A
An increase in the value of currency due to a favourable market reaction or an increase in the value of a general asset.
The act of taking two equal and opposite positions on the same currency pair at the same time to benefit from small price variations between related markets. Because these variations are very small, this is generally only beneficial if you have a large amount of money in the trade.
A basic chart pattern used in technical analysis to predict overall changes in trend.
The channel is formed with higher forming “swing highs” and higher forming “swing lows”.
Price moving within an ascending trend channel indicates a continuation in the upward trend.
Some traders consider price breaching either line forming the channel a strong signal either to enter a buy or sell position. A break through the upper trendline to buy, whilst a break through the lower trendline to sell.
The LIFT Trading Method will generate an earlier trade entry opportunity – maximising your profit from each trade.
A Bullish pattern created by connecting two or more successively higher swing lows. This creates an upward sloping trend line that acts as Support in a Rising Market.
A Bullish Chart Pattern that indicates a strong upper resistance to price movement with increasingly higher support swing lows.
The theory behind this chart pattern is that; with the strong upper resistance at a particular price point (a double zero number – e.g. 1.3300, a Pivot Point or a Fibonacci Retracement Point) and increasingly higher swing lows, giving increasingly higher Bullish Pressure.
once the upper resistance to price movement is breached, price action is likely to continue upwards beyond the resistance price by the same amount as in the first swing “mouth” of the pattern
The price at which the market sells a currency. The trader can BUY the base currency at this price. This is the right hand side figure in price window
An item that has exchange value.
An unconventional measure used by a central bank to stimulate an economy. Most recent examples are the purchasing of government bonds to lower interest rates, inject capital into the economy or both. Otherwise known as “quantitative easing”.
The instruction given to a dealer to buy or sell at the best possible rate.
The instruction given to a dealer to deal at a specific rate or better. Hence-“at or better.”
Measures implemented by a government to reduce spending in order to lower their deficit. Usually involve wage cuts and tax increases – a political attempt to reassure creditors that they will be able to pay back outstanding loans.
The currency of Australia. Currency code (AUD) The Australian dollar is one of the top 6 traded currencies. Also known as “The Aussie”
B
The difference in value between a country’s imports and its exports.
A leading economic strength indicator used by Fundamental Traders.
(Also known as the Western Bar Chart) A type of chart used by some traders in trading forex.
It has four major points- the high and low prices which form the vertical bar, the opening price is marked as a small horizontal line on the left side of the bar, and the closing price is marked as a horizontal line on the right.
The first currency in a currency pair (on the left).
Always set to a default value of 1.
As such, this indicates in the price how many of the other currency in the pair is 1 of the base currency worth.
A term used in the UK and Australia for the rate used by the banks to calculate the Interest rate to borrowers.
Top quality borrowers will pay a small amount over base.
This amount is set by the country’s Reserve Bank and is determined by the overall strength of the currency.
Equivalent to one percent of one percent of the currency.
Also known as a “point” or a “pip”
A Trader who believes that prices will decline (go down).
Depending on how the Trader trades, they can be “bearish” for the short, medium or long term.
A market in which prices are noticeably falling.
Also called a “short market”.
Used to describe that a person’s, or group’s, outlook on an asset is “negative” (i.e., that the asset will fall in value).
For example, Joanne is “bearish” on the Swiss Franc, which means she thinks its value will go down in price.
There are more than 14 recognised Bullish Reversal Candlestick Patterns.
These include the Bullish Engulfing, the Piercing Pattern, the Harami, the Hammer, the Inverted Hammer, the Morning Star, the Bullish Railway Tracks and the Abandoned Baby.
To use Bullish Reversal Candlestick Patterns successfully, look for the pattern in a downtrend and use Bullish Confirmation as reinforcement of the pattern.
Use as part of your basic trend recognition procedures when completing your “Top Down Analysis”.
The price at which The Market will BUY a currency.
This is the price that The Trader may SELL the base currency.
This is the left hand side figure in price window.
To enter a Short Trade, the Trader clicks the SELL (BID) Button.
The difference between the BID and ASK price.
This indicates the broker’s commission (including their costs of entry).
e.g. if the GBP USD Bid Price is 1.2345 and the Ask Price is 1.2346, the Bid / Ask Spread is 1 Pip.
Also known as a “pip spread”
An agent or company who executes orders to buy and sell currencies and related instruments for their clients.
Brokers typically make money on either the commission or on a “spread” (the difference between the Bid and Ask Prices).
Some Brokers also charge a monthly fee.
Brokers are agents working on commission and not principals or agents acting on their own account.
In the foreign exchange market, brokers tend to act as intermediaries between banks bringing buyers and sellers together for a commission paid by the initiator or by both parties.
There are four or five Global Brokers operating through subsidiaries, affiliates, and partners in many countries.
Most Traders operate accounts through “Retail Brokers”.
A person who believes that an asset will rise in value.
Depending on how the Trader trades, they can be “bullish” for the short, medium or long term.
A Market characterized by rising prices.
Also called a “Long Market”.
The term “Bullish” is used to describe that a person’s, or group’s, outlook that an asset will rise in value.
For example, John is “bullish” on the British Pound, which means he thinks its value will go up in price.
A Japanese Candlestick Pattern which identifies the potential of a price trend changing from Bearish to Bullish.
The market must currently be in clearly defined price downtrend.
The first candle is bearish.
The second candle is bullish.
The body of the bullish candle “engulfs” the previous candle’s body (completely covers the open and close of the previous candle).
The size of the candle being engulfed doesn’t matter.
We only look at the “real body” of the candle – ignore the wicks.
An even stronger signal occurs when the bullish candle engulfs the bodies of two or three previous candles.
The Icon to Click if you want to Enter a Long Trade or (on some platforms) Exit a Short Trade.
Buying at a specified price above the market.
C
Type of chart used to indicate the trading range for the day and opening/closing prices.
Also known as a Japanese Candlestick Chart, as this is where this style of charting method originated.
Placing an order to take an advantage of position swap rates and also the positive movement in the currency pair
The market on which a futures or an options contract is based.
The forex market is also known as the Spot Cash Market.
Contract For Difference.
Typically used by traders to take leveraged short term investment positions in highly volatile markets.
Allows Traders to take short term positions with other Traders as to whether the price of an commodity will rise or fall.
One of the Serious Risks for Trading CFDs
The increased leverage involved with CFD’s increases the rate at which losses can be realised.
Described by Albert Einstein as “The Most Powerful Force in The Universe”, this is the act of reinvesting a percentage of profits made into the next investment.
By doing this, your profits will generate a higher level of profit for you and; therefore, leverage your results.
All successful Traders and Investors consistently reinvest a percentage of their profits because they know that this allows them to produce greater results, by taking the same effort.
An agreement of trade between traders – each Contract executed has a BUY and SELL price indicated.
Traders who believe the currency pair price will RISE (Bullish Trade), set their BUY Price on Entry into the Contract and their Sell Price on Exit to close the Contract.
Traders who believe the price will FALL (Bearish Trade) set their SELL Price on Entry into the Contract and their Buy Price on Exit to close the Contract.
A rate used to convert one currency into the value of another currency.
This is used in actual currency transfers when one currency asset from one country (e.g. British Pound) is converted into another (e.g. Australian Dollar)
The coupling of 2 currencies in which one currency is traded against the other.
Also known as a Currency Pair.
Any form of money a government endorses and is used for trade.
The act of artificially changing a currency’s value against other currencies instead of leaving it free to fluctuate based on market dynamics.
This can be done by fixing the exchange rate or deliberately increasing or decreasing its value.
This practice is illegal in the United States and frowned upon internationally, as creates an artificial distortion in currency prices.
This could also give way to unfair trade advantages since artificially devaluing a country’s currency could make its exports relatively cheaper and more attractive.
In the long run, this could eventually result to a global trade imbalance.
The governments of some countries are known to use this method, making their currency more difficult to trade consistently based upon technical analysis or fundamental analysis.
These pairs are how the Spot Forex Market is traded by displaying and pricing one currency against another to be used to make a trade.
The pairs are traded in set formats, as specified by the International Monetary Fund.
Currency pairs are normally shown as two abbreviated currency names, separated by a slash or side by side.
These are the BASE currency (on the left) and a QUOTE currency (or COUNTER currency) on the right hand side.
The most traded currency pairs in the world are called The Majors.
They include the currencies euro, US dollar, British Pound Sterling, Swiss Franc, Japanese Yen, and Australian Dollar.
The Majors make up the largest share of the foreign exchange market and are considered by The Trading Coach to be the Strongest Currency Pairs to trade, because of their strong fundamental value, their trade volume and that they are traded by the large banks and investment funds.
The potential negative effect involved in exchange rates..
D
A graph that shows the past price movement of a security in which each bar or candlestick represents one day’s worth of data.
This day is most commonly the midnight to midnight period of the country in which the trader is based.
Some charts can show the daily candle as the midnight to midnight period GMT (Greenwich Mean Time) or New Your Time (ET).
Always be aware which your broker shows you on your charts – it may impact various tools, especially Pivot Points.
A person who makes and closes trades within the same trading day, or “flat” (no open positions) at the end of the session.
Those Traders who execute multiple trades within a day are known as Intra Day Traders.
Several programs teach intra day trading techniques as a way to mitigate risk and ensure that the trader is always aware of their financial position and has the ability to enter and exit trades while minimising risk.
Day trading on the foreign exchange market is recognised as one of the most active forms of trading.
The ability to enter and exit trades in a short time frame to take advantage of the smaller fluctuations in price is not for every trader.
Only those looking to minimise risk by using lower “stop losses” and maximise profit by trading shorter term price runs should consider Day Trading.
The doji is a type of candlestick where the “real body” is non-existent with varying lengths of upper and lower “wicks” or “shadows”.
This candlestick looks like a cross, inverted cross or plus sign.
The lack of a real body with equal open and close prices indicates indecision between buyers and sellers – with a potential shift in the current buying or selling pressure.
E
A three candle bearish reversal pattern similar to the Evening Star.
# The uptrend continues with a large white / green body.
# The next candle opens higher, trades in a small range, then closes at the same price as its open (Doji).
# The next candle closes below the midpoint of the body of the first candle.
A bearish reversal pattern that has the potential to take an upwards price movement into a bearish retracement or trend reversal.
Pattern starts with a long white / green body candle followed by a gapped up small body candle, then a down close with the close below the midpoint of the first candle.
A physical location where commodities and futures are traded.
The foreign exchange is not a physical exchange – it is a trading “platform” where trades occur.
The current rate at which a Trader can Buy or Sell a currency in a Trade.
These rates can change every microsecond.
Forex Trading Successfully is about making PROFIT when transacting into and out of a currency contract.
In all transactions, this means having a BUY Price which is LOWER than Your SELL Price.
The potential loss that could be incurred from an adverse movement in exchange rates.
Also Known as Market Exhaustion.
A situation in which a majority of participants trading in the same asset are either long or short, leaving few investors to take the other side of the transaction when participants wish to close their positions
F
Leonardo Fibonacci de Pisa was a 12th century mathematician who explained the Fibonacci sequence – a mathematical progression of numbers based upon adding the current number in the series with the previous to find the next.
The sequence starts off 0, 1, 1, 2, 3, 5, 8, 13, 21, 34 and continues. As the values increase, the difference between each number in the sequence calculates at 61.8% larger than the previous.
Numbers in the sequence are a universal constant and appear consistently in nature, from the dimensions of the nautilus shell to the dimensions of the human face.
There is an inherent psychology to the numbers which affects (according to proponents of Fibonacci) the way traders enter and exit trades, based upon price movement and price cycling.
Fibonacci can be utilised in many different strategies to varying benefits
Human behaviour is not only reflected in chart patterns as large swings, small swings or trend formations.
Human behaviour is also expressed in peak-valley formation. Fibonacci channels make use of peak and valley formations in the market and lead to conclusions on how to safely forecast major changes in trend directions.
The secret of Fibonacci channels is to identify the correct valleys and peaks to work with. Support and resistance lines can be drawn weeks and months into the future, once the appropriate tops and bottoms in the market have been detected. Only major tops and bottoms should be considered for a base line of a Channel with one or more prominent side swings. The widest swing within a time frame of the base line is used for a trigger line.
Fibonacci channels are a method of predicting levels of support and resistance for a given market. Although Fibonacci channels fall under the general category of Fibonacci studies for technical analysis, the channels aren’t among the most popular tools used by traders today.
Fibonacci channels are variants of the more-popular Fibonacci retracement strategy, with retracement lines running diagonally rather than horizontally.
To generate Fibonacci channels for a chart, a trader first creates a base channel by drawing parallel lines through a price top and price bottom.
The slope of the Fibonacci channel is determined by connecting either two bottoms or two tops, depending on the overall trend: in a downward trend two bottoms are connected, while in an upward trend the slope is generated from two tops. Once the base channel is drawn, additional parallel lines are drawn above or below it, with the distance between lines determined by Fibonacci numbers: 0.618 times the width of the original channel, then the width of the original channel, then 1.618 times to the width and so on, multiplying each number by the golden ratio 1.618 to determine each successive width.
These Fibonacci channels determine the support and resistance levels for the market within the overall trend.
When used, Fibonacci channels are often drawn along with Fibonacci retracement charts. The points where the diagonal lines and horizontal lines cross are considered to be exceptionally strong levels of support or resistance for the market.
The study of Fibonacci can be all consuming and it can often times be easy to get caught up in one aspect of the study.
Fibonacci extensions are, as the name indicates, not a separate Fibonacci Studies in their own right, but rather a way to increase the utility of Fibonacci retracements over time.
Fibonacci extensions are created by first generating a Fibonacci retracement chart for a market. This is done by drawing a vertical line from a top to a bottom and then crossing the vertical with horizontal lines, each drawn through points determined by taking Fibonacci-significant percentages of the initial vertical’s length (38.2%, 50% and 61.8% of the vertical’s length being the most common values used.)
Once a basic Fibonacci retracement is created, a Fibonacci extension can be created by extending the vertical and drawing additional horizontal lines through it at higher or lower price levels, corresponding to greater Fibonacci-significant percentages: 161.8%, 261.8%, or any percentage derived by multiplying a previous percentage by the golden ratio of 1.618.
Once a Fibonacci level is met and broken through, that level becomes support, with the following Fibonacci level becoming resistance.
Fibonacci extensions are used to outline future support and resistance levels for a market once price levels exceed the initial retracement resistance or support level of 100% of the original vertical’s height.
Fibonacci extensions are thus not just a method of assessing how much the market will recover from a major price adjustment, but rather a long-term method of determining the support and resistance levels of the market once price levels have broken the original support or resistance and begun moving along a new overall trend.
The study of Fibonacci can be all consuming and it can often times be easy to get caught up in one aspect of the study.
Markets move in rhythms or waves.
An rapid price movement which occurs in a price trend will generally have a following “settling” in price back to a previous point in the movement to allow opposing Traders to test a previous level of Support or Resistance to moderate rapid movements.
These retracement points often occur at a level that Traders see as a “natural” or “comfortable” level.
As human beings, we are “wired” to see symmetry and lack of symmetry in line with the Fibonacci 38.2% and 61.8% proportions.
This occurs in either bull market or bear market conditions.
Fibonacci retracements are one of the four most commonly-used Fibonacci studies for predicting levels of support and resistance for a given market.
Fibonacci retracements are used immediately after a strong price movement either up or down. An imaginary vertical line is drawn across the chart between two extreme price values, one high and one low.
Then a number of horizontal lines are drawn perpendicular to the imaginary vertical at significant Fibonacci values.
The most common number of lines is five, drawn at 0%, 38.2%, 50%, 61.8%, and 100% of the length of the line (starting from either end), but some traders have been known to use even more retracement lines than this.
Following a strong price movement in either direction, markets tend to “retrace” much of their change in price, and the levels at which this retracement reverses or pauses often correspond with the horizontal lines on the Fibonacci retracement chart.
A Fibonacci retracement isn’t useful for determining overall trends in price, but can help to predict levels of support and resistance within a large price reversal, allowing traders to anticipate medium-sized fluctuations in price and trade accordingly.
Fibonacci studies are geometrical representation of nature’s law and human behaviour that can be applied, almost without limit, to market data series, whether cash currencies/Forex, futures, index products, stocks or mutual funds. Each shape possesses unique characteristics in determining when the battle between bulls and bears is approaching a critical phase and which side is likely to win it.
Most Fibonacci studies are based on 3-wave patterns (A-B-C corrective patterns). The first impulse wave A is followed by the second corrective wave B that doesn’t.
Fibonacci time projection days are days on which a price event is supposed to occur. Time projection analysis is not lagging but is of forecasting value.
Trades can be entered or exited at the price change rather than after the fact. The concept is dynamic. The distance between two turning points is seldom the same, and time projection days vary, depending on larger or smaller swing sizes of the market price pattern. This base for drawing this shape is 2 critical points: two highs, two lows or a low and a high.
Fibonacci levels are projected into the future based on those points and at this time it is impossible to say whether those levels mark peaks or valleys.
If price is declining or rising approaching a given Time Projection level, it is likely this level will mark an end or a pause of a particular trend. It is always recommended to combine Time Projection with other Fibonacci tools for more dependable signals.
Fibonacci time projection is one of the four most popular Fibonacci studies for technical analysis, involving the use of Fibonacci time zones.
Fibonacci time zones are generated by dividing a chart into a number of time areas, based on the Fibonacci sequence.
As an example, if the base increment is taken to be an interval of one day, Fibonacci time zones would occur around 1.618 days after that day, then 2.618 days after that, then 4.236 and so on.
Each interval is multiplied by the golden ratio, 1.618, in order to generate the next interval. These Fibonacci time zones are used to predict large price events, whether reversals of a current price trend or sharp changes in price along with the trend.
Fibonacci time projection is accurate to a point, but in a few cases large price events occur significantly before or after the time predicted by the Fibonacci time projection. Although this only describes about 30% of cases, Fibonacci time projection should only be used in conjunction with other technical analysis tools, and as a guideline for trading rather than a sure-fire method of divining the future
Fibonacci Time Zones are a series of vertical lines.
They are spaced at the Fibonacci intervals of 1, 2, 3, 5, 8, 13, 21, 34, etc. The interpretation of Fibonacci Time Zones involves looking for significant changes in price near the vertical lines.
Fibonacci time zones are used in the Fibonacci time projection, one of the four most commonly used of the Fibonacci studies for technical analysis.
A Fibonacci time zone is generated by first taking some time interval on a market’s chart as a base increment of time, anywhere from one hour to one day.
The most useful Fibonacci time zones are generated by choosing a base interval described by the time between two market bottoms or tops. The base interval is then multiplied by the golden ratio, 1.618, in order to determine the length of time from the end of the base interval to the first Fibonacci time zone. Future Fibonacci time zones are generated by multiplying each successive interval between Fibonacci time zones by 1.618.
Fibonacci time zones are, in theory, the points at which large market events can be expected, from the reversal of a current price trend to a large change in price in the direction of the trend.
In practice, Fibonacci time zones do have a large measure of predictive power (something like 70%), but on occasion large price events can occur between Fibonacci time zones, even though the time zones usually still correspond with price events of some size. Because of this occasional inaccuracy, Fibonacci time zones and Fibonacci time projection should only be used as guidelines, and should also only be used in conjunction with other technical analysis tools.
The rule in which positions are closed in the order they were originally opened.
Also known as FIFO.
The loss or gain on foreign investments due to a rising or falling domestic currency.
A falling domestic currency means foreign investments will result in higher returns when converted back into domestic currency.
Foreign Exchange, or Forex trading is the simultaneous buying of one currency and the selling of another.
Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro and the US dollar (EUR/USD) or the British Pound and the US Dollar (GBP/USD).
Because you’re trading contracts and not buying anything physical, this kind of trading can appear a little confusing at first glance.
Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
Foreign Exchange, or Forex trading is the simultaneous buying of one currency and the selling of another.
Currencies are traded through a broker or dealer, and are traded in pairs; for example the Euro and the US dollar (EUR/USD) or the British Pound and the US Dollar (GBP/USD).
Because you’re trading contracts and not buying anything physical, this kind of trading can appear a little confusing at first glance.
Think of buying a currency as buying a share in a particular country. When you buy, say, Japanese Yen, you are in effect buying a share in the Japanese economy, as the price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.
An abbreviation of “foreign exchange” – also referred to as the “FOREX” or ”FX” or ”Retail forex” or “currency market”
The difference between the Bid and the Ask Price of the currency pair
A forex swap is the simplest type of currency swap. It is an agreement between two parties to exchange a given amount of one currency for an equal amount of another currency based on the current spot rate.
The two parties will then give back the original amounts swapped at a later date, at a specific forward rate.
The forward rate locks in the exchange rate at which the funds will be swapped in the future, while offsetting any possible changes in the interest rates of the respective currencies.
Thus, this creates a hedge for both parties against potential fluctuations in currency exchange rates.
This makes forex swaps very useful for multinational and exporting companies.
Fundamental analysis is a method of evaluating assets on the basis of external events and influences, as well as financial statements on the asset itself.
It is used by traders to make decisions on different assets by measuring the economic, financial and market conditions that can affect its price.
Unlike Technical Traders, who wwill derive all the information they need to trade from an asset’s charts, Fundamental Traders look at factors outside of the price movements of the asset itself.
Traders can either use fundamental or technical analysis exclusively, or a blend of the two.
Fundamental analysis involves using numerous qualitative and quantitative factors to evaluate an asset.
For Forex Traders, it can mean assessing the figures released by central banks, Employment, Interest Rates, Manufacturing, Balance of Imports and Exports, etc. that allow insight into the state of a country’s economy.
G
The act of buying currency, commodities, and stocks for investment, with the expectation that profit will be made from a price increase.
The Act of entering a Forex Trade with the expectation that the price will fall. The SELL Price is entered on the opening of the contract as the Current Market Price.
If the price falls as expected, the Trader exits the Trade by Clicking the BUY Button at the now lower price.
How Does This Work?
Short Trading Relates to a trade in a binary market, where the COUNTER / COMPARISON currency, commodity or stock is expected to rise in value against the BASE.
This is the act of selling the BASE currency, commodities, or stocks to profit from the increase in value of the COUNTER / COMPARISON.
H
At a low point in the Market, a hammer generally indicates that the market may be attempting to find a strong low price, and that buyers (Bull Traders) are strengthening their position.
If this candlestick occurs after a significant uptrend, then it is called a Hanging Man and can indicate a short term price reversal downwards or a new Short Trend forming. This can seem counterintuitive, as normally you would expect to see an inverted hammer with the wick at the top signifying downwards pressure.
Hanging Man candlesticks form when a currency moves significantly lower after the open price, but rallies to close well above the low of the timeframe.
The resulting candlestick looks like a square lollipop with a long stick.
If this candlestick forms at the bottom of a decline in price at a point of Support, then it is called a Hammer.
A two candle pattern that has a small bodied candle completely contained within the range of the previous body, and is the opposite colour.
Harami is the Japanese word for pregnant, a descriptive term for this pattern because it looks like a profile view of a pregnant woman.
Coming after a strong trend, this pattern indicates a decrease in momentum and possibly the end of the trend.
Harami crosses are reversal signals and are formed when a long candle is followed by a doji.
For the pattern to be a valid harami cross, the doji should be completely located within the top and bottom of the first candle
I
A rate which a borrower pays for holding a loan with lender.
The potential for losses arising from changes in interest rates
The International Monetary Fund (IMF) is an organization of 186 countries, working to encourage global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
It oversees the global financial systems of its member countries by monitoring policies that have an impact on exchange rates and the balance of payments. It also offers highly leveraged loans to underdeveloped countries.
The IMF was formed in July 1944 during the UN Monetary and Financial Conference when the delegates agreed on a framework for international economic cooperation. This took place after the infamous Great Depression when countries attempted to save their economies by raising barriers to foreign trade and devaluing their own currencies. As these measures proved to be self-defeating, it became necessary to form an institution that would ensure exchange rate stability and encourage member countries to eliminate trade restrictions.
The IMF came into formal existence after its first 29 member countries signed the Articles of Agreement.
From then on, the number of IMF member countries have more than quadrupled to 186 countries today.
This strength of policy and cooperation gives strength to the Forex Market and the ability to consistently trade it.
Open positions that are usually closed by the end of the trading day.
This indicates that the trader has no active trades at the end of the trading day.
A one candle bullish price reversal pattern.
In a downtrend, the open is lower, then it trades higher, but closes near its open.
A An Inverted Head and Shoulders is a Bullish reversal candlestick chart pattern consisting of three low swing points with the central low being the lowest trough forming the “Head” of the pattern and the higher troughs on either side as the “Shoulders”.
The inverted head and shoulders represents the end of a Down Trend and entry into a new Up Trend.
J
K
L
So-called “Leading indicators” are used by traders to predict imminent changes in a market.
All indicators are based upon previous price movement, so the term “leading” indicator can be a little MISLeading.
Fundamental traders use fundamental leading indicators, such as economic growth, interest rates, employment figures, export and manufacturing / primary production figures as “leading indicators of the strength of a currency”
Strong Technical Analysis Trading Methods, use a combination of high probability responsive indicators that, through their movement and analysis of the upwards and downwards pressure of price movement, give the trader an insight of POTENTIAL trade entry positions.
This allows us to project strength and weakness forward into the next trading period to see possible areas where price may move from and to. This can lead to stronger trade entry and exit points.
A robust Trading Method uses active and passive strategies and, when applied consistently, can produce a high percentage of profitable trades, not possible by purely following “price action” (i.e. rapid unpredictable volatile movements in price).
As professional Investors and Traders, we always suggest being educated in how and why a Trading Method works and to be coached by traders who have successfully followed the Method.
The use of borrowed capital, such as margin, to increase the potential gains or losses of a trade.
Most retail brokers will allow Traders to leverage the value of their account by 1:100 – allowing them to access profits made in the smaller movements of the market.
This is done via a Margin Loan facility.
Brokers will in turn charge Traders an annual commission for the Margin Loan Facility.
Included in this is an agreement that the Trader must keep an additional amount in their trading Account – not in trades to cover this margin. This is called a Margin Requirement.
These brokers will “Margin Call” (exit Traders from Trades) if the amount in the trading account drops below that agreed percentage, to protect the capital of the Trader in case the market turns against them significantly.
An order with specified boundaries.
Can be used to control how much profit and how much loss a trader is willing to handle.
Often set by a trader to exit a position where they are not actively watching the trade.
Can be required by some brokers to attempt to control the risk and profit of a Trader.
In the Forex market, liquidity relates to a currency pair’s ability to be bought and sold without causing significant change in its exchange rate.
A currency pair is said to have high level of liquidity when it is easily bought or sold and there is a significant amount of trading activity for that pair.
A currency pair can have low liquidity when there is a rapidly moving price, or when there is low activity (lower volume of trades)
A long candle represents a upwards move from open to close in a single period in a time frame..
e.g. On the daily chart, each candle represents the price movement from midnight to midnight and on the 1 hour candle, each candle represents the price movement over one full hour (X.00.01 to X.59.59)
Gwenerally; depending on the settings of your charts, the colour of the Long Candle will either be Green or White.
This candlestick has long upper and lower shadows or wicks with the Doji in the middle of the candle’s trading range, clearly demonstrating significant indecision of traders.
A position (Trade) that becomes profitable as the market price rises.
A trade on a pair in which the base currency is bought is said to be a long position.
Also known as a Bullish Position.
Long term trading, also known as Position Trading, refers to a trading style in which the trader will enter a trade and hold on to a position for an extended period of time.
A position trade can last anywhere from a few weeks to a couple of years.
Most long term trading Traders rely heavily on fundamental analysis – where they analyse the socio economic factors of a price movement in a currency pair.
This type of trader is mostly interested with the long term future outlook of the market they are trading. They are not as concerned with the intraday ups and downs and instead focus on the fundamental factors driving the longer term price trend.
Because of their longer term outlook, long-term traders will normally look at daily, weekly and even monthly charts for their analysis.
As a result, Traders hope to make profit of a large pool of funds, often letting the market move significantly against them before they make any profit.
M
An Acronym for Moving Average Convergence/Divergence – an indicator used in technical analysis that was invented in the 1970s as a means of showing the differences between both the fast and slow EMAs (Exponential Moving Average) of closing prices.
Since 1986 the graph has been produced as a histogram, which most traders use as a replacement for a volume indicator in forex trading.
The moving average as expressed by the MACD is essentially the average of a price over 2 set amounts of time (blue line is 12 candles and red line is 26 candles).
The MACD gives a quick and easy view of the strength of both the short term and long term average price.
The direction of the blue line and whether it is above or below the red line gives traders the most current bullish or bearish pressure of the average price.
The blue line crossing up through the red line is often used as a buying signal and the blue line crossing down through the red line is often used as a selling signal.
When an investors free equity falls below the Margin Requirement for the Broker to allow the Trader to hold a Position, resulting in a demand to reduce the position or deposit more funds.
The amount of equity required by a customer as a percentage of the market value of the position held.
This is a term of the Broker to allow the Trader to Margin Loan and use Leverage on their account.
Also Known as Exhaustion.
A situation in which a majority of participants trading in the same asset are either long or short, leaving few investors to take the other side of the transaction when participants wish to close their positions
A person or broker who normally quotes both the BUY and SELL prices. In other words, their trades are executed and covered internally, without appearing on the Open Market.
Because of the potential for such brokers to artificially enter and exit traders from trades and potentially tamper with traders funds, any organisation caught acting as a Market Makers may be de-registered or face criminal charges.
Be careful when choosing your broker – an overseas broker is not necessarily subject to this control and you may have no recourse if this should happen to you.
For this reason, we highly recommend that Traders use only brokers registered in your country of residence to execute trades.
Promises of high returns from foreign brokers do not come with the promise of fair trade.
An order to make a transaction at the current market price.
Momentum, in technical analysis, refers to the overall rate of change and strength of that movement in the price of an asset.
Traders often take momentum as a measure of the volume of a market.
If prices are changing rapidly in a market (meaning that momentum is high), it’s likely that a large number of traders are buying or selling the asset to push the price change in either direction.
As such, extremely high or extremely low values for momentum are looked at as signs that an asset is either overbought or oversold.
If momentum reaches an extreme high, the asset is overbought; if momentum reaches an extreme low, the asset is oversold.
Buy signals are generated when momentum reaches an extreme low and then rapidly advances back upward across the zero line.
Conversely, sell signals are generated when momentum reaches an extreme high and then rapidly falls below the zero line.
Monetary policy refers to the process by which a monetary authority controls the money supply in the economy.
Usually it is the central bank that is responsible, adjusting the amount of money available in order to generate economic growth, stabilize prices and exchange rates, and promote employment.
Primary Techniques To Control Monetary Policy:
One common technique is by ”increasing/decreasing the country’s monetary base”.
Usually central banks do this by buying or selling bonds in exchange for money to be deposited in the central bank. In this process, the liquidity in the economy is increased.
Another way to control money supply is to limit the amount of assets that banks must leave with the central bank as reserves.
By increasing the ”reserve ratio requirement”, banks have less liquid assets available for loans and more illiquid assets such as mortgages.
”Discount window lending” is also another way to control monetary policy.
The central bank allows commercial banks to borrow reserves in exchange for collateral, making liquidity available for them in times of emergencies.
The fourth way in which money supply can be controlled is by adjusting ”interest rates”.
When the central bank raises interest rates, the money supply contracts because there is more money used to pay for borrowing costs and less money to go around the economy.
A three candle bullish reversal candlestick pattern that is very similar to the Morning Star.
The first candle is in a downtrend with a long black / red body.
The next candle opens lower with a Doji that has a small trading range.
The last candle closes above the midpoint of the first candle
This is a bullish candlestick pattern signifying a potential bottom.
A three candle bullish reversal pattern consisting of three candlesticks:
A long-bodied black / red candle extending the current downtrend
A short middle candle that gapped down on the open
A long-bodied white / green candle that gapped up on the open and closed above the midpoint of the body of the first candle.
The star can be a bullish or a bearish candle.
The average (middle point) of price of a commodity over a given time. Calculated by adding the price at a regular interval over a time trame and dividing by the number of points.
E.g. a 5 Moving average on a 1 hour chart is calculated by adding the close price of each 1 hour candle for 5 candles and dividing by 5. The resulting number is the MA5 for that period.
Can be used as a trading tool.
A moving average is one of the basic common tools of technical analysis. The two most popular types are the simple moving average and the exponential moving average.
The simple moving average is calculated by averaging market prices over a given period. For example, the 20 moving average would average price levels for the last 20 candles on the chart. On the next candle, the SMA would include that candle in the Moving Average and drop the first candle. The lower the value of the SMA, the more the line of the indicator moves.
Traders use several Moving Averages overlaid to show the difference in current price average, compared with a larger timeframe. This can indicate current upwards or downwards pressure, with line crosses as potential trade entry points.
The LIFT Trading Method can be modified to use specific value Moving Averages to add value to the strength of a Trade Entry or Trade Exit Point.
The exponential moving average is more complicated, being calculated by taking the difference between the current price and the previous EMA.