Glossary of Terms

Forex Terminology

Bollinger Bands

A popular technical analysis indicator, mainly used to detect extreme market situations and gauge relative prices over time. The Bollinger bands indicator consists of a moving average (usually a simple MA of the last 20 bars), and two bands, an upper and a lower band, each representing the price which is 2 standard deviations away.

Broker

A Forex brokerage company provides you, the trader, real-time price quotes of currencies, and enables you to buy and sell currencies on a dedicated trading account. Trading is done online, using a trading platform such as MetaTrader.

Convergence

A situation when the market (as represented on a chart of the prices) points to a certain direction, for example an uptrend, and an indicator such as MACD or RSI displays the same direction (uptrend). Together with Divergence, this can be a powerful clue as to the hidden intentions of large market movers.

Divergence

A situation when the market displays a certain direction, for example an uptrend, while an indicator such as MACD or RSI displays an opposite direction, in this example a downtrend. Divergence is used by top traders such as Vladimir Ribakov, as a framework for trading strategies based on early detection of trend reversals and continuations. It provides powerful clues as to the hidden intentions of large market movers.

Forex

The market for trading currencies, considered the largest financial market. Name derived from Foreign Exchange. Unlike stocks, futures and other financial assets which are traded on exchanges around the world, Forex is traded between banks and major institutions, open continuously through the week.

Harmonic Patterns

A technical analysis prediction method, based on wave theories, geometrical patterns and Fibonacci numbers, among other principles.

Index, Indices

An index is a tradable symbol (can be traded on stock exchanges), measuring the value of a certain section of the stock market. It is computed using the price of a selection of stocks, for example the DAX index is computed from the 30 major German companies’ stocks traded on the Frankfurt Stock Exchange. The FTSE 100 is computed from the 100 companies’ stocks with the highest market capitalization on the London Stock Exchange.

Indicator

A technical Indicator is a graphical chart overlay, which presents the result of mathematical calculations on the market prices. These calculations can assist in understanding the price action and forecasting future market moves. For example: RSI, CCI, Moving Average.

Intraday

Trading within the hours that the stock exchanges are open. Intraday traders usually close their trades at the end of the day, and avoid leaving trades open overnight or during weekends.

Leverage

The ability to open a trade larger in size than the account deposit. It is a kind of “loan” provided by the broker. For example, a 50:1 leverage means you can open a trade sized $50 for every $1 in your account. This could lead to potentially enlarged losses as well as enlarged gains.

Live Trading Room

An online meeting via video conference, screen sharing, audio plus text chat, where a trader can share his/her trades and analysis with a group, in real time. For example, professional trader Vladimir Ribakov holds a daily online meeting with his club members, where he shows his trading screens and trades, and explains his market analysis and running trades. Additionally, during the trading day, when there are important developments in the market, the live room can be instantly called.

MACD

A technical analysis indicator named Moving Average Convergence/Divergence. It is usually used by traders to gauge market momentum and trend continuation. The main MACD value measures the difference between two Exponential Moving Averages, usually 12 and 26 periods. The signal line is an exponential moving average of the MACD line for typically 9 periods. The MACD histogram represents the difference between the MACD value and the signal line.

MetaTrader

Popular platform for trading and technical analysis of Forex charts, made by the Metaquotes company. This platform is provided by most online Forex brokers worldwide, free of charge. Besides the charting and trading, MetaTrader also provides an interface for programming automated trading strategies and indicators.

NDD Model (No Dealing Desk)

Forex brokers who operate in the NDD model do not “make a market”, which means they do not interfere with the quotes or execution of their clients. They act as a pipeline between the trader and the interbank market, displaying the quotes they receive, and executing the clients’ trades automatically in the interbank market. This model provides more transparency and neutrality as opposed to brokers who operate a dealing desk .

Pair

The value of a currency is expressed relative to another currency. For example, to express the value of Australian Dollar, one can quote it in comparison with US Dollar, which is the AUDUSD currency pair, or in comparison with the Japanese Yen, which is the AUDJPY pair.

Pip

The smallest price change in the exchange rate of a currency pair. Pip is an acronym for Percentage In Point or Price Interest Point. For example, the EURUSD quote of 1.3254 is 4 pips higher than the quote 1.3250

Signal

A trade call issued by a trader to his/her followers. For example, a signal to sell EURUSD at 1.4100 with a Stop Loss at 1.4150. A signal is typically transmitted via email or copied automatically into the follower’s trading account.

Strategy

A set of rules for making trading decision in a systematic, predetermined manner.

Technical Analysis

A method for evaluating and forecasting financial markets, using price quotes, charts and indicators (among other tools) that display the past market movements. The underlying basic assumption is that the historical performance of the market is an indication of the future.

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