Forex Technical Terms

B

Bar A vertical line representing price action during a given time interval.The bar connects the high and low prices. Horizontal tics to the left of the bar represents opening prices, tics to the right closing prices.

Bottom A low for the market.

Bullish & Bearish Technical Divergences Divergence is a term which often comes back in forex technical analysis, it occurs when the price of the underlying currency pair and the indicator move in opposite directions.

C

Candlestick Most popular by forex traders, candlesticks have bodies that denote bearish, sideways or bullish movement.

Candlestick charts Charting method that involves a graphic presentation of the relationship between the open, the high, the low, and the close. Color schemes are used to illustrate the real bodies of the candles, which is the difference between a lower close than the open (black or dark) and a higher close than the open (white).

D

Dip Period of declining prices in a bull market.

Doji A candlestick term; used to describe a time period when the open and the close are nearly exact. It is a strong sell signal, but a cautionary warning at bottoms.

E

Elliott wave Analysis theory developed by Ralph Elliott, based on the premise that prices move in two basic types of waves: impulse waves, which move with the main trend, and corrective waves, which move against the main trend.

F

Fibonacci numbers and ratios An infinite series of numbers such that any number in the series is the sum of the preceding two numbers. The ratios are the math calculations, which are the sum of the relationships between the numbers derived either from dividing the series numbers or, in some cases, taking the square roots of the numbers. The common ratio numbers are 0.38%, 0.618%, 0.50%, and 1.00%.

Fundamental analysis A method of anticipating future price movement using supply and demand information; also a method to study the macroeconomic factors (including inflation, growth, trade balance, government deficit, and interest rates) that influence currency and financial markets.

G

Gann, William D. An early pioneer in technical analysis who is credited with a mathematical system based on Fibonacci numbers and with the Gann Square and Cycle studies.

Gravestone doji A long-range day where the open and the close are near the low of the range.

H

Hammer A candlestick pattern that forms at bottoms. At market tops, the same construction is called a “hanging man.” The shadow is generally twice the length of the real body.

Harami A two-candle candlestick pattern that can be seen to mark tops and bottoms. The second candle of this formation is contained within the real body of the prior session’s candle.

Head and shoulders A pattern in price trends that, according to chartists, indicates a price trend reversal. The price has risen for some time, at the peak of the left shoulder; profit taking has caused the price to drop or to level. The price then rises steeply again to the head before more profit taking causes the price to drop to around the same level as the shoulder. A further modest rise or level will indicate that a further major fall is imminent. The breach of the neckline is the indication to sell.

I

Island chart pattern A pattern formed when the market gaps in one direction and then in the next session gaps open in the opposite direction, leaving the prior day’s bar or range seeming like an “island” on the chart. At tops, this is extremely bearish; and at bottoms, it is extremely bullish. This is a rare chart pattern and is similar in nature to the Japanese candlestick pattern called the “abandon baby.”

L

Long-legged doji A specific doji that forms when the open and the close occur near the middle of a wide-range trading session.

M

Momentum The measure of the rate of change in prices.

Morning doji star A bullish three-candle formation in which the middle candle is formed by a doji.

Moving average A way of smoothing a set of data; widely used in price time series. Moving averages (MA's) are one of the most popular technical analysis tools used in forex.

O

Overbought The condition of a specific move when the market price has risen too far too fast and is set up for a corrective pullback or a period of consolidation; the opposite of oversold.

Oversold The condition of a specific move when the market price has fallen and is in a position for a corrective rally or a period of consolidation; the opposite of overbought.

P

Piercing pattern A candlestick formation involving two candles formed at bottoms of market moves. The first candle is a long dark candle; the second candle opens lower than the dark candle’s low and closes more than half way above the
first candle’s real body.

Pivot points The mathematical calculation formula used to determine the support or resistance ranges in a given time period. These formulas can be used to calculate intraday, daily, weekly, monthly, or quarterly ranges.

Point and figure A charting style that tracks the market’s price action by representing increases with plotting Xs on a chart and downside corrections with Os. Time is not an issue with this method; rather, it is concerned with pure price movement.

Primary trend It's called as the predominant movement of the market. When it is up, it is know as a bull market, when it goes down; it is called a bear market.

Pullback A brief period of declining prices in a bull market.

R

Real body The section of a candlestick defined as the area established between the opening and the closing of a particular time period.

Relative strength index A technical indicator used to determine a market in an overbought or oversold condition; was developed by Welles Wilder Jr. to help determine market reversals.

Resistance point l A price recognized by technical analysts as a price that is likely to result in a rebound but if broken through is likely to result in a significant price movement. An area where of witch selling pressure>buying pressure.

Retracement Any movement contrary to the previous significant move. Retracements are usually measured in percentages of 38.2%, 50%, 61.8% up to 100% (full retracement) of the previous significant move.

Rickshaw doji A doji that has an unusually large trading range.

S

Shadow The area on a candlestick between the high or the low in relation to the open or the close.

Shooting star The candle that forms at tops of markets where the shadow is at least twice the length of the real body and the real body forms near the low for the session with little or no shadow at the bottom. This candle resembles an inverted hammer.

Spinning tops A candle where the real body is small in nature with a large range and with shadows at both ends.

Stochastics A technical indicator created by George C. Lane that gives an indication of when a market is overbought or oversold.

Support A price level that attracts buyers.

T

Technical analysis The study of price and/or volume to anticipate future price moves. Studies can include price patterns, mathematical calculations, and data regarding the open, the high, the low, and the close of a market.

Three crows A candlestick pattern consisting of three dark candles that close on or at their lows. After an extended advance, this formation can be a strong reversal pattern.

Three white soldiers A candlestick pattern consisting of three candles that close at their highs and can indicate a continued advance. This pattern is a reliable indication that prices are moving higher, especially if they develop after a longer period of consolidation at a bottom; opposite of three crow’s formation.

U

Uptrend When overall prices rises.

V

Volatility A statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk.