Updated on November 20, 2021
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Reviewed byErika Rasure
Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.
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In this tutorial, we are going to use FXTrade, theOandatrading platform, as the example.
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Start the Trading Platform
The very first stepin making your first forex trade is opening the trading platform.
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Step 2 - Open the Chart
Now choose a currency pair and open a chart. Select a timeframe. In this case, we are going to use a 15-minute time frame. Each candlestick on the chart represents 15 minutes of time.
For this example, use the Australian Dollar vs the Japanese Yen, AUD/JPY pair. It is showing a strong downtrend and looks like a simple trade.
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Step 3 - Add Indicators
Now add some indicators to the chart. For this chart, we are going to add MACD and a 200 exponential moving average. Using technical indicators is an option when forex trading. They are helpful for the decision-making process.
The basic rule for using the 200 EMA is if the price is above the line, it is likely to continue higher if theprice is below the line, it is likely to continue lower. The price seems to be moving below the 200 EMA line. This confirms that the price is in a stable downtrend.
Please understand that if we are selling AUD/JPY that we are buying Japanese yen and selling the Australian dollar. Therefore, will be looking for JPY strength and/or AUD weakness.
Use the MACD indicator to look for a confirmation that the price is ready to go down again. The MACD is not always reliable as an indicator when used alone, but when used as part of a larger trading system it can be helpful to pinpoint a possible turn in price. The price seems to be fighting the downtrend a bit, so look for the MACD lines to cross and head down before trading.
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Step 4 - Place the order
Now prepare to place the order. The short trade is for 10,000 Australian dollars against the Japanese Yen. This is also known as going short one mini lot.
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Step 5 - Set the Stop Loss and Take Profit Levels
Now set your stop loss and take profit levels. This step is optionalbut highly recommended.
Experienced traders have found that setting a stop loss at half the pip amount or less than your take profit level can set you up for long-term success. This is because you can be right less than half the time and still come out at the end of the week, month, year ahead if you have a favorable risk-reward.
Setting the stop loss will limit your losses if the market does not move in the preferred direction. Setting the take profit level will make sure that the trade exits in profit once the market makes the downward move that is expected. It can be an advantage to set these levels when you place the trade because once the trade is actually in the market, the pressure can make it difficult to make decisions.
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Step 6 - Order Confirmation
Submit your order and wait for the confirmation screen. The confirmation is important as is the ticket number because you may need to reference the ticket number if you need to call your broker about the trade. Of course, you don't want anything wrong to happen with execution, but if there is a mistake in execution on the part of your broker you will need to go to them with your confirmation and ticket number so that they can correct their mistake and credit your account back if necessary.
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Step 7 - The Waiting Period
Now the waiting period begins. This is one of the more difficult concepts in forex trading. Some traders find it helpful to turn off the screen and get away from the market once they've entered so that they are not constantly fretting over market moves. Either way, sticking to a good risk reward is a favorable approach and whether your stop or take profit order gets hit, you have done your job correctly.
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Step 8 - Trade Completion
Finally, the trade is complete. This trade has resulted in a successful take profit. The take profit level for this trade was 98.00 and the price did reach that level. This resulted in a profit of $63.60.
Not all trades result in a profit, and you should take measures to limit your risk on any trade.
Frequently Asked Questions (FAQs)
What is forex trading?
Forex trading entails making trades on foreign currency exchanges. Forex traders swap one type of currency for another. As they do, the relative value of each currency shifts. If a trader feels that one currency will soon lose value, they can potentially profit from that weakness by trading it for a stronger currency.
What are pips in forex trading?
A "price interest point" or "pip" is usually the smallest measurable movement that a forex pairing can make. Many pairings are priced to the fourth decimal place, which makes each pip worth 0.0001 of the underlying currency. Some brokerages have introduced "pipettes" as a smaller unit of measurement, but most traders will measure movements in pips.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
National Futures Association. "Trading Forex: What Investors Need To Know," Page 22.
Oanda. "Price Interest Point (PIP)."