money goes.

In forex trading, stop loss execution policy is somewhat different than in equity trading. If the broker bid price reaches your stop loss order rate, stop loss orders to sell are triggered. Suppose, your stop loss order to sell is 1.2540! The brokers lowest price quote is 1.2540/1.2543. Your stop loss order will be executed. Almost the same goes for buy orders.

The benefit of this practice is that some brokers will guarantee against slippage on your stop loss order under normal trading conditions. Most of the brokers will never guarantee stop losses around the release of economic reports. The downside of this is that your stop loss order will be executed earlier, so you will have to add in extra cushion when placing them on your forex platform.

One-Cancels-the-Other Orders: A one cancels the other order (abbreviated as OCO order) is a stop loss order paired with a take profit order. An OCO order is the ultimate insurance policy for any open position! Your position stays open until one of the order levels is reached by the market and closes your position. When one order level is reached and triggered, the other order is automatically cancelled.

Suppose you are short USD/JPY at 120.00 and you think that its going to keep going higher if it goes up beyond 120.00. Thats where you decide to put your stop loss buying order. One cancels the other (OCO) orders are highly recommended for every open position.

You believe at the same time that USD/JPY has downside potential to 118.50. So you place your take profit buying order at 118.50. As long as the market trades between 120.00 and 118.50, your position remains open. You now have two orders bracketing the market. Your risk is clearly defined. Suppose 118.50 price is reached first, your take profit order is triggered and you buy back at a profit. However, suppose 120.00 price is hit first, your position is stopped out at a loss.

Contingent Orders: A contingent order is an order where you combine several types of orders to create a complete currency trading strategy. Contingent orders are also referred to as if/then orders. If/then orders require the If order to be done first. Only then the second part of the order becomes active. So they are sometimes also called If done/then orders.

If the trading platform offer rate reaches your buy rate that means your limit order is only executed. Similarly, a limit order is only executed if the trading platform bid price reaches your sell rate. Your order is only filled based on the price spread of the trading platform. This is the key feature of most forex broker order policies.

Lets use an example to make it clear. Suppose you have a buy order to sell CHF/USD at 1.2855. Your brokers spread on CHF/USD pair is 2 pips. If the trading platform price is 1.2852/1.2854, your buy order will be filled. If the lowest price is 1.2853/1.2855, the limit order will not be filled as the brokers lowest rate of 1.2855 does not match your buy rate of 1.2855. Almost the same thing happens with limit orders to sell.

Stop Loss Orders: If the market moves against your position, stop loss orders are used to limit losses. If you dont use stop loss orders, you are leaving yourself at the mercy of the markets. A dangerous proposition! Stop loss orders are critical to your trading survival. The traditional stop loss order does just that. It stops losses by closing out an open position that is losing money.

If you are short, your stop loss order would be to buy but at a higher price than the current market price. Stop loss orders are on the other side of the take profit orders but in the same direction. If you are long, your stop loss order would be to sell but at a lower price than the current market price.

Trailing Stop Loss Orders: The trailing stop order adjusts the order rate as the market price moves but only in the direction of your trade. A trailing stop loss order is a stop loss order that you set at a fixed number of pips from your entry rate.

Suppose you are long on EUR/GBP at 1.2654. You set the trailing stop loss at 30 pips. The stop order will become active at (1.2654-30=) 1.2624 initially. As the market moves higher, the trailing stop loss order continues to adjust itself higher. Suppose the EUR/USD rate goes up to 1.2674, the stop adjusts itself. Now the stop order will become active at 1.244.

When the market puts in the top, your trailing stop will be 30 pips below the top. If the market ever goes down by 30 pips, the trailing stop loss order will be triggered and your open position closed. So in our example, you are long at 1.2654. You set the trailing stop loss at 30 pips and it became active at 1.2624.

If the market never ticks up instead goes straight down, you will be stopped out at 1.2624. If the market first rises to 1.2664 and then declines 40 pips, your trailing stop loss order would have first risen to 1.2664-30=1.2634. Thats where you would be stopped out.

You must have heard the saying: Cut your losses and let your winners run. A trailing stop loss order allows you to do just that. The idea is that when you have a winning trade on, you wait for the market to stage for a reversal and take you out of your trade by using the trailing stop loss order instead of picking the right level to exit on your own.

Use of stop loss orders is critical in money and risk management. Never ever, trade without the stop loss orders! So the key to successful trading is to cut losing positions quickly and let winning positions run. This function is nicely performed by the trailing stop loss order.