Forex Trading

Rome Escabillas
Business Owner, 63998 936 9331
 Objective

• Learn the Terminology

• Understand the Basics
• Learn the Strategy
• Technical Indicators
 Terminology
• Asset — commodities
A (GOLD, OIL), company
• Ask — the price at which shares (BMW, Google),
the asset is sold, i.e. the currency pairs (GBP/USD,
market selling price. All EUR/USD, AUD/USD),
market quotes include the indices (CAC40, DAX,
selling and buying price: S&P 500), pairs
bid and ask. The difference (GOLD/SILVER) i.e.
between the two prices is financial instruments on
called the spread. the price dynamics of
which trades are based.
 Terminology
A B
• Australian Dollar — the official • Bears — traders who bid on an
currency of Australia (the asset price fall. Bears expect
“Aussie”; code: AUD), one of the descending trends and mostly
major Asia/Pacific currencies. The open short positions. The market
Australian dollar shows increased is called a "bearish" or "bear"
volatility during the Australian and market when the quotes show
New Zealand trading sessions. clear downtrend. The opposite of
Strongly correlates with the the bears are bulls, who bid on the
national currency of New Zealand asset rise. This creates demand
(NZD). and supply, which support the
quotes movements.
 Terminology
B B
• Bid — the price at which the asset is • British Pound (Pound Sterling, “the
bought, i.e. the market buying price. cable”; code and symbol: GBP, ₤) — the
• Bollinger Bands — one of the most official currency of the United Kingdom
popular technical indicators, which defines and the third most widely held reserve
volatility of the traded asset with respect to currency after US dollar and Euro.
local price levels. Bollinger Bands • Broker — an individual or organization
indicator defines two standard quotes who receives and executes buy and sell
deviations with respect to one moving orders in the market.
average. As a rule, this indicator is used for • Bulls — market investors who bid on a
trading in the market with weak trend and price rise. A growing market with a clear
allows to define the moments of quotes uptrend is called a "bullish" or "bull"
reversal. market. The opposite of the bulls are
bears, who bid on the price fall. This
creates demand and supply, which
support the quotes movements.
 Terminology
C C
• Canadian Dollar — the official currency of Canada •
(the “Loonie”; code: CAD). The Canadian dollar is
among the top ten world currencies.
• Candlestick (Japanese candlestick chart) — a type
of financial chart resembling a candle, where the
upper and lower parts of the candlestick represent
the opening and closing prices, while the upper and
lower shadows represent the highest and lowest
quote values during the time interval represented by
the candlestick. If the closing price is below the
opening price, this pattern is called a decreasing
(bearish) candlestick. If the closing price is above
the opening price, this pattern is called an increasing
(bullish) candlestick. The candlestick patterns are •
often used in graphical or technical market analysis.
Capitalization (market capitalization) — the total
market value of the company’s outstanding shares.
It is calculated by multiplying the current market
price of one share by the number of all shares
issued by the company. Capitalization (market
capitalization) — the total market value of the
company’s outstanding shares. It is calculated by
multiplying the current market price of one share
by the number of all shares issued by the
company.
• Clearing — is the procedure of reconciling
purchases and sales of various goods and services
between entities (countries, companies).
Commodities — a classification of goods
referring to raw materials (metals, energy).
Commodities are bought and sold on the
commodities market and changes in their value are
the object of trading.
 Terminology
C C
• Consolidation — price movement
with no clear trend direction, when the
asset price is confined within a narrow
range. This type of dynamics is often
called “flat movement” or “a flat”.
Consolidation ends when the price
breaches one of the range borders.
• Currency — official unit of money in
any country, which serves as a cost
unit on the foreign exchange. Almost
all countries in the world have their
own currencies. One of the exceptions
is the European Union with the single
European currency — the EURO
(symbol and code: €, EUR).
• Currency Pair — the relative value
of one currency expressed in another
currency. In other words, we can find
out the value of one national currency
by comparing it to the value of
another currency. All currency pairs
can be expressed in pre-defined
combinations: EUR/SGD,
UAD/CHF, GBP/CHF, USD/JPY,
etc. The majority of trading
transactions involve buying one
currency and selling another. That is
how the currency pair quotes are
formed (which serve as the basis for
trading).
 Terminology
C D
• Current Price — price of• Day Trading — trading
the traded asset reflected financial assets within
in the quote chart in real daytime, during the
time (charts are based on European and US trading
changes in the current sessions, provided that
price). Brokers receive all entered transactions
the information on current have a predefined
prices from interbank expiration time and shall
servers. end within day trading.
 Terminology
D D
• Dealing Desk — financial
operator, which processes trading
orders received from the clients by
quoting fixed spreads of the
instruments. Any Dealing Desk is a
market-maker acting as the second
party in all transactions carried out
by traders.
• Derivative — a derivative asset
with certain value that depends on
a change in the price of the
underlying asset. When trading
derivative assets, you do not buy
the asset: the transaction is based
on the bid on its further rise or
fall. As a rule, derivatives are used
for hedging open positions.
However, at the moment, trading
derivatives gained popularity
without reference to transactions
in the stock or commodity market.
 Terminology
E
• Empate — situação que ocorre • Expiration Time — predefined
quando o nível de saída da periods of transaction expiration
transação no momento da expiração when trading on the derivatives
coincide com o preço de entrada do market. When trading, the
ativo. Nesse caso, a corretora expiration time is the moment the
devolve o valor total da transação trading result is fixed for an open
ao trader. trade.
• Euro — national currency of the
European Union (symbol and code:
€, EUR). The Euro is the world
currency (second to the US dollar),
which is often used for creating
foreign exchange reserves. That is
why the EUR/USD is the most
liquid currency pair.
 Terminology
F
• Flat - the absence of long-term clearly • Fundamental analysis — a market
directed upward or downward price analysis combining all
movement. Lateral movement of the macroeconomic indicators, which
chart in an obvious horizontal corridor. may influence the quotes dynamics.
• Flat Market — a trendless market Fundamental analysis is conducted
which moves horizontally and shows without considering technical
weak price changes with no clear indicators and quotes. Most often,
uptrend or downtrend. this analysis is used for trading on the
news.
• Futures — a derivative financial
instrument, which implies buying or
selling a particular asset at a specified
price in the future. It is the opposite
of the term “spot”.
 Terminology
G
• GDP (Gross Domestic
Product) — the value of
all goods and services
produced by a country
within the set period of
time. A rise in this
indicator shows
economic growth.
 Terminology
H
• Hedging is a practice of • Horizontal Market —
protecting open transactions trendless market. This type
by opening additional trades of market dynamics can be
in a direction opposite of the observed at night, during
ones in the portfolio. To the Pacific session, and
protect himself from losses before the major economic
caused by possible price news is released.
reverse, the trader enters
another transaction in an
opposite direction.
 Terminology
I
• Indicator - a visual chart
representation of price movement
trends. Various indicators are used
to facilitate and simplify the
forecasting of future price
movements on the chart.
• Inflation — percentage change in
the Consumer Price Index. This is
one of the main indicators of the
country’s economic potential. In
economically developed
countries, inflation is controlled
through adjustments in the interest
rate made by the Central Bank.
The interest rate increases when
inflation rises (and falls when
inflation rate falls accordingly).
 Terminology
I
• Indicator - a visual chart
representation of price movement
trends. Various indicators are used
to facilitate and simplify the
forecasting of future price
movements on the chart.
• Inflation — percentage change in
the Consumer Price Index. This is
one of the main indicators of the
country’s economic potential. In
economically developed
countries, inflation is controlled
through adjustments in the interest
rate made by the Central Bank.
The interest rate increases when
inflation rises (and falls when
inflation rate falls accordingly).
 Terminology
J
•
Japanese Yen (code and
symbol: JPY, ¥) — the official
currency of Japan and one of
the most popular currencies.
The yen is part of the IMF's
world currency basket, along
with the US dollar, euro,
British pound etc. The
Japanese currency shows
increased volatility during the
Asian trading session.
 Terminology
L
• Leverage — a ratio between the trader’s
own and borrowed funds on entering a
transaction in the market. As a rule,
leverage is provided by brokerage firms.
• Liquidity — a possibility to sell or buy a
financial asset when its value shows some
minimal changes. Liquidity always
decreases during sharp price fluctuations.
The higher the level of liquidity, the more
opportunities are offered to investors and
traders. Liquidity can be considered as the
market’s ability to offset significant
fluctuations, when a large number of
people are selling or buying the same
financial assets at the same time. The
currency market has the highest level of
liquidity. The stock market has lower
liquidity, which explains the sharp price
hikes during major economic events.
 Terminology
L
• Long — a long position opened • Long-Term Trade — a trade
when a trader buys an asset or bids with a long expiration period.
on the asset rise. The term is • Lot — the volume of trader's
typically used in reference to the positions when concluding trades
stock market, as it is generally to buy or sell assets (in trading it
considered that the companies’ is bidding on an asset price's rise
shares spend more time in their rise or fall).
than in their fall.
• Long Position — a transaction
aimed at purchasing the asset with
the expectation that it will rise in
value.
 Terminology
M
• Margin — this is the
trader’s funds that are
held in an account at a
brokerage firm and which
are used as collateral
when opening trading
positions. The ratio of the
margin to the position
cost is called leverage.