20. How to determine the entry price of a new trade
When deciding upon the entry price for a forex trade, there are two things to consider. One is the current price of the currency and the other is trend of the market place. Depending up your broker, the current price could be ambiguous. In the animation, the price between the Call and Put buttons can be as much as 11 points more than the other price shown. (The animation here uses VideForex.)
Use the Cash Trap strategy in the Hourglass tool to determine the entry price. Go to the Alert Panel on the right-hand side of Hourglass. Look at the highlighted pair — EURCAD. Then use the strategy to decide if pair is good enough to trade.
If it is good enough, you will consider using a put (sell) with an entry price of 1.50190 or higher. So, the price between the Call and Put buttons above would be 1.50190 or higher. We usually call out just the last 3 digits — 190. (Note that for a call, you will want the specified entry price or lower.)
It will be a put. So, you want the final price to be lower than the entry price. Otherwise, you will lose the trade. The higher your entry is above 190, the higher is your probability of winning the trade.
You should be in a hurry. Jot your entry information in abbreviated form. You will have a sheet of paper for your trading information. Call it trading sheet. On it you may want to write this: EC p 190 or more.
That means you want to put EURCAD but will not sell until the price between the Call and Put buttons is 190 or more.
More info for your trading sheet
On the top line of your trading sheet you may have something such as 645.23 6.45 12.90 19.35 696 613. From left to right these numbers are the amount you have in your trading account, 1%, 2% and 3% of that amount, 8% more than that amount and 5% less than that amount.
(To quickly calculate the dollar amounts, you may want to use the Cash Trap calculator used in the animation above.)
Those numbers are part of you risk management strategy. Depending upon how many points you have in Cash Trap, you will invest 1, 2 or 3% of your account. In this example you would stop trading for the day if your account reached 108% of the opening balance ($696). You would also stop trading for the day if your account was reduced by 5% (to $613).