Opening a position is relatively easy: you choose an asset, decide if you want it to go up or down and then decide how much you want to gamble on that. Now, I say gamble because there are two very important elements that MAKE it a gamble and not a proper trade: knowledge and control. We’ll be talking about knowledge in our next course on how to analyze financial markets. How to read the news and public announcements, how to go from them to predicting market behavior, how to ANALYZE past behavior and deduce the future from past behavior.

Control, though, lets you tell the platform precisely when to open and close a position, so you don’t have to do it manually, so you won’t make a mistake, blink or nap. We do that by using market orders. Let’s take them one by one. There aren’t that many.

OK, first we have our opening orders. These are called pending orders and after you PLACE them you’ll see them in your trading window, simply without showing a profit/loss. Now basically, we can open a long position or a short one – one that’ll make money going up or down. And, we can tell the platform to open a position WITH the trend or AGAINST it. In short – STOP BUY, LIMIT BUY, STOP SELL and LIMIT SELL.

Our STOP BUY order is an order to open a BUY position if an asset rises above a certain level. We’re expecting a trend to continue and we’re looking for confirmation. So, if gold is at 1300, we’ll set our stop buy order at, let’s say, 1350.

If we think the trend is about to reverse, on the other hand, we’ll open a SELL LIMIT order, one that will open a SHORT position above the current price Same as before – gold at 1300, order at 1350, but it’ll be a SELL

Now, if gold is falling and we expect it to CONTINUE falling, we’ll place a STOP SELL order. 1250 if gold is at 1300 like before. That’ll open a short position below the current level.

Again, if we’re expecting a trend REVERSAL, a BUY LIMIT order will open a long position below our current price.

Now, just before we continue to our closing orders, a word about the STOP LIMIT order, which is a bit complex. Basically, it’s a stop order that only comes into effect after a limit order is executed. As we said, we use limit orders when we expect a reversal. But let’s say we’re only expecting that reversal to occur if a trend continues beyond a specific point. Let’s say we open a Stop Limit order to buy oil. It’s at 54 and we want to open a short at 59. We open our stop at 57 and our limit order 59 for a SELL, and take profit at 58.

Which brings us to closing orders. Basically, there are 3 – take profit, stop loss and trailing stop loss, and they pretty much mean what they sound like.

Our take profit that we mentioned before is an order we place at the value where we expect our profit to be greatest and the trend to reverse into a loss. If I open a long position it’ll naturally be above my current price; if it’s a short position, it’ll be below the current price. We’ll usually place a take profit just before an expected announcement that might disrupt the current trend, or at a point where an asset becomes under or overpriced.

Stop loss is an entirely different matter. It’s an order we should never forget to place, and it tells us the maximum loss we’re prepared to take on a position. At the end of the day, we all hope for the best, and when a position runs against us, we’re always expecting, or rather HOPING our fortunes will change and we’ll recoup our losses. Stop loss places a limit on that before we go bankrupt. If I open a buy order, I’ll place the stop loss below the current price; if I open a short – ABOVE it. Either way, I should make sure there’s some kind of sensible ratio between what I expect to WIN on a position and what I’m prepared to LOSE. So never go into an investment without knowing ahead of time how you expect to get out. EITHER way!

Finally, our trailing stop loss is just an improvisation on the stop loss. The trailing stop loss – instead of being set at a specific POINT on the chart is set to maintain a specific DISTANCE from the current price. It’ll go one way, but not the other. That way, if your buy position rises into profit, for example, the trailing stop will rise with it; but the moment it rises to that point, it won’t go down again. In a short, it’ll ride the trend down but not back up. Kind of like setting aside your profits as they come in.