Forex Strategies and Tips

Understanding Bid and Ask

Most new traders jump into demo trading without really understanding what BID and ASK are. In fact, even some seasoned traders are still fuzzy in their understanding of this.

If you regularly wonder

"Why did I get stopped out there?!"

"Why wasn't I picked up where I thought I should have been?"

"Why didn't I make as much on that trade as I expected to?"

... there's a good chance it's because you haven't really understood how BID and ASK influence your own trading.

We'll explain it in 3 parts:

① How BID and ASK work

② How you can lose money if you do not account for BID and ASK

③ How the Advanced Calculator does the BID/ASK work for you

Key Points About Bid and Ask

Key Points:

  1. You buy on the ASK and you sell on the BID.
  2. When you go long you enter on the ASK and exit on the BID (either at a loss or in profit).
  3. When you go short you enter on the BID and exit on the ASK (either at a loss or in profit).
  4. The ASK price is always above the BID price
  5. What you see on your charts is the BID price *
  6. It helps to mentally visualize the invisible chart of ASK candles
  7. ASK - BID = Spread

* Some charting platforms let you pick whether you see bid, ask or average.

Try thinking of the ASK prices as though they are a different chart overlaid on top of the chart you see, with slightly higher prices.

Video #1 ~ Understanding Bid and Ask

The Hidden Costs of Misunderstanding Bid and Ask

If your style of trading uses important visual features of a chart to place a stop loss or a take profit, like previous support or resistance, pivot points, fractals or Fibonacci levels...

Remember – you are looking at the BID of those features.

Here's an example ~

Let's say you go short on the GBPNZD, with a 5 pip spread.

You set your take profit at the previous support level you see at 2.0543.

It turns out to be a great call, as price went right down there and hit your target, then bounced up sharply from there.

Two different traders took this same trade: one made money and the other lost money.

Which Trader Are You?  Did you remember or forget to add spread?
Let's take a close up look at what is really going on at the take profit level, and where the mistakes can happen:
The winning trader knew to place their TP = 2.0548, because all shorts exit on the ASK, which is above the BID
The losing trader who used TP = 2.0543 was in effect asking price to go 5 pips below the level they had picked out.
The following video will explain this in more detail:

Video #2 ~ Common Mistakes

Making it Easy - Use The Advanced Calculator

The Advanced Calculator offer 2 ways for you to enter your stop losses and take profit levels ~ either using the Prices you See or a fixed actual price.

Use the option 'You See' to have the Calculator automatically add or subtract the spread whenever it's appropriate to do so (depending on whether you're buying or selling).

The Calculator then gives you feedback on what those stops and take profit levels will look like, giving you a chance to go back to your charts and double check that you're actual trade plan matches what you intended it to be.

Video #3 ~ The Advanced Calculator Helps With Bid & Ask