Hello traders! This week I’m going to address the many, many questions that my last newsletter on July 4th inspired. That is, how to use a stop order for entry. After you’ve read that newsletter, come on back and I’ll show you how to do this trade at our forex partner, Oanda.com.
Hope you liked that article! Now, let’s discuss how to do this. I must admit first, that while the topic of this newsletter is awesome, the timing of when to write it has posed a challenge because I would have preferred to set this up with a demand or supply zone that was working live, in the moment. There weren’t any when I sat down to write this! So, you will just have to imagine that the zones I’m drawing in are actual, real zones. Hope that is OK!
In the preceding chart picture, I’ve “defined” a zone I’m interested in placing a long trade in. Because this zone doesn’t qualify for a limit entry, I want to wait to purchase this currency pair IF the pair leaves the zone to the upside. My stop price for entry will be at 86.80, with the limit (my maximum that I am willing to pay) at 86.85. My stop loss, in case the trade doesn’t go my direction will be at 86.30.
In this image, I’ve taken a screenshot of the Oanda order box. Starting at the top, you can see the currency pair that I’ve chosen to trade, and just beneath that is the quote (bid and ask) of this pair. The “1.1” between the two prices shows you the current spread. Under the quote is the TYPE of order I’ve chosen to place- in this case a stop order for entry- marked with the number 1.
The next row down, marked with the number 2, is your order/position size; in this case 100,000 or one standard lot. Below that is the stop price for your entry, marked with number 3. In the next row, where it says, “Take Profit”, you get to put in your target price,-marked 4. Please make sure that it is at least 3 times what your risk is! Risk management is a big thing, from what I hear. The next row, marked 5, is the price for your stop loss. What is very convenient is the fact that Oanda will show you in both pips and dollars what your reward to risk ratio is. Always double check this!
Finally, we come to where the “limit” portion of the “stop limit” for entry is recorded. As it sits, we are setting up a “stop market” for entry—which I don’t like. For my entries, I will always use the “stop limit” feature when appropriate. Oanda uses the terminology “Upper bound“ for long stop limit orders and “Lower bound “ for short stop limit orders. This is marked 6. On this order box window, you merely click on the + sign and the price and pips boxes show up.
I usually just put in the maximum number I’m willing to pay (on the long side) and the minimum number I’m willing to accept (on the short side) in these order boxes. You can just as easily put in the number of pips, whichever is easier for you. Once you hit the “submit” button at the bottom of the order entry window, you are good to go!