Avoiding Slippage in Forex

«My Forex broker cheated me. I put in an order at one price and it got filled at another, and now I’m in a losing trade. That’s why I’m losing.»

How often have you heard that story, or been tempted to tell it yourself? One of the many risks of trading Forex is something called slippage. No, it’s not your broker cheating you (well, that’s up for debate, but seriously, don’t make excuses for your lost trades). It’s something you need to be aware of and compensate for during your trades.

What is slippage in Forex? Slippage is when you place an order at a quoted price, and your order gets filled at a different (worse) price than the one you were quoted. Slippage can be minor enough not to impact your trade outcome at all, or it can be major enough to stop you out the moment you’ve entered the trade! You can lose a lot of money through slippage, so it’s something to be wary of and to avoid if at all possible.

Why is there slippage in Forex? Slippage tends to result during times of great volatility, and also in response to fundamental events like reports being filed, etc. Slippage almost always happens when the market opens each weekend on Sunday nights! If you stay in a trade over a weekend, be very wary. Sunday nights are unpredictable—in general this is not a good day to trade.

If you do place a Forex trade which you’re going to hold over the weekend, or set up for a trade on the weekend which might get triggered when the market opens again, compensate for that potential slippage. Place entries a little farther out than you usually would (testing will help you choose a good amount of buffer to leave). You may also want to move your stops out a little farther than usual too if you are already in a trade.

Do some Forex brokers deliberately make money through slippage? Probably, but slippage is a fact of life, even with good Forex brokers. It’s best to learn to deal with it than to complain and blame someone else for your failure. There are bad brokers out there though, so if you’re concerned you might have one, look up their ratings and find out about other traders’ experiences.

On a related note, you can set up most broker platforms to show you the spread. This should help you to understand spread and slippage better and thus make better trading decisions. Spread widens and shrinks in different market conditions—during volatile ones it tends to widen (which is how slippage usually occurs). By setting your charts to show this spread, you’ll be able to visually see the days of the week and the times at which the spreads widen the most. Then you can compensate in the future by following the previous suggestions to avoid slippage in Forex outright or work around it.

Euro To Continue Downtrend?

The daily barrage of news reports and stories about the Euro currency is nauseating to say the least. The mood currently is extremely pessimistic and for good reason. So far every piece of economic news regarding the Euro zone has been disappointing and the charts are accurately reflecting the doom and gloom. Enough with the chit chat, let's get into the important stuff. A few weeks ago I made a post about how the 1.3400 area might provide a road block for any downside movement and it did. Since that last post, price has closed very convincingly bellow the 1.3400 pivot. Over the past week a very important development has taken place on the technical side of things. The iron clad 1.3400 price pivot zone is now being used as resistance. Remember, prior support once broken becomes resistance! You may ask yourselves, how do we know that the 1.3400 will hold? The answer is nobody knows for sure, but the market likes to leave little clues here and there for the observant traders. The Euro left us with a very nice daily rejection candlestick at the close of Friday's trading session. I have marked the very large rejection candle on the chart bellow for easy reference. I am a big believer in these formation because they illustrate when a stop run takes place. For the neophytes here, a stop run is when the market spikes into an important price level and reverses instead of continuing in the initial direction. This is how this rejection dynamic manifests on the chart, and it is very often a precursor to a reversal. The downtrend for the Euro has been a very strong for the last few weeks and as of right now it looks like it may continue. Bearish momentum will be confirmed IF the low of that rejection bar breaks with conviction.

Gold Price To the Moon? Maybe Not!

Over the past couple of weeks I have been reading some popular financial blogs and publications and the common theme and front pages news is the price of gold. You can not find a place online that is not talking about how people are selling their gold dental crowns or selling their children for the privilege of buying some of the precious yellow metal. Everyone and their mother, mother's cousins, mother's brother is buying gold and loading up in preparation for a monetary apocalypse. I have heard so many conflicting opinions from the "Experts" on where the price of gold should be, or where it is going that it will make your head spin. Some financial analysts say $10,000 per ounce, some say $5000 per ounce. As far as I am concerned no one really knows in which direction most of the time the market will move, let alone how far and what exact price the commodity will reach. If you have read anything I have posted on this blog over the past months, you will know that I like to see what the market is telling me on the screen in front of me. In my eyes the charts are the only somewhat reliable indicator of future market bias. In the real world nothing is 100%, but every once in a while if you are observant and patient you might get a clue. If you pull up a daily or weekly chart of gold futures contract or XAU/USD forex pair the uptrend has been steady and the slope of the chart is getting stepper and steeper. Most investors and traders would only see long opportunities and to even suggest a short bias would be considered laughable. I am about to do just that. If you notice on the screenshot bellow, the monthly chart for gold is showing a very large bearish engulfing bar formation.

Since gold started it's stratospheric rise in 2008, there has not been a formation of this magnitude and size. In my experience, before a long term trend is over or a reversal takes place, a parabolic rise in price occurs after which a very sharp downward swing takes place. This is the same dynamic that signaled the crash of the Nasdaq from it's highs at 5000. This very similar price action has played out in gold futures during September and it may be a sign of things to come. I am not stating with a thousand percent certainty that gold is going to collapse, no one knows for sure. However there is an eerie resemblance to what happened right before the Nasdaq bubble popped. If you are a long term investor you should take note of this development, I don't care if you think gold is going to $20,000 per ounce. I would say to wait for a breaking of the low of that bar formation. Always wait for confirmation of directional bias before hopping on the bandwagon. Happy Trading!