Basic Terminologies for the Forex Beginners
The Forex industry is a profitable marketplace. Anyone can learn the art of trading and earn a fair amount of profit. But for that, a trader needs to acquire solid knowledge about the market. Sometimes people jump into the market even without having any knowledge about the basic currency pairs, common trends, timeframes, strategies, and so on. As a result, they face a severe loss and become frustrated with this profession. Note: When we say “profession”, it does not mean that you’re working with a broker. For instance, eToro is a broker and trading with them is not the same as working at eToro because being a trader means that you are a customer or a client, not an employee.
We are here to help the new traders who want to start Forex trading but don’t have any basic knowledge about the market. In this article, we will explain some of the common terms that you have to know to begin a trading career.
Market types represent the movement of the graphs, and many people aren’t familiar with the different trends or movements. There are three common types of trends that are seen in the chart –
- Downward movement: When the price of a currency pair moves downward, it is called the downward movement. You may also call it bearish movement or a downtrend. This direction provides a better chance for people to buy currencies.
- Upward movement: In this type of market, the price of a currency pair moves up. Experts also call it a bullish trend or an uptrend. This movement provides a better chance to sell the currencies.
- No trend or a sideways or ranging market: When the price of a currency pair shows no trend and moves without any significant fluctuations, it is called a ranging market. In this market, it is not safe to start trading.
Resistance or support level
Resistance and support level is important for the traders who want to deal with the technical indicators. Those who have sound knowledge about the different trend types can now determine them easily.
- Resistance: When the upward direction reaches the highest value and then starts moving downward, that highest value is called the resistance. This is a perfect point at which to sell an asset. For more info about resistance, you can read premium articles at Saxo. Once you develop strong knowledge about the resistance level, you can easily protect your capital from a market crash.
- Support: The support level is the lowest value of the downtrend, and it is considered an ideal point at which to buy the pairs.
Once a newbie realizes these two basic terms, it is time to move a little bit deeper. The timeframe is the time period you will be holding the purchased currency for. There are two types of timeframes –
- Higher timeframe: Higher timeframe means a trader has to hold the purchased currency for a longer period of time, which may range from a few days to a couple of months. This is ideal for long-term and newbie traders.
- Lower timeframe: In this timeframe, an investor needs to retain the bought currency for a very short period, which may range from a couple of minutes to hours, and sometimes, the duration can be even a few seconds. Dealing in this timeframe is riskier and more stressful.
Method of analysis
The analysis helps investors to predict the imminent flow of the price – whether it may move downward or upward. Analysis indicates a lot of things in this industry. There are two kinds of analyses in the FX platform –
- Technical analysis: This one deals with the technical indicators and the charts. Knowledge of the resistance and support level is crucial in this type of analysis. Short-term investors use this method to analyze this platform.
- Fundamental analysis: This analysis deals with the economic factors used to predict the approaching flow of the price. Some of the important economic factors are – inflation, economic growth, interest rates, unemployment rates, GDPs, CPI, and so on. Each of these factors is related to others.
These are the most basic factors that every Forex beginner should know about. We believe that these basic terminologies will help novices to have enough initial knowledge to start trading.