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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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Upward price movement after a period of sideways movement or decline.

See ZAR.

Claims that price changes are serially independent and as such they are random and unpredictable.
When price action is confined between a support and a resistance level.  Also known as a sideways market, flat market or trendless market.

See Exchange Rate.

Also known as body, it is the rectangular area between the open and the close price on a Japanese Candlestick. If the close is higher than the open price then the color is white; signifying positive sentiment. Conversely, if the open is higher than the close price, the color is black; suggesting negative sentiment.
A contraction in economic activity.  A period of two consecutive quarters of declining Gross Domestic Product (GDP).
The ratio of gained profit to maximum drawdown.
A continuation price pattern, when prices are trading in a confined area between two parallel flat lines.  It is also known as range or consolidation. Even though it is expected to break out in the direction of the prevailing trend, it is not unusual to break out in the opposite direction.  If volume information is available, it may hint in the break out direction well before it happens, as price movement tends to be higher or heavier in the direction of the breakout. Breakout of the range should also be accompanied by heavy volume to be considered valid.  Measuring implications are calculated as the width of the range.

A market governed by legislative rules and regulations which are in place to protect investors.

The highest percentage drop of Equity.

A technical indicator based on the premise that during an uptrend, the closing price is usually higher than the open price.  Conversely, during a downtrend, the closing price is usually lower than the open price.  The calculation formula is:

RVI = (Close – Open) / (High – Low)

For further smoothing, a 10-period Simple Moving Average may be applied on the resulting RVI.  Furthermore, a 4-period Signal Line may be constructed by applying a Symmetrical Weighted Moving Average on RVI.

A potential buy signal is triggered when there is a positive divergence between the oscillator and price, especially when RVI is in extreme oversold territory.  Conversely, a potential sell signal is in place when there is a negative divergence and RVI is in extreme overbought territory.

A price charting method.  A price move is registered as a “brick” in the direction of the trend, as long as the move is equal to the box size, i.e.  the minimum amount.  There are two types of bricks - white and black.  A reversal to the downside takes place when a black box emerges after a series of white bricks.  Conversely, a reversal to the upside takes place when a white brick is registered after a series of black bricks.  The concept of box size helps to smooth out “noise” as price movements less than the box size are not registered.
When a broker is not able to fill a trader’s order at the specific price due to an unusually rapid price movement. The broker would then quote the next best available price, seeking the trader’s confirmation to fill the order.
A strong currency that Central Banks and other Financial Institutions hold as part of their currency reserves.

A price level usually defined as a previous top, where selling pressure overcomes buying pressure.  As a result, prices may find it difficult to break above.

An individual investor who trades the markets for his own benefit rather on behalf of an organization.  Usually individual investors invest smaller amounts in contrast to institutional investors.
An economic report presenting the US total retail sales as well as the percentage change of the last month.  It is based on a survey of about 5000 retail firms. It shows demand in consumer goods which constitutes about 70% of the GDP.  Released, monthly by the US Census Bureau.

See correction.

A channel consisting of two parallel lines; the basic trendline and the return or channel line.  In an uptrend the return line is drawn by joining the tops of the channel whereas in a downtrend, the return line is drawn by joining the bottoms of the channel.  The return line serves as a profit-taking indicator for short-term traders.
A turning point in the price chart.
A price formation that signifies the end of a trend in one direction and the beginning of a new trend in the opposite direction.  The most popular reversal pattern is “Head and Shoulders”.
It is the ratio of potential profits to potential losses.  For example, if a trade suffers a 50 pip loss, then the expected return may be 150 pips, if 3:1 reward-to-risk is used.

See OMR.

See KHR.

A Japanese Candlestick bullish continuation pattern.  In the course of an uptrend, a long white body is followed by three small candlesticks formed between the previous candle’s range- triggering a pause in the market. The resumption of the uptrend is signaled by the presence of the fifth candle which is a long white body.
The potential of a negative outcome such as underperforming, failing to achieve investment/trading goals or losing money.
The amount of risk a trader is willing to take.
Refers to the level of tolerance of uncertainty.  Traders with risk aversion prefer lower returns with known risks (usually low risk) over higher returns with unknown/uncertain risks (usually high risk).

It refers to the controls applied to mitigate trading risk, for example:

  • Stop Loss
  • Position Size
  • Reward-to-Risk Ratio

It is a technical oscillator that measures the rate of ascent or descent in the price of a financial instrument.  It measures the difference between the current price and the price n periods ago (Close Recent – Close n periods ago). If the difference is above the zero-line and rising then it is presumed that the uptrend is accelerating.  If the difference is below the zero-line and falling, the downtrend is accelerating. If the difference is above the zero-line and falling, the uptrend is decelerating.  Similarly, if the difference is below the zero-line and rising, the downtrend is decelerating. ROC follows the general oscillator analysis:

  • A crossing of the oscillator above the zero-line triggers a buy signal.
  • A crossing of the oscillator below the zero-line triggers a sell signal.
  • Divergence between the oscillator and price gives early signals of a reversal.
  • Overbought/Oversold levels are not easily spotted on the ROC Oscillator since it is unbounded. Hence, visual inspection is used to identify extreme readings above and below the zero-line.

In forex, the rollover rate is the interest rate that traders pay or earn when they hold (rollover) a position open overnight.

Romanian Leu.  The currency of Romania.  It is subdivided into 100 bani.

Refers to the total amount of funds involved in opening and closing a position.

Serbian Dinar.  The currency of Serbia.  It is subdivided into 100 paras.

Relative Strength Index.  A popular technical indicator developed by Welles Wilder.  It addresses erratic price movements in the markets by smoothing prices using the following formula:

RSI = 100 - (100 / (1+ (Average of n up closes / average of n down closes)))

The default value is 14 but 9 may also be used.  RSI is bounded between 0 and 100.  When the oscillator moves above 70 it is considered overbought and a reversal warning is indicated.  If there is a negative divergence between the price and the RSI, then a potential sell indication is in place.  When the oscillator moves below 30 it is considered oversold and hence a reversal alert is indicated.  If there is a positive divergence between the price and the RSI, a possible buy indication may be in place.

Russian Ruble.  The currency of the Russian Federation.  It is subdivided into 100 kopeks. 

See MVR.

A gap that follows a breakaway gap.  It usually forms in the middle of a trend and hence is also known as measuring gap.

See IDR.

Rwanda Franc.  The currency of Rwanda.
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