How to enter and exit a trade
The first step to trading is opening an account with a regulated online broker. We strongly encourage you to use the demo account option, which many platforms offer, so you can first trade with “fake money”, while you learn how various tools and instruments work. Then you can proceed with copying successful traders, which is another key feature offered by many brokers. Finally, when you’re confident that you understand how the market operates , you can log your first orders.
This seems straightforward: you sell or you buy in the hope of making a profit. But knowing when to enter or exit a trade is crucial. By learning how to read charts , you will identify trends in the market and your goal is to ride them. What you’re looking for is the swing points, when a trend is about to reverse i.e. a rising price starts dropping or a falling price starts rising. You’re also looking for either a resistance or a support level. The former is a ceiling which a price can’t seem to break through whereas the latter is a floor that will hold the price above that level. When an asset reaches either the resistance or the support point, it’s very likely to bounce back. If it breaks through it, markets may react aggressively.
So how do I give an order?
When you give an order to buy or sell, you may experience what is known as slippage. Effectively, the slight time lag between the moment you give the order and the moment it executes, may coincide with a price change which means the transaction will take place at a price that’s slightly different to the one you specified. Slippage can work either for you or against you. In terms of how much you buy, each instrument has a minimum amount you can trade, e.g. in forex this is called a lot.
You can also place entry orders which are executed at a specific price point in the future. The most popular ones are:
- Entry stop buy: Open a buy position above the current price
- Entry limit buy: Open a buy position below the current price
- Entry stop sell: Open a sell position below the current price
- Entry limit sell: Open a sell position above the current price
These will only be activated when the instrument in question reaches the specified price point and will remain inactive if it doesn’t.
We started this lesson by reminding you that knowing when to exit is as important as when you enter. Sometimes, you need to put your greed aside and place an order to sell as soon as a certain price point is hit, to avoid a market correction that could wipe out the value of your portfolio. This is called a “take profit” order. A “stop loss” order, on the other hand, instructs the broker to sell when an asset drops to a certain price point. It means you accept the loss and move on, rather than hope things will get better which may never happen. This is all part of risk management .
As with every trade, you need to monitor the market in order to make the right choices. Many online brokers acknowledge that this isn’t your main occupation so they helpfully set up alerts which notify you when your specified asset reaches a certain price point or a certain change level or even a high volume of traders.
Bitesize basics
- Successful traders follow a predetermined strategy and monitor the market in order to enter and exit at the right point.
- When you learn to read charts, you will identify swing points, e.g. resistance and support levels, when the trend is about to reverse.
- You may experience slippage when your order is executed at a slightly different price point to the one specified, because the price moved very quickly.
- Entry orders help you pick entry points in the future without constantly monitoring the market.
- Stop Loss and Take Profit orders help you manage risk by cutting your losses and consolidating your profits.
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