Do you feel lost when interacting with forex trading terms? Failure to understand the most critical terms scare many beginner traders from technical indicators.
Most beginner forex traders get confused when they hear or read crucial terms such as:
- Copy trading
- Lot size
- Mirror Trading,
- Moving Averages
- Social Trading
- Sentiment Analysis
This article clarifies the terms using simple English to enable you apply them effortlessly in your forex trading.
Bearish and Bullish
A market is said to be bearish when prices are (or expected to keep) falling. A market whose prices are expected to keep rising is said to be bullish.
A Candlestick is a price chart that is crucial for day trading. It tells you the currency pair’s highs and lows achieved for the day. Besides, it shows you the day’s opening and closing prices.
The candlestick has a body that represents the change attained in a day. If the candlestick’s body is green or white, it means the prices are bullish. On the other hand, black or red sticks suggest the prices change in a negative direction.
Copy Trading, Mirror Trading, Social Trading, and Sentiment Analysis
Copy trading is when you mimic an expert trader’s account in your trading. For example, you monitor the type, price, and volume of a particular currency choice of an expert trader.
Besides, you can check their stop-loss and take-profit orders and set your account concurrently. Then, you inform your forex broker to set the parameters as they appear in the other trader’s account. That becomes copy trading.
Sometimes you can let the broker identify a trader with successful moves and strategies. The broker then automatically matches your trading activities to the trader’s account. That becomes mirror trading.
The advancement in technology has seen many brokers implement reliable social platforms. Through the platforms, you can discuss strategies and trades with various successful traders.
Then, you can pick a trader whose trades please you and copy it in your account. That is called social trading. However, it would be best if you did not confuse social or copy trading with sentiment analysis.
In sentiment analysis, the broker does not sieve the best traders for you to interact with. Instead, you join a social medium of your choice and follow various forex traders. You monitor their view on market change.
The information enables you to get the general market mood. Finally, you can decide on the volume and price of currency pairs to trade without getting actual trades.
Lot Size and Pip
The lot size is the quantity of a currency pair you are permitted to trade. It differs according to the broker.
For example, most brokers provide standard lot types, which let you transact 10000 units of the base currency. Others offer lot size varieties such as mini (1000), micro (100), and nano (10) unit quantities.
Lot sizes closely relate to pips. A pip, short for percentage in point, is the relative amount by which a currency quote can change. It is mainly measured as the last n-th —of 4 or 2— decimal points position.
For instance, let’s say USD/CAD is 1.0125. The pip is (.0001) / (1 USD * 1.0125) => 0.00009876 USD per unit sold.
If you sell 10000 of the currency pair, your pip will be 10000 * 0.00009756 => 0.99 USD per 10000 units change in the price of USD/CAD.
Here, 0.0001 is used because the quote has been expressed to ten-thousandth (four decimal points to the right).
Moving average is the most applied technical indicator. You will find it in technical indicators like RSI, MACD, and Bollinger Bands.
If you fail to understand the concept of ‘moving’ average, you will find it hectic to understand other technical indicators.
Moving average means the price changes depending on your target duration. For example, last week’s average will differ from this week’s, although you focus on the same currency pair.
It would help if you understood the above terms because they are the basics of venturing into more complex forex trading requirements such as technical analysis.