Lesson 4 : How to read Forex charts

Pertinent information: What to look out for when reading any Chart.

Here a few pointers on how you can read a chart and a tip: try practice looking at forex charts with each of these points in mind. You won’t be sorry:

• When you buy a currency pair, that is, you long the position, look for the chart of that currency pair to go up, to make a profit on the trade. For this to happen, the base currency must strengthen against the terms currency. (Remember lesson 2?)
• When you sell the currency pair to short the position, look for the chart of that currency pair to go down, to make a profit on the trade. For this to happen the base currency must weaken against the terms currency.
• Look to the time frame displayed on the chart to ensure that the chart has the correct time frame for your analysis. Its advisable to set up your charts with the correct time frames and indicators on them for the system you're trading. You can then save and reuse this layout. Bear in mind then that various trading systems will use multiple time frames to determine the entry of a trade. A system may, for example  use a 5 hour and a 15 minute chart to determine the overall trend of the currency pair and could by use a variety of  indicators (which we’ll learn more about in a future lesson) such as momentum, MACD, or support and resistance lines. The same system could then use a 10 minute chart to determine the actual entry by looking for a rise from a temporary dip.
• On the bottom of forex charts, the times shown are set to the particular time zone, which could be GMT, New York time, or others. Should any major economic announcement be made you will need to convert the time of that announcement to your chart and local time to know when you need to trade. Here if you can have a world clock available on your computer desktop in order to convert the different time zones.
• The BID price (as opposed to the Ask price) is the price displayed on most Forex Charts.
• A price is always quoted with a bid and an ask (or offer). If you buy, you will be buying at the ask, which is the higher of the 2 prices in the spread, and conversely when you sell, you will sell at the bid, which is the lower of the two prices in the spread.
• If you use the chart price to determine an entry or exit and an order to sell is placed, provided there’s no slippage, this will be the sale price. (Ahh.. the previous lessons are coming back to us now)
• However should you place an order to buy when the chart price is the same price, then you'll actually buy at a higher price. In future lessons when we examine platforms and systems in greater depth you’ll learn that they will often determine whether the orders will be placed according to the chart price or whether you need to add a buffer when buying or selling.
• In later lessons and through experience you’ll learn that on many platforms, when stop orders are placed (to buy if the price rises above a certain price, or sell when the price falls below a certain price) you can select either "stop if bid" or "stop if offered".
• If you are using candlestick charts, (which we will delve into below) check whether the times on your forex charts correspond to when the candle actually opens or when the candle actually closes. Various charting software differ from each other in this respect. This will be important in that should you wish to trade major economic announcements, by entering a trade based on the movements that happen after the announcement, or by exiting a trade before the announcement you need to avoid being stopped out and to do this you will have to be precise (to the minute!) as these trades are performed according to what happens during that minute immediately after the announcement, and not by the candle that will only show afterwards!

How to forcast Forex.

Technical analysis and fundamental analysis are the two main methods of analysis.
Both, although vastly different, can be useful as forecast tools, either on their own or combined, to predict a price or movement.

Technical analysis

The study of the effect of market movement.
Price action is seen to reflect all the known information. Fear and Greed or expectations and emotions cause Buyers and Sellers to move the markets and as a consequence the Markets fluctuate. It’s important to remember that actual price may not reflect the underlying value.
By studying charts of past market action, the Technical analyst has a method of predicting price movements and future market trends.
The technical analyst asks what has actually happened in the market, rather than what should happen.
Charts are then created as a primary tool from analyzed data derived from studying the price of instruments and the volume of trading. The charts can assist experienced analysts to follow many markets and market instruments simultaneously.
Three essential principles are followed by the technical analyst:

1. Market action discounts everything! The actual price is a reflection of everything that is known to the market that could affect it.
2. Prices move in trends! Technical analysis is used to identify patterns of market behavior. Patterns allow for a high probability that expected results will be produced and some will repeat themselves on a consistent basis.
3. History will repeat itself! History has shown that the manner in which many patterns are repeated can lead one to the conclusion that human psychology changes little over time.

There are five categories in the Forex technical analysis theory: (These we will delve into further on later more advanced expeditions and I mention them here briefly to whet your appetite)

1. Indicators (oscillators)for example:
   Relative Strength Index (RSI): The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100.
   Stochastic oscillator: This is used to indicate overbought/oversold conditions on a scale of 0-100%.
   Moving Average Convergence Divergence (MACD): This indicator involves plotting two momentum lines.
   
2. The Number Theory for example:
   Fibonacci numbers: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is constructed by adding the first two numbers to arrive at the third.
   Gann numbers: Angles in charts used to determine support and resistance areas and predict the times of future trend changes.
   
3. Waves
   The Elliott wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence.
   
4. Gaps (high-low, open-closing)
   Gaps are spaces left on the bar chart where no trading has taken place
   
5. Trends (following moving averages).
   A trend refers to the direction of prices over a period.
   Some common technical tools (which we’ll also learn more about in future lessons):
   The Coppock Curve: an investment tool used for predicting bear market lows.
   The DMI (Directional Movement Indicator) used to determine whether or not a currency pair is trending.
   

Fundamental analysis

This is the study of the cause of market movement
This is a method of forecasting future price movements or where a currency should be trading based on a macro or strategic assessment of economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.
Factors could include: Supply and demand, seasonal cycles, weather and government policy, economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements. It’s worth mentioning that many profitable trades are made moments prior to, or shortly after, major economic announcements.

Types of Forex Charts

Let’s take a look at the three most popular types of charts:
The Line chart, the Bar chart and our soon to be favorite: the Candlestick chart.

The Line Chart

A line from one closing price to the next closing price produces a simple line chart. A general picture then emerges of price movement of a currency pair over a period of time.

Bar Charts

A bar chart shows opening and closing prices simultaneously, as well as the highs and lows. (Bar charts are also referred to as “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency)
Bear in mind that a bar is simply one segment of time, whether it is one day, one week, or one hour. Always be sure to understand what time frame a bar is referencing.
The lowest traded price for that time period is shown at the bottom of the vertical bar.
The highest price paid for that time period is shown at the top of the vertical bar.
The vertical bar indicates the currency pair’s trading range as a whole.
The horizontal hash on the left side of the bar is the opening price.
The horizontal hash on the right side of the bar is the closing price.

Lesson 3: Forex order types

FOREX Order Types

In order to be a successful FOREX trader you need to have a clear understanding of each Forex order type. Some of these you will have encountered in our definitions but bear mention and expansion:

1. The Market Order

   An order, to buy or sell, at the current market price.
   These can be used to enter or exit a trade.
   Remember with these that there may be a difference between the price seen at the time such order is given and the actual price of the transaction. The cause of this is slippage, an amount by which a move occurs in the market between the giving of an order and it's execution and is a result of fast moving markets. A loss or gain of several Pips can result from slippage and as a consequence always use these with care.
   

2. The Limit Order

   This is an order to buy or sell at a certain limit.
   Limit orders can be used to buy currency below the market price sell currency above the market price.
   There is no slippage associated with limit orders.
   When buying, when the market falls to your limit order price your order is executed.
   When selling, when the market rises to your limit order price, your order is executed
   

3. The Stop Order

   This is an order to buy above the market or to sell below the market.
   In order to limit losses if the market moves contrary to what the trader expected, a Stop –Loss order will be used.
   Should the market fall below the point set by the trader, this order will sell the currency.
   

4. The One Cancels the Other (OCO)

   The OCO order is used when placing a limit order and a stop-loss order simultaneously.
   This allows the trader to make a transaction without monitoring the market.
   Should the market fall, the stop-loss order will be executed.
   Should the market rise to the level of the limit order, the currency will be sold at a profit.
   The result is that should either order be executed the other is cancelled.
   Here's an example of an OCO Transaction:
   Buy: 1 standard lot EUR/USD @1.5500 = $ 155,000
   Pip Value: 1 pip= $ 10
   Stop- Loss: 1.5480
   Limit: 1.5600
   This is an order to buy US dollars at 1.5500 and to sell them if they fall to 1.5480 (resulting in a loss of 20 pips or $200) or to sell them if they rise to 1.5600 (resulting in a profit of 100 pips or $1,000).
   Lets look at another example:
   USDJPY US Dollar / Japanese Yen "Dollar Yen"
   The current bid/ask price for US dollars and Japanese Yen is
   USD/JPY 1.2060/65
   This means you can buy $1 US for 1.2060 Yen (JPY) or sell 1.2065 JPY for $1 US.
   If you think that the US dollar (USD) is undervalued against the Japanese Yen (JPY) you would buy USD and simultaneously sell JPY and wait for the US dollar to rise.
   This is the transaction:
   Buy USD: 1 standard lot USD/JPY @ 1.2060= $120,600 JPY
   Pip Value: 1 pip = $10
   Stop-Loss: 1.2050
   Margin: $1,000 (1%)
   You are buying US$100,000 and selling JPY 120,600.
   Your stop loss order will be executed if the dollar falls below 1.2050, in which case you will lose $100.
   However, USD/JYP rises to 1.2090/95.
   You can now sell $1 US for 1.2090 JYP or sell 1.2095 JYP for $1 US.
   Because you bought Long (entered the transaction by buying US dollars), you now have to sell US dollars and buy back Japanese Yen to realize your profit.
   You sell US$100,000 at the current USD/JYP rate of 1.2090, and receive 120,900 JYP for which you originally paid JYP $120,600.
   Your profit is JYP 300 or US$ 248.04 (300 divided by the current exchange rate of 1.2095)
   

Systems

The Trading systems are an important set of rules and ideally should involve the following:

• A. A trend filter which should identify developing trends (short, intermediate, long) and their direction (upwards, downwards, sideways).
• B. An entry system to produce various signals based on various technical indicators (such as moving averages and chart breakouts)
• C. An ability to generate exit orders (profittaking and/or stop loss) with exit formulas before a trade.
• D. Certain principles of Money Management to determine how much your trading account is risked per trade, which in turn should produce more consistent and lasting results. Bear in mind the following cautions when trading: Don't trade several currencies with little capital! and Don't over trade!
• E. Objective and Mechanical trading rules, with building blocks of technical indicators.

Any system should be tested over a long time frame and within different types of trading markets before using it in the market.
You should also forward-test systems in real time
At all times remember that the user defines how good a system operates. Objectivity of the trader remains key when interpreting and implementing signals despite the system appearing objective and mechanical. Always wait for a signal before trading (or as a reason not to trade).
Don't be impatient!
In real time over-optimized systems rarely perform well. These systems start asking the what-if question and back-test the trading system with different parameters

Patterns

Remember dear traveler, there are many patterns that can be used in technical analysis, and there are as many ways to view them.
In this lesson I'll show you what can be called "traditional" price vs time charts, and we'll explore only the patterns that can be located visually on such charts.
Lets start then with a very basic look at these patterns:

The Triangle

The "classical" triangle.
This has at least 5 waves.
The breakthrough occurs at about 2/3 of the horizontal size of a triangle.
The price should not just touch the side of a triangle, the price bar must close outside the triangle. This protects against false signals.
A false signal is more likely to be produced during the uptrend, observable when the breakthrough happens too close to the end of a triangle.

Lesson 2: Still packing the tools…

Welcome again!
Of course having ploughed through a boring list of definitions is nobody's idea of fun however by now we have some Lingo under our belts and can now look at what Forex is, and its role in the market, Forex order types, and then have a cursory view of the systems used by Traders.

So what is Forex Essentially?

Forex, or FX, of course stands for the FOReign EXchange market.
This is a 24-hour or spot market in which currencies are traded in cash.
Stock trading has long been associated with investment strategies on world markets.
This trend is changing and in many traders eyes the stock market has become speculative. As essentially speculators then, traditional “investors" and traders now view Forex as a more viable and profitable alternative.
The general market expectation is that as a result of the difficulties in finding profitable stocks to trade in, as a result of the negative impact that the Global crisis has had especially on equities, the forex markets will benefit as traders view them as increasingly alluring.
The Forex markets are not a daily market event, they are THE EVENT!
What many Traders realize is that the global foreign exchange market is now the largest, most active market in the world.
Trading in the forex markets takes place nearly round the clock with about $2 trillion changing hands every day.
The reasons for the excitement and huge conversion to this market are many as currency trading offers benefits that the traditional stock markets don't. Here are a few:

• Greater leverage.

  With proper risk management, for example, traders control larger positions with smaller amounts of capital, thus also allowing trades of the same size positions you might take with a stock broker, which should leave you with more available capital to trade more markets , In currency trading you can use profits to trade and to add to you're positions.
  

• Costs savings on fees and commissions and quick access

  With no broker and exchange to deal with, currency traders access the markets online quickly and deal directly with the buyer or seller of the currency pair. In currency trading you do not have to worry about extra charges. All the Trader pays is the spread!
  

• A large liquid market

  Large volumes translate to reduced exposure to susceptibility of large purchases and sales of a stock as is the case with stock trades, as the likelihood is slimmer of any particular fund or entity taking control of a currency. Incomparable liquidity is one of many advantages that forex markets hold over for example, currency futures.
  

• A simplified range of trade.

  In spot currency trading, Traders generally concentrate on buying or selling 4 major currency pairs – EUR/USD, GBP/USD, USD/JPY and USD/CHF. Of course there are second-tier currencies too.  A trader can concentrate for example on the EUR/USD whereas a stock trader would have to really research 1000's of stocks on the traditional exchanges. Most traders though are likely to be more profitable with less volatile range-bound pairs like EUR/CHF, EUR/ GBP and AUD/NZD rather than trade pairs with larger swings such as the GBP/USD. Remember too, that when trading cash markets, you have access to the same margin rates day and night.
  

Forex markets utilize easily understood and universally used terms and price quotes

Trades require no forward component that takes into account a time factor, interest rates and the interest differentials between various currencies, adjustments, mathematical manipulation or consideration for the interest rate component such as is the case with of futures contracts.
Forex trade is conducted "over-the-counter" through an international network of dealers with no standard trading center.
In recent times the forex market was confined to larger traders and limited to international commercial and investment banks and corporations and international money brokers and currency traders.

What are Exchange rates?

The rate at which currencies are exchanged is called the exchange rate.
Currencies are traded in pairs and exchanged one against the other when traded.
Most currencies are traded against the US dollar (USD). Then we have the next four next-most traded currencies being: The Euro (EUR), the Japanese yen (JPY), the British pound sterling (GBP) and the Swiss franc (CHF). A few Traders would also include the Australian dollar (AUD) within this group.
All told these currencies make up the majority of the market. For this reason they're referred to as the major currencies or "the Majors".
Bearing in mind the exchange pair is made up of two currencies:
The first currency in the pair is known as the base currency;
The second currency is known as the counter term or quote currency.
The quote currency is the numerator in the ratio, and the base currency is the denominator.
It is essential to know that the value of the base currency (denominator) is always 1.
A buyer will know how much of the counter term or quote currency must be paid to obtain one unit of the base currency by referring to the exchange rate.
A seller will know how much is received in the counter term or quote currency, when selling one unit of the base currency, by referring to the exchange rate.
For example, an exchange rate for USD/JYP of 1.301 specifies to the buyer of Japanese Yen that 1.301 USD must be paid to obtain 1 Yen.
An important point to remember, dear traveler, is that should  an investor buy any currency and immediately sell it, irrespective of any given point, time and place, and no change in the exchange rate has occurred, that hapless investor will lose money.
There's a simple explanation for this:  the bid price, representing how much will be received in the counter or quote currency when selling one unit of the base currency, will always be lower than the ask price,  representing how much must be paid in the counter or quote currency when buying one unit of the base currency.
Let's look at an example to wrap our heads around this:
The USD/JPY bid/ask currency rates at the bank may be 1.3030/1.4030, representing a spread of 1000 pips (also referred to as points, one pip being 0.0001).
In this example the spread would be very high when compared to the bid/ask currency rates that online Forex investors would normally encounter, such as 1.2025/1.2030, with a spread of 5 pips.
As a Forex Trader you would be inclined to consider smaller spreads as better than the larger spreads since they would require a smaller movement in exchange rates in order for the investor to profit from a trade.

What are Margins?

The collateral that Banks and/or online trading providers need to ensure that the investor can pay in case of a loss is called the margin. Forex markets also refer to it as minimum security.
When trading a deposit is made by the Trader to it's account with the intention to cover any currency trading losses in the future.
The advantage for private Traders or investors is that a Margin will allow such Traders to trade in markets with high minimum units of trading by enabling traders to hold a much larger position than their account value.
Margin trading can also benefit theTrader by increasing it's rate of profit, however this form of trading can also increase the rate of loss should the trader make the wrong decision.

What is Leveraged financing?

Leveraged financing is commonly used in the Forex Market and is the use of credit, such as a trade purchased on a margin.
The Traders initial deposit in the margined account is used as collateral thus leveraging the Loan.
Through leveraging, USD 2,000 for instance, could be used to control USD 200,000.

How do Private investors/Traders like ourselves Trade in Forex?

We can trade in Forex directly or indirectly in three ways:

1. The spot market

   A straightforward exchange of one currency for another is called a spot transaction.
   The current market price is called the spot rate or the benchmark price.
   One might think that spot transactions require immediate settlement, or payment "on the spot." This is not so.
   The second business day after the "deal date" (or "trade date") is called the settlement date, or "value date", as this is the date on which the transaction is agreed to by the two traders.
   This delay by two days, allows the parties time to confirm the agreement and arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.
   

2. Forwards and futures

   An agreement between two parties in terms of which one buys a currency at a particular price by a certain date that is greater than a spot transaction (two business days), is called a forward transaction.
   A forward contract with fixed currency amounts and maturity dates is called a future contract.
   These contracts are not traded through the interbank foreign exchange market but rather, on future exchanges.
   Forwards are estimated to make up about just under half of all currency trading.
   

3. Options

   Currency Options involve a fixed currency transaction at some future date in time, and in this respect are similar to futures contracts.
   Unlike a futures contract though, the buyer of the currency option is only purchasing the right but not the obligation to purchase a fixed amount of currency at a fixed price by a certain date in future.
   Remember, that should the buyer not exercise the option, the price (also known as the premium) is lost.
   

What are the Risks when we Trade Forex?

Forex trading can be very profitable but there are definitely risks such as Exchange rate risks, Interest rate risks, Credit risks, and Country risks.
A typical trade has a very short lifespan. It is for this reason that Technical indicators heavily influence entry, exit and order placement decisions.
Bear in mind that this is a market best suited to people less averse to risk. This course will attempt to equip you with tools necessary to avert risk with varying degrees of success and in the final analysis, your decisions, based on your trade experience, will guide you as to the possible degree of risk you face with each trade.
It is estimated that more than 40% of all currency transactions last fewer than two days, while approximately 80% last a period of seven days or less.
As a FOREX trader you need to define your personal financial objectives and if necessary be able to absorb financial losses and not have to invest any money you are not able to lose.
It is of course imperative that you know the market, the systems and platforms in order to trade profitably.
At this point I must congratulate your persistence! As we are learning we get closer to our ultimate goal, having taken a few necessary steps in our journey.
I look forward to our next lesson eagerly as we can now tie down our travel kit with the necessary bands and zips and whatever else we need use to set ourselves on course.

Forex lessons: 1 Packing The Tools

As with any journey we start by packing the necessary tools.
In this lesson we'll look at the basic definitions you're bound to come across as you delve deeper into understanding the markets and how best to explore them.
I had considered whether it would be best to somehow gently ease you into these terms by exercises and referring you for instance, intermittently to a glossary of terms, or include them in a future lesson, but realized that in my own experience I had a very stop start learning process which meant that a lot of the time I was faced with words that I had never heard of or had heard of but was uncertain of their meaning, or thought I knew the meaning when in fact I didn't. I found it so much better once I found a consolidated source of terms, read through them and slowly they began to stick.
Here's where I break from tradition and right up front provide the definitions and terms that you'll consistently be confronted with on this journey.
Many of my readers are at a very fundamental stage and I thought it best then to speak to everybody at the same level.
The simple fact is, if we are going to talk the talk we must learn to speak the lingo.
There is no real way of glamorizing these terms just the realization that you will have to get to grips with many of these to understand not only future lessons but also the markets.
Think of this as a warm up session before going on a jog!
Later on we'll start to look at how information is presented to you in the market and how to interpret it.
Take a deep breath because you'll need to review this lesson and draw on it in your future lessons.

The First Tool

The most Common Definitions you'll come across

Bid/Ask Spread (or "Spread")

The distance, usually in pips, between the Bid and Ask price. The tighter the spread is better it is for the trader.

Cost of Carry (or "Interest" or "Premium")

The cost of holding an open position which is often quoted in terms of dollars or pips per day.

Currency Futures

Futures contracts are traded on an exchange. Futures are always quoted in terms of the currency value with the Dollar as a benchmark. The exchange standardizes the parameters of the futures contract.

Drawdown

The size of a decline in account value. This is expressed either in percentage or Dollar terms and is measured from peak to subsequent trough. For example, if a trader's account increased in value from $10,000 to $20,000, then dropped to $15,000, then increased again to $25,000, that trader would have had a maximum drawdown of $5,000 (incurred when the account declined from $20,000 to $15,000) this is so even if the trader's account was never in a loss position from the start.

Fundamental Analysis

This involves a Macro or strategic assessments of where a currency should be trading. It is based on any criteria other than price action. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements.

Leverage

Expressed as a multiple, this is the amount, by which the notional amount traded exceeds the margin required to trade. For example, if the notional amount traded (a "lot size" or "contract value") is $100,000 dollars and the required margin is $2,000, the trader can trade with 50 times leverage ($100,000/$2,000).

Limit

An order to buy at a specified price when the market moves down to that price, or: An order to sell at a specified price when the market moves up to that price.

Liquidity

Another word for the efficiency and cost effectiveness with which positions can be traded and orders executed. It acts as a function of volume and activity in a market.
The more liquid a market the more frequent price quotes are provided at a smaller bid/ask spread.

Margin

The amount of funds required in a clients account in order to open a position or to maintain an open position. For example, 1% margin means that $1,000 of funds on deposit is required for a $100,000 position.

Margin Call

This is a requirement by a broker for a deposit more funds in order to maintain an open position. The position which does not have sufficient funds on deposit will simply be closed out by the broker and his is often referred to as a "margin call". This procedure will allow the client to avoid further losses.

Market Order

An order to buy at the current Ask price.

Offer

The Price at which a broker or dealer is willing to sell. This is the same as "Ask".

Pip

The smallest price increment in a currency ("ticks" in the futures markets). For example, in EURUSD, a move from .9015 to .9016 is one pip. In USDJPY, a move from 128.51 to 128.52 is one pip.

Premium (also "Interest" or "Cost of Carry")

The cost of holding an open position, which is often quoted in terms of dollars or pips per day,

Spot Foreign Exchange (the "Interbank" market)

This refers to currencies traded between two counterparties, who are often major banks. This is generally traded on margin. It is particularly traded by institutions and professional money managers.

Stop

An order to buy at the Ask only when the market moves up to a specific price, or: An order to sell at the market only when the market moves down to a specific price.

Technical Analysis

This involves an analysis applied to the price action of the market in order to develop trading decisions and is done irrespective of fundamental factors. Common technical studies include Bollinger Bands, Moving Averages, Parabolic SAR, MACD, RSI, Momentum, Stochastic, Slow Stochastic, CCI ("Commodity Channel Index"), ATR ("Average True Range"), Rate of Change, Standard Deviation. These we'll learn about in the more advanced stages of our lessons and as they are terms normally banded about in the Forex community its good at this stage to at least be aware that they exist.

Currency Pairs

Symbols: Currency Pair Trading Terminology you'll come across:

USDJPY	US Dollar / Japanese Yen	"Dollar Yen"
USDCHF	US Dollar / Swiss Franc	"Dollar Swiss" "Swissy"
USDCAD	US Dollar / Canadian Dollar	"Dollar Canada"
USDZAR	US Dollar / South African Rand	"Dollar Zar" "South African Rand"
GBPUSD	British Pound / US Dollar	"Cable"
EURUSD	Euro / US Dollar	"Euro"
AUDUSD	Australian Dollar / US Dollar	"Aussie Dollar"
NZDUSD	New Zealand Dollar / US Dollar	"New Zealand Dollar" "Kiwi"
EURGBP	Euro / British Pound	"Euro Sterling"
EURJPY	Euro / Japanese Yen	"Euro Yen"
EURCHF	Euro / Swiss Franc	"Euro Swiss"
GBPCHF	British Pound / Swiss Franc	"Sterling Swiss"
GBPJPY	British Pound / Japanese Yen	"Sterling Yen"
CHFJPY	Swiss Franc / Japanese Yen	"Swiss Yen"
GLDUSD	Spot Gold	"Gold"
SLVUSD	Spot Silver	"Silver"

Each currency pair is always quoted in the same way. For example, the GBPUSD currency pair is always as GBPUSD, with the GBP being the base currency, and the USD being the terms currency. The USD first will not be first. Your trade size or "face value" is the amount of base currency that you're trading. As an example, should you want to buy 10 000 GBPUSD, you're buying 10 000 British Pounds.
More specific definitions: I've included many that aren't necessarily going to be covered in the course as you are bound to hear them on the news or come across them while trading. Here goes…

Account

A record of transactions of goods and services owed by a party to another

Accrual

An apportionment of premiums and discounts on forward exchange transactions. These would relate directly to deposit swap (Interest Arbitrage) deals and cover the period of each deal.

Actualize

The underlying assets or instruments traded specifically in the cash market.

ADX

Measures: 1. the strength of a prevailing currency trend 2. If there is direction in the forex market. Plot zero on up, a reading above 25 can usually be considered directional.

Adjustable Peg

The exchange rate regime where a country's exchange rate is "pegged" (i.e. fixed) in relation to currency. Often the currency is the dollar. The rate may be changed from time to time.

Adjustment

Official action. This is normally as a result of change in the internal economic policies in order to correct a payment imbalance or an official currency rate.

Agent Bank

This can either be: 1) A bank acting for a foreign bank. 2) In the Euro market -the agent bank is the one appointed by a syndicate to handle the administration of a loan.

Aggregate Demand

The total demand for goods and services in the economy. It consists of government spending, business investment and private spending

Aggregate risk

In respect of both forex spot and forward contracts the risk is the size of exposure of a bank to a single customer.

Aggregate Supply

Refers to the total supply of goods and services in the economy specifically from domestic sources (including imports) which are available to meet the aggregate demand.

Agio

This refers to the difference in the value between currencies. It is also used to describe percentage charges for conversion from cash, or conversion from a weak currency into a strong currency.

All or None

A limit price order. This instructs a broker to fill the entire order at the stated price or not to do so at all.

American Option

This is an option that can be exercised anytime during its life. And represents the majority of exchange-traded options. Anonymous trading

Refers to the situation where visible bids and offers on the forex market are made without the identity of either the bidder or seller being revealed. It prevents scrutiny and speculation of the market, when high profile traders execute transactions.

Appreciation

Term used to describe an increase in the value of a currency when it responds to market demand.

Arbitrage

The purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market in order to take advantage of countervailing prices in different markets as a means to profit from small price differentials.

Arbitrage channel

Refers to the range of prices within which there will be no possibility to arbitrage between the cash and futures.

Around

A term used in quoting forward "premium / discount". "Six-six around" would mean six points on either side of the presiding value.

Ascending Triangles

A triangle consisting of two or more equal highs forming a horizontal line at the top, representing a bullish continuation pattern that is shaped like a right triangle.

Asset Allocation

A means of optimizing growth potential and minimizing risk through diversification of assets in different sectors, such as real estate, bonds, stocks, and forex.

Asset Swap

An interest rate swap. It is used to change the cash flow characteristics of an institution's assets. This then would provide a match with its liabilities.

Asset

This, in the context of foreign exchange, refers to the right to receive from counterparty an amount of currency. This refers either to a balance sheet asset (e.g. a loan) or if at a specified future date, refers to an unmatched forward or spot deal.

At best

This is simply an instruction given to a dealer to buy or sell at the best rate that can be obtained.

At or Better

This is an order to deal at a specific rate or a better rate.

Authorized Dealer

A financial institution or bank which is authorized to deal in foreign exchange.

Back Office

The Processes (e.g. record keeping) and departments related to the settlement of financial transactions.

Back Testing

A means of designing a trading strategy based on historical data. This data is then applied to fresh data to tests its effectiveness. A frequently, used method of testing technical analysis.

Backwardation

The amount by which the spot price exceeds the forward price.

Balance

The total amount, whether credit or debit, of money in a forex account.

Balance of Payments

A record of all transactions made by a country with other countries over a fixed period in time period. A comparison is drawn between the amount of economic transactions between such country the other countries. Such record will include trade balances for investments, and investments by foreigners.

Balance of Trade

Net flow of goods between two countries, calculated by using formula: exports minus imports

Bank for International Settlements (BIS)

This is an international organization which facilitates the cooperation of central banks and international financial institutions. Located in Basel, Switzerland, it is a central bank for central banks. It collects data on international banking activity and will then promulgates rules concerning international bank regulation.

Band (A system used in the ERM).

The permitted range in which a currency may move.

Bank line (a "line")

Line (amount) of credit granted by a bank to a customer.

Bank Rate

The rate at which a domestic banking system. Lends money from its central bank.

Bar Chart

A means of representation by using a chart where specifically on a daily bar chart each bar represents a day's activity. A vertical bar is drawn from the day's highest price to the day's lowest price. Closing price and opening price would be represented by ticks on the bar. Various bars can each represent different periods in time.

Base currency

The currency in which an investor or issuer keeps its book of account. The US Dollar is normally considered the "base" currency for quotes in the forex markets, and as such, quotes are expressed as a US$1 unit per the other currency quoted in the pair. However, exceptions to this rule are the British Pound (GBP), the (EUR) and the Australian Dollar (AUD).

Basis

This refers to the difference between the cash price and futures price.

Basis point

1/100 of one pip (.01%) for most currencies. For the Japanese Yen (JPY), a basis point is the second decimal place when quoted in currency terms or the sixth and seventh decimal places, respectively, when quoted in reciprocal terms.

Basis trading

A method of trading, by which traders take opposite positions in the cash and futures market, in order to profit from a favorable move of the basis.

Basket ("a unit account")

A group of currencies normally used to manage the exchange rate of a currency.

Bear market

A market distinguished by widespread pessimism and a sustained period of declining prices.

Bear

An Investor trading with the belief that prices or the market will decline.

Bid

The price at which a buyer offers to purchase a currency.

Bollinger Bands

An interpretation is prices tend to stay within the upper and lower bands. This we'll look at in a future lesson.

Book

The summation of all currency positions held by a dealer, desk, or room. Also a total of the assets and liabilities. A short and open book describes where the average maturity of the book is less than that of the assets. Passing the Book refers to transferring the trading of the Banks positions to another office at the close of the day, e.g. from Paris to New York

Broker

A person that facilitates between buyers and sellers for a commission, payable by the initiator of the transaction.

Bull market

A sustained period of generally rising prices.

Bull

An investor harboring the belief that currency prices are going to rise.

Bundesbank

The Central Bank of Germany.

Buying Rate

Rate at which the forex market and a market maker is willing to buy a currency.

Cable

A Forex term for the US Dollar/British Pound rate.

Candlestick Charts

A chart that is Identical to a bar chart in the information conveyed, but which is presented in an entirely different context. A candlestick captures the open, high, low and close of the trading period in a single candle. For our purposes we are going to concentrate on Candlestick charts as the basis for our analysis and you'll learn these in greater detail very soon.

Capital Markets

Markets in which capital (stocks, bonds, etc.) are traded

Capital Risk

The risk a bank bears when it pays to the counter party with out knowing whether the other party will be able to meet its side of the bargain.

Carry

The interest cost of financing securities or other financial instruments held.

Carry Trade

An investment position of buying a higher yielding currency with the capital of a lower yielding currency.

Cash Delivery

Same day settlement.

Cash market

The market in the actual financial instrument on which a futures or options contract is based.

Cash

Normally refers to an exchange transaction contracted for settlement on the day the deal is struck. This term is mainly used in the North American markets and those countries which rely for forex services on these markets because of time zone problems i.e. Latin America. In Europe and Asia, cash transactions are often referred to as value same day deals.

Cash and Carry

The buying of an asset today and selling a future contract on the asset. A reverse cash and carry is possible in other words selling an asset and buying a future.

Cash Settlement

A procedure for settling futures contract

Central Bank

A banking organization, usually independent of government, responsible for the implementation of a country's monetary policy and for printing money.

Central Rate

Foreign exchange rates against the ECU adopted for each currency within the EMS.

Chartist

An individual who uses charts and graphs and interprets historical data to find trends and predict future movements as well as, aid in technical analysis. In many respects we will be aiming to become Chartists.

Clean float

An exchange rate that is not materially affected by official intervention.

Close a Position (Position Squaring)

Refers to getting rid of a position, either by buying back a short position or selling a long position.

Commission

The fee that, a broker may charge clients, for dealing on their behalf.

Confirmation

A written document to the other party describing all the relevant details of the transaction.

Contagion

Term used to describe the spread of economic crises from one country's market to other countries within close geographic proximity. This term was first used following the Asian Financial Crisis in 1997, which began in Thailand and so spread to other East Asian economies.

Contract

An agreement to buy or sell a specified amount of a particular currency or option for a specified month in the future (Futures contract).

Continuation

Represents an extension of the trend. The trend continues to have momentum, and hence it moves on wards without reversal.

Conversion Account

A general ledger account representing the uncovered position in a particular currency (Position Accounts).

Conversion

The process by which an asset or liability denominated in one currency is exchanged for an asset or liability denominated in another currency.

Conversion arbitrage

A transaction where the asset is purchased and the purchaser buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiration.

Convertible currency

Currencies that can be exchanged for other currencies or gold.

Copey

Slang for the Danish krone.

Correction

A move in price against the current established trend.

Correspondent Bank

The foreign banks representative who regularly performs services for a bank which has no branch relevant canter, e.g. to facilitate the transfer of funds.

Cost of Carry

The cost associated with borrowing money in order to maintain a position.

Counterparty

The other organization or party with whom the exchange deal is being transacted.

Counter value

Where a person buys a currency against the dollar, it is the dollar value of the transaction.

Country risk

The risk associated with government intervention (does not include central bank intervention). Examples are political events such as war, or civil unrest.

Cover

To take out a forward foreign exchange contract. Also to close out a short position by buying currency or securities.

Covered Arbitrage

Arbitrage between financial instruments denominated in different currencies, using forward cover to exchange risk.

Covered Margin

The interest rate margins between two instruments denominated in different currencies after taking account the cost of forward cover.

Crawling peg

A method of exchange rate adjustment; the rate is fixed/ pegged, but adjusted at certain intervals in line with economic or market indicators.

Credit Checking

Before making a large financial transaction, it imperative to check whether the counterparty has enough available credit to carryout/honor the transaction. Credit checking refers to the process of verification. The check is initiated after the price has been determined.

Credit Netting

Arrangements that exist to maximize free credit and speed the dealing process.

Credit Risk

Risk of loss that may arise on outstanding contracts should a counter party default on its obligations.

Cross deal

A foreign exchange deal entered into involving two currencies, neither of which is the base currency.

Cross rates

Rates between two currencies, neither of which is the US Dollar.

Cup with Handle

Named after the resemblance the formation on the chart bears to a cup and handle, this pattern offers an explanation into where a bullish trend in the price of a currency can begin.

Current Account

The net balance of a country's international payment arising from mainly exports and imports.

Day trader

Speculators who buy and sell currencies during the same trading day, ending the day with no opened position.

Deal date

The date on which a transaction is agreed upon.

Deal Ticket

The primary method of recording the basic information relating to a transaction.

Dealer

One who, as opposed to a broker, acts as a principle in all transactions, buying and selling for its own accounts.

Deficit

A negative balance of trade (or payments); expenditures are greater than income/revenue.

Deflator

Difference between real and nominal Gross National Product, which is equivalent to the overall inflation rate.

Delivery date/Value Date

The date of maturity of the contract, when the exchange of the currencies is made

Delivery Risk

A term to describe when counterparty will not be able to complete his side of the deal, although willing to.

Depreciation

A fall in the value of a currency due to market forces rather than due to official action.

Derivative

A security whose value is dependent on the value of another security. Examples of derivatives are future contracts, forward contracts and options. Underlying securities can include stocks, bonds or currencies.

Devaluation

The deliberate downward adjustment of a currency's value versus the value of another currency normally confirmed by official announcement.

Desk ("Trade Desk")

Term referring to a group dealing with a specific currency or currencies.

Details

All the information required to finalize an FX transaction, i.e. name, rate, dates, and point of delivery.

Devaluation

Deliberate downward adjustment of a currency against its fixed parities or bands, normally by formal announcement.

Direct quotation

Quoting in fixed units of the foreign currency against variable amounts of the domestic currency.

Dirty Float

An exchange rate system in which the currency is not pegged, but is "managed" by the central bank to prevent extreme fluctuations in the exchange rate. This system is contrasted with a Pure Float in which there is no central bank intervention and the exchange rate is entirely determined by the market and speculation. Also known as "Man Float."

Easing

Modest decline in price.

Economic Exposure

The risk on a company's cash flow arising from foreign exchange fluctuations.

Economic Indicator

An economic statistic used to indicate the overall health of an economy, such as GDP, unemployment figures and trade balances. Used in fundamental analysis of the forex market, to speculate against the direction of an exchange rate.

Economic Exposure

When the cash flow of a country is vulnerable to changes in the exchange rate.

ECU

European Currency Unit.

EDI

Electronic Data Interchange.

Effective Exchange Rate

An attempt to summarize the effects on a country's trade balance of its currency's changes against other currencies.

Efficient Markets

Markets where assets are traded in which the price is indicative of all current and relevant information it is impossible to have undervalued assets.

Efficient Market Theory

The theory that the current market price reflects all information and expectations regarding the pair in question. The theory also assumes that the market cannot overprice or under price an asset, and hence the current price is the correct valuation at the time.

EFT

Electronic Fund Transfer.

Elliot Wave Theory

A theory based on the notion that the market moves in waves, which consist of trends followed by corrections. The Elliot Wave Theory states that there are 5 waves within an overall trend.

EMS

European Monetary System.

End of Day (or Mark to Market)

Traders account for their positions by accrual or mark-to-market. Accrual accounts only for cash flows when they occur and therefore it only shows a profit or loss when realized. The mark-to-market method values the trader's book at the end of each working day. It does so by using the closing market rates or revaluation rates. Any profit or loss is booked. The trader then starts the next day with a net position.

Envelopes

Envelopes place lines at fixed percentage points either above or below a moving average line. The upper and lower limits specify entry and exit points.

Equilibrium

A balance between demand and supply for any currency pair in the marketplace.

Euro

The currency of the European Monetary Union (EMU).

European Central Bank

The Central Bank for the European Monetary Union.

European Monetary System

A system designed to stabilize exchange risk between member states. It permits currencies to move in a measured fashion within agreed bands (the parity grid).

European Monetary Union

An institution of the EU. Its primary goal is to establish a single currency (the euro) for the EU.

Exchange control

Rules used to preserve or protect the value of a countries currency.

Exotic

A traded currency less broadly traded.

Exponentially Weighted Moving Average (EMA)

These place greater weight on more recent data and will be analyzed in a future lesson.

Exposure

A potential for gain or loss because of movement in the foreign exchange rate.

Fast market

Rapid movement in a market caused by strong interest by buyers and/or sellers.

Fed Fund Rate

The interest rate on Fed funds.

Fed

The central bank of the United States, responsible for monetary policy.

Federal Reserve System

The central banking system in the United States.

Fibonacci Numbers

Derived from a sequence of numbers in which each successive number is the sum of the two previous numbers, They are frequently used in hypothesizing which currencies investment capital will gravitate toward. There four popular Fibonacci studies are arcs, fans, retracements, and time zones. Fibonacci numbers are common in the forex market and we will look in greater detail at this in our more advanced studies.

Fisher Effect

The relationship that exists between interest rates and exchange rate movements, so that in an ideal situation interest rate differentials would be exactly off set by exchange rate movements. See interest rate parity.

Fixed exchange rate

An official exchange rate set by monetary authorities for one or more currencies. 

Flag and Pennant

Shaped like a flagpole with a pennant, this formation is characterized by an upward movement with an l slope followed by a period of consolidation. It is considered a bullish pattern overall. Flexible exchange rate

Exchange rates with a fixed parity against one or more currencies with frequent revaluations.

FOMC

Federal Open Market Committee, the committee that sets money supply targets in the US.

Foreign Exchange

The purchase or sale of a currency against sale or purchase of another.

Forex

Term used referring to the foreign exchange market.

Forex Club

Groups formed in the major financial centers to encourage educational and social contacts between FX dealers

Forward Outright

A commitment to buy or sell a currency for delivery on a specified future date or period.

Forward Rate

Forward rates are quoted in terms of forward points, which represent the difference between the forward rates. The forward points are either added or subtracted from the exchange rate to determine the Forward rate.

Free Reserves

Total reserves held by a bank less the reserves required by the authority.

Front Office

The sales personnel (trading and other business personnel) in a financial company.

Fundamental Analysis

The analysis of economic indicators and political and current events that could effect the future direction of financial markets. In the foreign exchange market, fundamental analysis is based primarily on macroeconomic events.

Futures

A way of trading financial instruments, currencies or commodities for a specific price on a specific date in the future. Unlike options, futures give the obligation (not the option) to buy or sell instruments at a later date. They can be used to speculate against the future value of the underlying product.

FX

Foreign Exchange.

G7

The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

G10

The G7 and Belgium, Netherlands and Sweden, a group associated with IMF discussions. Switzerland is sometimes involved.

Gap

A mismatch between maturities and cash flows in a bank or individual dealer's position book. Gap exposure is effectively interest rate exposure.

Going long

The purchase of a stock, commodity, or currency for investment or speculation.

Going short

The selling of a currency or instrument not owned by the seller.

Gold Standard

The original system for supporting the value of currency issued.

Good-till-Canceled (GTC)

Refers to an order given by an investor to a dealer to buy or sell a security at a fixed price that is considered "good" until the investor cancels it.

Grid

Fixed margin within which exchange rates are allowed to fluctuate. Gross Domestic Product (GDP)

Total value of a country's output, income or expenditure produced within the country's borders.

Gross National Product

Gross domestic product plus "factor income from abroad" (income earned from investment or Abroad).

Hard currency

Any one of the major world currencies that is well traded and easily converted into other currencies.

Head and Shoulders

A pattern resembling two peaks (the shoulders) with a higher peak between the two shoulders (the head).

Hedge

An investment position or combination of positions that reduces the volatility of a portfolio value. One can take an offsetting position in a related security. Instruments used are varied and include forwards, futures, options, and combination of them.

Hedged position

One open buy position and one open sell position in the same currency.

High/Low

Refers to the daily traded high and low prices of a given currency pair.

Historical Volatility

A measure of the change in price over a specified time frame. A Higher volatility suggests that the currency is more likely to trade within a wider range. Reduced volatility suggests that the currency will trade in a narrower range.

Hit the bid

Acceptance of purchasing at the offer or selling at the bid.

IMF

International Monetary Fund, established in 1946 to provide international liquidity on a short and medium term and liberalization of exchange rates. The IMF supports countries with balance of payments problems with the provision of loan.

IMM

International Monetary Market part of the Chicago Mercantile Exchange that lists a number of currencies and financials Implied volatility

A measurement of the market's expected price range of the underlying currency futures. This is based on option premiums.

Implied Rates

The interest rate determined by calculating the difference between spot and forward rates.

Indicative quote

A market-maker's price which is not firm.

Inflation

An economic condition where there is an increase in the price of consumer goods, which results in he erosion of purchasing power.

Initial margin

The margin required by a forex firm to initiate the buying or selling of a determined amount of currency.

Interest parity

One currency is in interest parity with another when the difference in the interest rates is equalized by the exchange margins. For instance, if the operative interest rate in Australia is 4% and in the UK 8%, a forward premium of 4% Australian Dollars against sterling would bring about interest parity.

Internationalization

Referring to a currency that is widely used to denominate trade and credit transactions by non residents of the country of issue. US dollar and Swiss Franc are examples.

Leading Indicators

These include statistics such as unemployment rates, CPI, Federal Funds Rate, retail sales, personal income, and the prime rate that is used to predict economic activity. LIBOR

The London Interbank Offer Rate. The interest rate that the largest international banks will lend to each other.

Limit order

A request to buy or sell a foreign currency at a specified price or better.

Liquid and Illiquid Markets

The ability of a market to buy and sell at ease with no impact on price stability. A market is liquid if the spread between the bid and the offer is small. This also occurs with the presence of buyers and sellers with more players creating tighter spreads. Illiquid markets have fewer participants; thus, the spreads are wider.

Maintenance margin

The minimum margin which an investor must keep on deposit in a margin account at all times.

Market order

An order to buy or sell a financial instrument immediately at the best possible price.

Mid-price or middle rate

The price half-way between the two prices, or the average of both buying and selling prices off the market makers.

Mine and Yours

To announce that an FX trader wants to buy he/she may say or type "Mine" (i.e. taking an Offer). To sell he will say "Yours"(i.e. "hitting the bid." )

Minimum price fluctuation

The smallest increment of market price movement possible in a given futures contract.

Momentum

This is designed to measure the rate of price change, not the actual price level. Consists of the net difference between the current closing price and the oldest closing price from a predetermined period.

Monetary Base

Currency in circulation plus banks' required and excess deposits at the central bank.

Money Market

Highly liquid markets for short-term investing in monetary instruments and debts, typically maturing in less one year.

Moving Average

A method of smoothing a set of data, widely used in price time series. Although there are different types, the simple moving average (SMA) and the exponential moving average (EMA) are the most widely used.

Negative or bearish divergence

Occurs when the direction of the price of a currency varies from the condition of an indicator.

Net Position

The amount of currency bought or sold which have not yet been offset by opposite transactions.

Net Worth

Amount of assets which exceed liabilities; may also be known as stockholders equity or net assets. For an individual, the total value of all possessions such as houses, stocks, bonds, currencies and other securities, minus all outstanding debts such as mortgage bonds and short and long term oans.

Odd Lot

A non standard amount for a transaction.

Off-Balance Sheet

Financing or the raising of money by a company that does not appear on the company's balance sheets such as Interest Rate Swaps and Forward Rate Agreements.

Offer

The price, or rate, that a willing seller is prepared to sell at. The best offer is the lowest such price available.

Offset

The closing-out or liquidation of a futures position.

Offshore

The operations of a financial institution which although physically located in a country, has little connection with that country's financial systems. In certain countries a bank is not permitted to do business in the domestic market but only with foreign banks. This is known as an off shore banking unit.

Open Order

An order to buy or sell that remains valid until executed or canceled by the trader.

Open Position

A deal not yet reversed or settled and the investor is subject to exchange rate movements.

Options

An agreement that allows the holder to have the option to buy/sell a specific currency at a certain price within a certain time. There are two types of options -call and put. A call is the right to buy while a put is the right to sell.

Overbought

A term used to characterize a market in which currency prices have risen at a pace that is above typical market acceleration, and which is therefore due for a retracement.

Oversold

The opposite of overbought; exists when the price of a currency decelerates at an abnormally fast rate.

Overnight limit

Net long or short position in one or more currencies that a dealer can carry over into the next dealing day . Overnight

A deal from a day until the next business day.

Over The Counter (OTC)

The description of any transaction not conducted over an exchange.

Parabolic SAR (Stop and Reversal)

The Parabolic SAR (stop-and-reversal) is a time/price trend following system used with trailing price stops. This we'll look at in a future lesson .

Parity

Foreign exchange dealer's slang for "your price is the correct market price". Official rates in terms of SDR or pegging currency.

Parities

The value of one currency in terms of another.

Pegging

A form of price stabilization; typically used to stabilize a country's currency by making it fixed to the exchange rate of another country.

Political Risk

Risk that changes in government policies will negatively impact an investor. Political Risk is especially prevail ant in third world countries.

Position

The amount of currency or security owned or owed by a forex trader or investor.

Premium

In the forex market, it is the amount of points added to the spot price to determine a forward or futures price.

Price Transparency

Refers to the degree of access to information regarding bids and offers and respective prices. Ideally an investor/trader would have equal access to all information.

Profit Taking

The unwinding of a position to realize profits.

Quote

An indicative price. The price quoted for information purposes but not to deal.

Rally

A recovery in the price of a currency following a period of decline.

Range

The difference between the highest and lowest price of a future recorded within a trading session.

Rate (exchange rate).

The price of one currency in terms of another

Reaction

A decline in prices following an advance.

Realized and Unrealized Profit

Unrealized profit is a gain from an increase in the price of a currency.

Rectangle

A rectangle is a continuation pattern denoting a trading range characterized by strong support and resistance lines. These are often known as trading ranges Resistance Point or Level

A price recognized by technical analysts as a price level which a currency pair has trouble bridging through it to the upside, but which is likely to result in a significant price increase if broken. Various levels of resistance appear for different time frames.

Retracements (corrections)

Used to denote a temporary reversal in the overall trend of the market to accommodate for excessive acceleration or deceleration of a movement in the price of a currency.

Revaluation

Increase in the exchange rate of a currency as a result of official action.

Revaluation rate

The rate for any period or currency which is used to revalue a position or book.

Risk management

Term to describe when a forex trader will use analysis and other trading techniques to avoid substantial risk to his portfolio.

Risk Position

An asset or liability, which is exposed to fluctuations in value through changes in exchange rates or interest rates.

Rollover

An overnight swap, specifically the next business day against the following business day (also called Tomorrow abbreviated to Tom-Next).

Round trip

Buying and selling of a specified amount of currency.

Rounding Top and Bottom

A pattern where a rounding top signifies a rounded resistance line and overall trend. On the other hand, a rounding bottom is a bullish for which the bottom curve can serve as a support line. Mostly suited to longer-term analyses.

RSI (Relative Strength Index)

The RSI is a price-following oscillator that ranges between 0 and 100. This divergences noted are indicators of an impending reversal. We will explore this further in a future lesson"

Selling rate

The rate at which a bank is willing to sell a foreign currency.

Settlement date

The date of settlement of forex contracts.

Settlement Risk

An instance where payment is made to a counter party before the counter value payment has been made. There is a risk Is that the counter party's payment will not be received.

Short sale

The sale of a specified amount of currency not owned by the seller at the time of the trade. These are usually made in expectation of a decline in the price. Short-term interest rates

Normally a 60 to 90 day rate.

Sidelined

A major currency that is lightly traded. This could be due to major market interest in another currency.

Slippage

Refers to the negative (or depreciating) pip value between where a stop loss order becomes a market order.

Soft Market

More potential sellers than buyers. Here rapid price falls are likely.

Spike (high or low)

A significantly lower low or higher high within a data series. The Points at which a currency spikes often signal a potential reversal in the direction of the trend.

Spot

This is the most common foreign exchange transaction. A Spot or Spot date refers to the spot transaction value date It requires settlement within two business days, subject to value date calculation.

Spot next

The overnight swap from the spot date to the next business day.

Spot price/rate

The price at which the currency is currently trading in the spot market.

Spread

The difference between the bid and offer price that is offered by a market maker. Square

Purchase and sales are in balance and thus the dealer has no open position.

Squawk Box

A speaker connected to a phone. This is often used in broker trading desks.

Squeeze

Action by a central bank to reduce supply. This is done in order to increase the price of a currency.

Stable market

An active market which can absorb large sale or purchases of currency without significant price moves.

Standard

A term referring to certain normal amounts and maturities for dealing.

Stochastics

This theorizes that as currency prices rise, closing prices tend to be near the value. Conversely, as prices fall, closing prices are near the low for the period. Stochastic studies are made of two lines, %K, which moves between a scale of 0 and 100. The %D line is the moving average over a specified period of time of the %K . The %K line measures where the closing price of a currency is compared to the price range for a given number of periods.

Stop-Loss order

Order to buy or sell at the best available price after a given price threshold has been reached.

Support levels

The opposite of resistance; a point in a chart where a currency pair has repeatedly had trouble falling below. When a currency pair "tests" support but does not break it, buyers have outnumbered sellers. On the other hand, sellers control momentum if support is broken and the currency pair continues to plunge downward.

Symmetrical triangle ( a coil)

This often forms during a trend as a continuation pattern. It contains at least lower highs and two higher lows. At the time these points meet, the lines converge as they are extended and the symmetrical triangle forms.

Thin market

A market in which trading volume is low. Here bid and ask quotes are wide and the liquidity of the instrument traded is low.

Tick

A minimum change in price, up or down.

Today/Tomorrow

Simultaneous buying of a currency for delivery the following day and selling for the spot day, or vice versa

Trade date

The date on which a currency trade occurs.

Tradable amount

Smallest transaction size acceptable.

Transaction date

The date on which a trade occurs.

Transaction

The buying or selling of currencies. This results from the execution of an order.

Trend Lines

A straight line drawn across a chart that indicates the overall trend for the currency pair. In an upward trend, This is drawn below, and acts as a support line; the opposite holds true for a downward trend. Should the currency breaks the trend, the trend is considered to be invalid.

Triple Top

A pattern in which a currency has reached a price three times previously yet has been unable to sustain movement beyond those three peaks. A triple top signifies a strong resistance level.

Two-tier market

A dual exchange rate system where normally only one rate is open to market pressure, e.g. South Africa

Two-way quotation

When a dealer quotes both buying and selling rates for forex transactions.

Uncovered

Another term for an open position. Under-valuation

An exchange rate is normally considered to be undervalued when it is below its purchasing power.

Up tick

A new price quote for the same currency that is higher than the preceding quote.

US Prime Rate

The interest rate at which US banks will lend to their prime corporate customers.

Value Date

The date that payment is exchanged between two parties. For a spot transaction, the exchange generally takes two business banking days.

Value Spot

Normally settlement for two working days calculated from day 1.

Variation Margin

A call by a broker to increase the margin requirement of a forex account. This would occur during a period of extreme market volatility.

Volatility

A statistical measure of the market or a currency's price movements, over time. This is calculated by using standard deviation. Higher volatility equates to greater fluctuation in price.

Vostro Account

A local currency account maintained with a bank by another bank. 

Warrant

A warrant is a form of traded option. It is a right but not obligation to buy shares in a company at a future date. This is done at a prearranged price.

Wash trade

A matched deal which results in neither a gain nor a loss.

Whipsaw

A term used to describe a condition in a highly volatile market . Here a sharp price movement is quickly followed by a sharp reversal.

Working day

A day on which the banks are open for business, in a currency's principal financial center For our purposes with regards forex transactions, a working day only occurs if the bank in both financial centers is open for business.

Yard

Slang for a billion. (I like this term!)

Well, my goodness, we've made it through that lot! I think at this stage if your brains anything like mine it's darn tired and needs a break.
In the next lesson we'll look at Forex itself, what it is, what role it plays in the market and systems that players use in their investment strategies. Can't wait, this will really be interesting! Look out for lesson 2.

Supremo fx week 2 and 3

Hi everybody and welcome to week 2 and 3 of supremo fx.
These last 2 weeks the software/signal genrator has failed to live up to expectations.
I have been making use of Supremo FX's signals generated in the early hours of the trading day and unfortuntely it has been a disaster. I wrote to the admin of Supremo fx asking for a refund but they asked me to try it for another week as they said most of their customers have been making good returns with the software.

So I used it in week 3 and still made losses not even a single profit trade but all losses.
I am going to contact these guys again and see where I am going wrong.

catch you next week.

Forex Trading Strategies

Here we are going to look briefly at 3 forex trading strategies anyone can use quickly. There simple to understand easy to use have worked and will continue to work and that means big long term profits.


Let's look at these forex strategies and why they work...
Many traders make the mistake of thinking that the harder they work and the more complicated they make there trading strategy the more likely it is to work but there is no correlation between working hard and being complicated and forex trading success; you are simply judged on your market timing and the success of your trading signals.

A simple strategy will have fewer elements to break than a complicated one in the brutal world of forex trading and keeping it simple is always best.

Strategy 1 - Long Term Breakout Trading
FACT:
Most major trends start from new market highs or lows.
This is one of the simplest and most effective ways of trading, buying breakouts on the chart to new highs and selling new lows. Most traders cant do it, because they think they have missed a bit of the move and want to wait for the pullback but in strong moves, this never occurs and they are left watching the move pile up thousands of dollars and their not in.

If you focus on long term valid breakouts and time your entries with a couple of momentum indicators, you can make a lot of money. The key to this forex trading strategy is only to use levels that are considered important by the market.

They occur a few times a year per currency but lead to huge moves and huge profits.

Strategy 2 - The 4 Week Rule

This is one of the simplest most profitable, forex trading systems you will find and was devised by trading legend Richard Donchian. It will make sure you get in on EVERY major forex trend.
This sysmre is totally mechanical (and based upon the breakout philosophy discussed above) and consists of just one rule:

Buy a new four week calendar high and sell a new 4 week calendar low and maintain a position in the market at all times.

That's it!
Simple? Yes, but it works - back test it and see.
You can also add filters to smooth the equity curve which are discussed in our other articles.

We have used this system as part of our forex trading strategy for over 20 years and many great traders have been fans, such as Richard Dennis so, if it's good enough for him, its good enough for you and me.

Strategy 3 - Trading Overbought Oversold

The two other strategies just discussed are long term now, we will look at a short term strategy for profit - forex swing trading.

Swing trading simply aims to take advantage of overbought oversold scenarios within the major trend and you can do this with simple trend lines. All prices get pushed to far up or down, due to greed and fear and you simply want to trade into these extended levels.

Once you have identified areas of support or resistance, check volatility with the Bollinger band and then use the ultimate timing tool - the stochastic to confirm the move.
You then should take your profit early and then look for the next one.
Swing trading is fun, requires very little discipline, as you don't have to hold moves for long and can be learned in a few days.

So there you have 3 simple forex trading strategies for profit which are simple but don't think they can't be profitable, they are and can lead you to long term currency trading success.

So make the above part of your essential forex education and get on the road to profits.

Supremo FX week 1

I purchased the software worth $97 last week Thursday and downloaded the Forexmeta 4 Trading platform from FXDD.com and it did not take me more than 30 minutes to do this. Immediately I installed my Singal onto the forex meta platform and already started seing some signals showing for some of the major forex combinations. At the time I started on rthe EUR/USD, GBP/USD and the USD/JPY. In two days of just doing this, , implementing the buy and sell along with the stop loss and take profit levels as indicated by the indicator I managed to get myself a $1300 profit in a matter of 2 days.

I was very impressed with Supremo FX. However there is soemthing I should bring to your attention about this, and that is sometimes the market will not necessarilly reach the Take profit target so you may want to set your TP at a lower level than indicated by the Supremo FX. So I personally just set my TP at 30pips lower than the Supremo Fx recommendation.

And if you are able to check once in a while during the day you will find that the signal with generate other trading opportunities that you could monetize upon.
So If you would like this siftware, just let me know and I can send it to you and try it on a Demo account before you use the real money or Live account.

Happy trading with Supremo FX.