Forex -Glossary Of Technical Terms -1
(1) AFTER SPIKE- Price action in the time shortly after the initial spike caused by a news announcement.
(2) AMERO- The Amero is the hypothetical replacement for the US Dollar, Canadian Dollar, and the Mexican Peso. This would be the North American equivalent of the Euro.
None of the 3 governments involved admit that there are any current plans to unify these currencies. Some people say that there are plans, but these plans are being kept secret.
(3) BACK TESTING- A method for checking the potential profitability of a trading system by applying it to historical data.
There are three major issues with backtesting.
The first is that the quality of back testing data varies. Historical data often does not include every tic of actual price action. Sometimes this can change when or if trades open or close.
The second issue is that an EA or other trading system may be "over-optimized" to give incredibly good results in backtesting. It can be so optimized that results are near-perfect or even completely perfect, but only for the exact historical data set used to create it. Over-optimized systems often fail quickly when used in the real world.
The third issue is that the market changes all the time. A system can work well for months or years, even in forward testing, but can still fail later when faced with sufficiently different market conditions.
(4) BASE CURRENCY- This is the first currency in a currency pair.
For GBPUSD, the GBP is the base currency.
(5) BASIS POINTS- Interest rate changes can be described as fractions of a percent or as basis points. A 1/4% (or 0.25%) change can also be called a 25 basis points change.
(6) BEARISH-In stocks, bearish means that the price of a stock is going down (or you think it will go down). Since forex is traded in pairs, bearish means the price of that pair is going down (or you think it will go down). If you are bearish on the EUR/USD, you think the EUR will go down vs. the USD. This makes you bearish on the Euro and Bullish on the US Dollar.
A candlestick where the closing price is below the opening price is sometimes called a bearish candle. A general downtrend in a price is a bearish market.
(7) BOE- Bank of England. Controls the interest rate of the British Pound Sterling (GBP) and monitors the monetary policies of the United Kingdom and other territories and countries that have currency pegged to the pound in order to keep that currency stable.
(8) BUCKET SHOP- A brokerage that takes the opposing side of all customer trades and seldom, if ever, passes orders on to the actual market. Bucket shops count on the fact that most forex traders lose money.
Since true bucket shops make money only from spread and from customers losing money, they will go to great lengths to make life difficult for customers who make money trading forex to continue to be profitable and/or to withdraw any profits.
There are brokerages that take opposing positions as new orders come in, then consolidate customer orders and pass them on to the market. Since the brokerage no longer gains or loses anything based on the gains or losses of customers, these would not qualify as true bucket shops.
(9) CABLE- Used to refer to either the GBPUSD currency pair or just to the GBP.
The name comes from the earliest form of electronic currency exchange - The dollar and pound were traded over the transatlantic cable.
(10) CANDLES-Also known as candlesticks. A very popular method of displaying the Spot price on charts over a time period. The candle takes the form of a rectangle which may be filled or empty. A "Wick" may protrude from the top or the bottom or both.
The body of the candle represents the distance between the opening and closing prices, an empty (hollow) or green filled body means that the price opened at the bottom level of the body and closed at the top, while a black or red filled body means the closing price is the one a the bottom of the candle body. The wick at the top shows the highest point the price reached during the period and the wick at the bottom shows the lowest point.
Strongly favoured by Japaneses traders, there are many well established (and named) patterns formed by candles, further study is strongly recommended if not essential in order to recognise the basics.
(11) CHURNING-The deliberate execution of more trades than necessary by an account manager to generate more income (for the account manager, not for the account holder) through extra commissions, cuts of spreads, and/or trading fees while providing little or no additional profits for the account holder.
(12) CPI- Consumer Price Index. This is a measure of retail prices of goods and services. This can also be called the "cost of living" index.
Generally, if the released number is greater than the forecast number, that is good for the value of the nation's currency. One of the reasons for this is that the CPI is a direct measure of inflation, and higher inflation often leads to increased interest rates.
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