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Forex Glossary

Forex Definitions: The Industry’s Most Important Terms Explained

The forex industry is made up of so many definitions that it's easy to forget a few along the way. Do you know your Loonie from your Loti? Can you tell your Shooting Star from your Evening Star? Take the time to get to grips with forex jargon because understanding forex vocabulary is an important step in a trader’s journey.

Since no forex education can be complete without a glossary of basic forex terms, we've compiled one which explains key words and phrases in the simplest way possible. This way, you'll never be lost or confused with forex terminology!

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A graph that illustrates the intraday movements of a financial instrument.

See GMD.

A Japanese candlestick pattern signaling a bearish reversal. It forms at the top of an uptrend or near a resistance area.

During the course of an upward movement, a long black candlestick closes below the midpoint of the previous long white candle. The black candle opens above the previous high.

Part of the MT4 Client Terminal interface. It displays information about a selected bar/candlestick. By simply placing the arrow on the desired bar/candle, the window will display the OHLC prices, the open time and date, volume and the corresponding values of any attached indicators/oscillators.

Deutscher Aktien Index (German Stock Index) is an index of 30 large German company shares.

A trade opened and closed within one day.

Failure to fulfil debt obligations.

It is the decrease of the average price of a representative number of goods and services. It is the opposite of inflation.

A Japanese candlestick pattern signaling a bearish reversal.

It forms during an established uptrend. It consists of three white candles each closing higher than the previous one. The last candlestick is a Doji or spinning top that gaps above the previous candlestick.

See Double Exponential Moving Average.

A technical oscillator developed by Tom DeMark to determine overbought and oversold conditions for the currency pair under study. A reading above 0.7 is considered overbought and a bearish reversal may be imminent. A reading below 0.3 is considered oversold and a bullish reversal may be in the making.

Calculation:

If High(i) > High(i-1) then DeMax(i) = High(i) – High(i-1) else DeMax(i) = 0

If Low(i) < Low(i-1) then DeMin(i) = Low(i) – Low(i-1) else DeMin = 0

DeMarker(i) = SMA(DeMax, N)/(SMA(DeMax, N)+SMA(DeMin, N))

A trading account which is funded with virtual money, giving the trader a chance to explore the markets and test the trading platform they're using before investing real money in a live trading account.

See MKD.

The reduction in a currency’s value.

When real GDP declines more than 10% or a recession that lasts 2 years or more.

The number of open buy and sell orders placed for a financial instrument at varying prices.

It is mostly a continuation pattern. It constitutes a pause in the market after which a decisive breakout will resume in the direction of the prevailing trend –i.e. a downtrend. It requires 4 data points, 2 highs and 2 lows. The lower side of the triangle connecting the lows is horizontal, while the upper side connecting the highs is sloping downwards. A breakout of the triangle has minimum measuring implications - equal to the height of the pattern.

A technical analysis oscillator developed to remove trend from price action, by using a centered moving average. Detrending makes it easier to identify time cycles. High prices above the zero line, correspond to cycle crests, where lows below the zero line correspond to cycle troughs.

The exchange rate of a currency pair expressed in terms of the foreign currency for 1 unit of domestic currency. The base currency represents the domestic currency whereas the quote represents the foreign currency. For example, USDEUR = 0.90120.

+DI (plus Directional Indicator) is paired with -DI (minus Directional Indicator) to generate buy/sell signals in the context of the Average Directional Movement Index (ADX). A crossing of +DI above -DI generates a buy signal. A crossing of +DI below -DI generates a sell signal.

Trading based on the trader’s experience and intuition, to decide whether to take a trade or not, under the current market conditions.

Usually at the end of a trend, prices move in the direction of the prevailing trend where the oscillator moves in the opposite direction.

Djibouti Franc. The currency of Djibouti. It is subdivided into 100 centimes.

See Dow Jones Industrial Average.

Danish Krone. The currency of Denmark, Greenland and the Faroe Islands. It is subdivided onto 100 øre.

See STD.

A Japanese candlestick formation that has equal (or almost equal) opening and closing price. It signals indecision.

A Japanese candlestick pattern. In a downward movement, a Doji gaps below a long black candle but fails to move substantially lower as it closes where it opened. It has possible bullish implications.

A technical analysis tool developed by Richard Donchian. It plots the highest high and lowest low of the last n candlesticks. It is used to measure volatility and identify support and resistance levels.

See VND.

Dominican Peso. The currency of the Dominican Republic. It is subdivided into 100 centavos.

A technical analysis reversal price pattern. After an established downtrend, the last bottom fails to move lower than the previous bottom and prices rise above the last top.

The use of two moving averages to generate trading signals. A buy signal is generated when the shorter moving average crosses above the longer moving average. A sell signal is generated when the shorter moving average crosses below the longer moving average.

A technical Indicator developed by Patrick Mulloy in an attempt to produce less lag than the traditional moving average calculations and hence more sensitive to market changes.

Calculation:   DEMA(n) = ( 2 * EMA(n)) - (EMA(EMA(n)) )

A technical analysis reversal price pattern. After an established uptrend, the last top fails to exceed the previous top and prices fall below the last bottom.

It refers to the tone of language that policy makers use when referring to inflation. For example, a dovish statement implies that no drastic measures may be taken to raise interest rates.

A stock market index composed of 30 stocks of large American companies. It’s based on Charles Dow’s 1884 stock market average composed of nine railroad and two manufacturing companies. The index grew to include 30 stocks by the year 1928. It is used to gauge stock market activity and the country’s economic health.

Charles Dow’s idea of market behavior as published in a series of editorials in the Wall Street Journal during the early 1900’s.

Basic principles:

  • The averages discount everything
  • The market has three trends
  • Major trends have three phases
  • The averages must confirm each other
  • Volume must confirm the trend
  • A trend is assumed to be in effect until it gives definite signals that it has reversed

A Japanese candlestick pattern signaling a bearish continuation.

It forms during a downtrend.

It consists of three candlesticks. The first and second are long black candles with a gap in between them. The third is a white candle that opens in the real body of the previous candle and closes above the gap, filling it completely.

A Japanese candlestick pattern signaling a bearish continuation.

It forms during a downtrend.

It consists of three candlesticks. The first and second are black candles with a gap in between them. The third is a white candle that opens in the real body of the previous candle and closes within the gap without filling it completely.

A Technical Analysis tool where prices are trending downwards between two parallel lines. The basic trendline is drawn by connecting the tops of the price action and the channel (or return line) which is parallel to it. Channels act as support and resistance levels. The basic trendline (resistance) may be used for opening sell positions in the direction of the downtrend. The channel (or return) line may serve as target for closing a short position.

See Detrended Price Oscillator.

A Japanese candlestick that has a long lower shadow, while the opening is equal to the closing price near the high.

When the value of an investment drops, the length between its peak and its low is called the drawdown.

A Japanese candlestick pattern signaling a bearish reversal.

It forms at the top of an uptrend or near a resistance area.

It consists of multiple candlesticks.

At the end of an uptrend volatility tightens as the market is forming a topping pattern. Short bodies substitute the long white bodies. Finally, a long black candle breaks below the pattern with a gap to complete the pattern.

Consumer products such as house appliances, devices and equipment that usually last more than 3 years.

A US Monthly economic report, that measures the change of factory orders for durable goods. Released by the Census Bureau.

Algerian Dinar. The currency of Algeria.

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