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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 technical indicator rather than a complete system that is used to identify with “one look” at the chart, the direction of the market, entries (buy and sell) and support and resistance levels. It consists of 5 lines:

  • Tenkan-sen : (Highest High + Lowest Low)/2 for the last 9 periods
  • Kijun-sen     : (Highest High + Lowest Low)/2 for the last 26 periods
    • When Tenkan-sen and Kijun-sen are combined together they provide buy/sell signals
    • When Tenka-sen crosses above (from below) Kijun-sen, a buy signal is generated
    • When Tenkan-sen crosses below (from above) Kijun-sen, a sell signal is generated
    • A buy signal above the Kumo is considered a strong buy signal
    • A buy signal below the Kumo is considered a weak buy signal (take profit opportunity)
    • A buy signal in the Kumo is considered a normal buy signal
    • A sell signal below the Kumo is considered a strong sell signal
    • A sell signal above the Kumo is considered a weak sell signal (take profit opportunity)
    • A sell signal in the Kumo is considered a normal sell signal
  • Senkou Span A : (Tenkan-sen + Kijun-sen)/2 plotted 26 periods ahead
  • Senkou Span B : (Highest High + Lowest Low)/2 for the past 52 periods, plotted 26 periods ahead
    • When Senkou Span A and Senkou Span B are combined together they form the Kumo that acts as support and resistance
    • Prices above the Kumo find support at the Kumo
    • Prices below the Kumo find resistance at the Kumo
    • A thick Kumo implies high volatility and strong support/resistance
    • A thin Kumo implies low volatility
    • Prices above the Kumo identify an uptrend
    • Prices below the Kumo identify a downtrend
    • A very thin Kumo implies a reversal may be imminent
  • Chikou Span : Current closing price plotted 26 periods behind
    • A buy signal is generated when Chikou Span crosses above the close price 26 periods back from the current price
    • A sell signal is generated when Chikou Span crosses below the close price 26 periods back from the current price
    • Uptrend is confirmed when Chikou Span crosses above the Kumo
    • Downtrend is confirmed when Chikou Span crosses below the Kumo

A Japanese candlestick pattern signaling a bearish reversal. While the market is in an uptrend or near a resistance area, the presence of a long black body signals an alert for traders. The second candle is a long black candle that opens at or near the first candles’ close. Both the second and third candles close lower than the previous candle’s close.

Rupiah. The currency of Indonesia. It is subdivided into 100 sen.

New Israeli Sheqel. The currency of Israel. It is subdivided into 100 agora.

See International Monetary Fund.

In Elliott Wave Theory, these waves move in the direction of the wave of one larger degree. For example, in a complete cycle (8 waves), impulse waves 1, 2 and 3 move in the direction of the wave of one larger degree. Also, the corrective waves a and c move in the direction of the wave of one larger degree.

A Japanese Candlestick pattern signaling bearish continuation. In the course of a downtrend a small white candle opens below the low of the prior long black body and closes just above the prior close.

A Japanese Candlestick pattern signaling bullish continuation. In the course of an uptrend a small black candle opens above the high of the prior long white body and closes just below the prior close.

Technical tools based on inductive statistics and mathematical formulas, which use price data, volume and open interest in order to identify future price trends.

Foreign Exchange Rate quoted for 1 unit of the foreign currency. Foreign currency represents the base currency where the domestic currency corresponds to the quote currency. For example if in Europe, the exchange rate between the euro and the dollar would be USDEUR.

A sustained increase in the price of goods and services that reduces the purchasing power of money.

Indian Rupee. The currency of India. It is subdivided into 100 paise.

In bar charting, an inside day is defined as a bar with lower high and higher low compared to the previous bar. It suggests a pause in the market.

The interest rate charged on short-term loans between banks.

The cost of borrowing money, usually expressed as a percentage and calculated on an annualised basis.

A technical analysis methodology that examines the correlations between four major asset classes: stocks, bonds, commodities, and currencies. For example, Stock Market and Treasury Bonds are positively correlated. Whereas Interest Rates are negatively correlated to both markets. Commodities and Bonds usually move in opposite directions. The US Dollar and Gold are also negatively correlated.

In Time Cycles analysis, Intermediate Cycles last from several weeks to several months. Identification of Intermediate Cycles may be performed by measuring the time interval between the cycle’s troughs (lows) on the X-axis of the price chart.

In Dow Theory, an Intermediate Trend is a correction of the Major Trend. It usually lasts 3 weeks to 3 months.

It runs through the price action, connecting internal tops and bottoms rather than extreme lows (uptrend line) or extreme highs (downtrend line).

*The International Monetary Fund, or IMF, promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment, sustainable economic growth, and helps to reduce global poverty. The IMF is governed by and accountable to its 189 member countries.

*International Monetary Fund

Usually, opening and closing a position within the day.

A Technical Analysis chart pattern signaling a bullish reversal. It consists of three bottoms and their corresponding tops. The lowest bottom is known as the Head, where the bottom to the left is known as the Left Shoulder and the bottom to the right is known as the Right Shoulder. The line connecting the two tops is known as the neckline. A prerequisite of any reversal is the existence of a trend, a downtrend in this case. In the course of a downtrend, as defined by consecutive lower tops and lower bottoms, the presence of a higher bottom warns for a potential reversal. A decisive break of the neckline signals the end of the prevailing downtrend and the beginning of an uptrend.

A Japanese candlestick pattern signaling a bullish reversal. An Inverted Hammer formed at the end of a downtrend or at a support area has bullish reversal implications. Traders enter the market with long positions but eventually the sellers’ pressure overcomes buyers’ pressure and the candlestick closes at the lower area of the inverted hammer. The small body and the absence of a lower shadow reveals the weakness of the bears who are unable to maintain the downward move. The body of the Inverted Hammer is 2-3 times shorter than the upper shadow.

Iraqi Dinar. The currency of Iraq. It is subdivided into 1000 fils.

Iranian Rial. The currency of the Islamic Republic of Iran. It is subdivided into 100 dinar.

Iceland Krona. The currency of Iceland.

Near the end of an uptrend, a final gap known as exhaustion gap will appear on the price chart to alert the end of the trend and the beginning of a brief, narrow sideways movement. A breakaway gap to the downside this time, will end the sideways movement and signal a trend reversal. The price pattern, isolated by the two gaps, is known as Island Reversal.

A monthly survey where purchasing managers are asked to rate business activity in the manufacturing sector and more specifically, on production, employment, new orders, prices, supplier deliveries and inventories. A reading above 50 is bullish for the US Dollar, while a reading below 50 is bearish. Released monthly by the Institute of Supply Management.

ISM Non-manufacturing Index based on surveys of non-manufacturing firms' within 60 industry sectors. It helps investors to get better insights into current market conditions. When this index is increasing, the stock markets are generally going up due to potentially increased corporate profits. The index is a composite of four indicators, including seasonally adjusted business activity, employment, supplier deliveries and new orders received. A rule of thumb in terms of interpreting the data is- a reading above 50 percent means the non-manufacturing sector of the economy is expanding and below 50 percent means that it is contracting.

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