For many traders, one of the most difficult chasms to cross is making the leap from recognizing the set-up on the chart to placing the order on their execution platform.

Why Is It So Difficult?
The first reason is the lack of a confirmation tool that would allow a trader to enter at the price trigger, rather than having to wait for the candle or bar close. Using an indicator such as an MACD histogram or CCI can easily act as an “on / off” indicator, which means a trader would simply look for a particular reading to confirm the price move.

Another reason that it's difficult to get off the charts and to the execution platform is the absence of a complete trading plan. A complete trading plan must include the entry price, of course, but it doesn’t end there. Before a trader enters any position, the stop-loss and initial profit target(s) must be determined. Without this information, there is a disconnection from the trade and that leads to hesitation.

Finally, the most common problem is a limited understanding of order types and how to use them in the best manner. Interestingly enough, after I wrote my first book, Forex Trading for Maximum Profit, I was certain that the readers’ questions would be concerning charting, my Wave, and my “on / off” indicator choices. Frankly, I was wrong. Instead, I was overwhelmed by order execution questions.

Building a Trade
So, let’s build a trade and discuss these three sources of difficulty in the transition from seeing the trade and making it.

On Monday, April 10, the British Pound / U.S. Dollar pair was trading within a triangle pattern and a three o’clock wave. The sideways wave confirmed that there was no trend in place and that prices could break in either direction.

The first issue I mentioned was the confirmation tool. In this type of set-up, I will rely on the MACD histogram to confirm the entry if the price breaks up through the downtrend line or down through the uptrend line and horizontal support level.

The “on / off” indicator use of the MACD histogram is as easy as seeing whether the histogram is plotting above or below the zero line. If it is above the zero line, a price break-up through resistance is a confirmed entry.

It’s just the opposite for a confirmed breakdown, in which case, the histogram must be plotting below the zero line. Because the MACD histogram is currently below the zero line, breakdowns will be confirmed. So, while I do not “pick sides” or hold a bias as to the direction of the market, I know that a break to the upside will not be a confirmed entry unless the histogram gets above the zero line.

The second issue in the completion of a trading plan is solved by recognizing support and resistance levels on the on the chart. I will also use “invisible” support and resistance levels created by major psychological numbers, such as the “00” and “50” pip.

There are many ways to calculate support and resistance on any chart. For this example, I am using the most easily identifiable choices. However, remember that pivot points and Fibonacci levels are also very powerful and relevant support and resistance levels that I will often use when horizontal levels or major levels, such as the “00”, are not in play.

The first support level to the downside is the lower of the two horizontal support levels, which is at the 1.7415 level. This will be the initial profit target where a portion of the entry short must be bought back. The second level is the “invisible” level I mentioned earlier. The “00” pip level will be support; this is a psychologically common and, therefore, relevant support level.

As the market broke down, you can see how quickly prices fell. This brings up the third issue I mentioned involving order entry. A sell-stop-order would trigger a short after prices broke down through the uptrend line. By proactively placing a sell-stop, the entry would be taken care of at the precise point of the breakdown. After the entry, the best type of order to use would be a conditional order called an “OCO”.

I trade through Forex.com (http://www.tradedirectfx.com), and, after my entry, I place an OCO to bracket my entry with a stop-loss and a limit order for the profit target. Understanding order entry allows us to trade the levels on the chart and conditional orders enable us to put our orders on “auto pilot”.

A logical stop-loss would be just above the high of the breakdown candle or the top line of the wave. The initial profit target of the horizontal support level is easily handled with a limit order. This will be one of the conditional OCO orders that involve placing two separate orders “linked” so that, if one order is executed, the other automatically cancels.

Imagine that your profit target is hit and you have exited the total position. The OCO would automatically cancel the stop-loss order. Again, if you are trading Forex, conditional orders are not a luxury, but a necessity.

Prices finally reach the 1.7400 psychological price level. When trading “00” pip levels, you must place the limit order to exit three to five pips above the “00” pip. A buy limit order placed at 1.7405 would easily take care of exiting in front of the “00” pip support. If prices continue down, it will bring the Pound to the minor psychological level of 1.7380.

The “80” and “20” pip levels are minor level, which means the support (or resistance) they create is not as solid as the “00” and “50”, but they are relevant, nonetheless.

Note: The charts in this article were captured from eSignal. To find out more about how you can get streaming, real-time quotes from all the markets, plus streaming charts, news and Market Depth, go to: www.esignal.com.