There are a variety of terms that individuals not already familiar with the Foreign Exchange Market or trading in general will have to learn. Understanding this terminology is tantamount to learning a secondary investment language. The more proficient and the better you understand how these words are used by investors and banks in the industry, the better you can have an understanding of what is occurring in the market and potentially use that knowledge to a profitable end.
Price action
The price action is simply the movement either up or down of a given asset. This upward and downward movement is noted on a technical chart which in addition to the movement shows lagging indicators to indicate where it has been.
Lagging indicators
Lagging indicators are basically the past of the given asset; it is the trend which has been occurring in that asset. It often will be directly behind the price action which is usually the current market value price and can we used by savvy investors to look for patterns in the asset which can indicate upward or downward trends.
Trends
A trend is simply the pattern in which an asset or investment is moving. Patterns and assets that move randomly are not considered trends and are usually considered high risk investments due to their volatility. Trends can trend up, down, or can even trend fairly flat, moving up and down but with a median that stays the same on average. Learning to see and identify these trends can be instrumental to profitability as an investor.
Technical analysis
Technical analysis is a way of understanding or guessing trends and is most common when it comes to price action trading. There are several ways of looking at technical analysis that can seem convoluted and difficult to understand. For the sake of simplicity though, technical analysis basically comes down to the idea of supply and demand. Depending on what the supply or demand is on average, individuals and investors can use this knowledge to guess future trends on a given asset whether it will go up or down.
Price band
A price band is an area in which the owner or seller of a given stock or asset indicates they will take bids. Price banding is an important tool for sellers as it ensures that they get the best price for the goods they are selling. For instance, an asset may not trade if it is too low until the price band gets above a certain threshold. Also, if it is too high the owner may decide not to sell. In short it is the upper and lower range set by a seller of a given asset for an area in which they are willing to sell their product. This is most commonly observed during a company’s initial public offering to the public.
Candlestick
A candlestick is a type of chart that displays the opening and closing prices of a security or asset as well as showing its highs and lows for a given period. The widest part of the candle is also known as the real body and shows if the closing price was higher or lower than the opening price for that given day. It is called the candlestick due to its narrow and vertical nature.