Forex Glossary – Basic Concepts and Definitions
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Know Yourself
Trader, know yourself. Successful trading is 97% understanding and exploiting your strengths and weaknesses. If you constantly enter into trades that do not play to your strengths, then you will lose money.
Money over Ego
Invest your money, not your ego. Even the most carefully constructed system can lead you unexpectedly in the wrong direction. Conditions are changing. Markets are changing. And even a system that works ideally can fail due to such changes. Always be prepared to adapt. If you are not willing to change your settings, it can cost you dearly. Never let your trade become an “investment” simply because you are unable to understand market changes.
The Journal
Keep a trading journal. It’s very hard to learn from mistakes if you don’t remember them. Always keep records of your past mistakes and successes handy. Monitor market movements and reactions and record your observations. Record how the market moves at certain times. Such a detailed journal is as valuable as any successful trading textbook ever written.
Plan the Trade
Enter a position as if it had the potential to be the “biggest trade of the year.” In other words, plan your trades. Do not enter the market until everything is thought out and analyzed in detail. Think about how you will add to an open position (building a pyramid). Make a contingency plan to exit the trade. Otherwise, you will lose money.
Discipline
Practice discipline and patience: Wait for the right moment. According to Bill Lipschitz, out of 250 trades, you will lose money on three, two will be very profitable, and all the rest depend directly on you. Expect and track compound trends: strong stock, strong group/sector, strong market. Wait for the moment when compound support/resistance levels will be in your favor. Successful trading is a business where a lot of time is spent doing nothing.
Start Small
Open small initial positions. Use the pyramid principle to add to the original good position. Once it turned out that you were right in your decision, add to your position strategically. As Davy Crockett said, “Make sure you’re right and go!”
Accept Losses
Be prepared to make mistakes and accept small losses. Trade is trade, markets are markets, and losses are inevitable. However, they are manageable. Place stops, mentally or physically, and execute at the planned level without hesitation. This way, you can manage your risks. This is the only way to protect your capital and stay in the game.
Price is News
The news is already on the chart, both yesterday’s and tomorrow’s. Proponents of fundamental analysis predictably react to the news. Technical analysts react predictably to chart patterns and indicators. If you can read the chart correctly, then you don’t need to follow the news. Base your decisions on what’s happening on the chart. Forget the news. Remember the schedule. The price has already taken into account future news.
Fade the Crowd
There is always a crowd of people who missed the first boat. For example, the first sell-off will always find buyers, and the first rally will always find sellers. These “reactions” are almost always temporary. Plan to buy on the first bounce off a new high and sell on the first bounce off a new low.
Volume Spikes
High volume kills the prevailing trend. Always remember that there may be a climactic (too high) new rise or an overly strong collapse. Such key ups and downs throw both buyers and sellers out of the market. After such breakouts, the market usually moves sideways.
Trailing Stops
Use trailing stops if the market is moving in your direction. In order not to close the position too early or too late, mentally place a stop at 10-15% of the current market price, or just beyond the latest highs or lows. Better yet, use current support/resistance levels. After that, correct the target level.
Protect Capital
Always, always protect your capital. Trim small losses. The most important principle is to be intolerant of losses. As always, small losses and quick losses are the best losses. These are not the losses that need to be paid attention to. It is much worse to experience psychological pressure from maintaining a losing position. Practice total risk management.
No Averaging Down
Never, ever add to a losing position. If you build a pyramid of long positions, then the price of each new purchase should be higher than the previous one. If you add to a short position, then the price of each new sale must be lower than the previous one. This is a mandatory rule.
Falling Knife
Don’t try to “catch a falling knife.” On the contrary, wait a few days – a strong rise, a bounce back, and a return to the previous low. If the price does not go below the previous low, then plan to open a position. If the price doesn’t go up again, it doesn’t matter, and there will always be other opportunities. Wait for the optimal moment to open.
Support Levels
Buy at the support level. Place tight stops when approaching a resistance level. Your price may break through the resistance level, stop, or fall. If the price decreases, the position must be quickly closed.
Follow the Flow
Buy at the support level and sell at the resistance level. You must do so, even if it is difficult. If you see it on the chart, then others see it, too. They are just waiting for the moment to join.
Respect the Zone
Never lose sight of support (or resistance if you’ve sold). The further you are from support or resistance, the more naked and alone you will be. If you want to challenge the price, then imagine a quick reversal to the resistance level; imagine a big loss.
Zero Day
Every day is a new day, and every open position must be reviewed. This is especially true for your exit strategy. The price you paid and the size of your profit or loss are unrelated things. If a share is to be sold, it must be sold. What matters is not the amount of profit or loss from each position but your ability to stick to the chosen strategy and implement it.
Patience Pays
Be patient. Once a position is open, give it time to develop. Give it time to create the profit you expected. The saying “You never go broke closing profits” is probably the most nonsensical advice ever given. Closing small profits is the surest way to increase the probable loss because small profits are not allowed to grow into large profits. The huge amount of money in trading is made on one, two, or three big trades every year. You must develop the ability to hold profitable positions patiently.
No Haste
Avoid this haste that makes you jump into the market to be “in the game”. Take your time. Observe, build strategies, and be the first at the right time.
Trend is King
No matter how worn out the saying is, the trend is really your friend. Don’t try to be smart and fight it. Don’t try to be a hero. If you think it’s stupid to drive in the opposite direction on a one-way street, then you’re right. Bring that understanding to the market. In a bull market, you need to buy or stand aside. In a bear market, you need to sell or stand aside. And always remember – not having a position is also a position. And in many cases, the best position.
Avoid Myths
Avoid untested “known” strategies. Here are a few examples: Myth: “All gaps get filled.” Reality: Attrition gaps are filled. Breakout and continuation gaps are often not. Myth: “No one ever went broke taking a profit.” Reality: Closing quick profits and holding losing positions can ruin you faster than you think. Myth: “It’s not a loss until you sell.” Reality: Try telling that to your banker. Cut your losses and let your profits run. Myth: “Always buy at a new high.” Reality: Trends do not start at new highs; they often end there. Buy as close to the beginning of the trend as possible.
Reality Check
As Elder says, “Technical analysis provides enough opportunities to deceive yourself and see what you want to see.” The harder it is to find something, the more likely you are to see something that does not exist in reality.
Trends Unfold Slowly
Trends don’t unfold quickly. Trend reversals take time to develop. They build slowly. The first few sharp drops always find buyers, and the first few strong advances always find sellers. In both cases, buyers (ups) and sellers (downs) must be gradually “washed” out of the market.
Reinforce Success
Do more of what works for you and less of what works against you. View your open positions every day. Plan to add to the position that gives you the most profit. Consider closing positions that are not making a profit. These are the basics of the thesis: “Let profits rise.”
Walk Away
When you suffer sharp losses, move away from the market. Close all positions and stop trading for a few days. After several sharp losses, do not try to win back and return the money. In such cases, the ability to really perceive the market and its decisions is lost.
Be a Mercenary
Think like a hired gun. Fight on the side of the market that wins. Don’t waste your time and capital in futile attempts to make money by buying the lows and selling the highs. You should profit by fighting on the side of the conquering forces. If neither side is winning, then don’t fight at all.
Beat the Crowd
Beat the market crowd. Other traders are in the game to take your money. You must grab their money before they get to yours…
Ignore Analysts
About Analysts: Look at an analyst and their invoice. Everyone lies. Basically, they do it to collect your money. Analytical services belong to financial institutions. They are not in business to help you. They promote the interests of the firm and collect commissions.
Study Hard
Be prepared to study hard. Those traders who do not want to spend time researching and observing the markets, teaching and training, mastering technical analysis, new trading systems and methods, etc., will almost always lose.
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KNOWLEDGE BASE
Accessing Archives: Forex for Beginners
Financial Markets
Introduction to the global financial structure.
Currency & Hedge
Understanding currency pairs and risk hedging.
Markets & Quotes
Activities, quotes, and market mechanics.
Fundamental Analysis
Interest rates and economic indicators.
Exchange Rates
Manufacturing indicators and rate determination.
Consumer Demand
Analyzing consumer behavior indicators.
Market Psychology
Chart types and trend analysis basics.
Trendlines
Drawing support, resistance, and channels.
Graphic Models
Price patterns and visual analysis.
Math Analysis
Indicators, Oscillators, and Divergence.
Trade Patterns
Candlestick analysis and execution.
Forex Glossary
Basic Concepts and Definitions for traders.
SYSTEM FAQ
Decrypted protocols for successful trading.
According to Rule #1, the most critical step is “Know Yourself”. Successful trading is 97% understanding your psychological strengths and weaknesses. Without self-awareness, no strategy will be profitable.
Rule #8 states: “Price is News”. The chart already reflects all known information. Technical analysts should focus on chart patterns rather than trying to interpret fundamental news, which is often priced in before publication.
Use automated tools to enforce discipline (Rule #5). We recommend using the Assistant utility to manage Stop Loss and Take Profit automatically, removing the “Ego” factor (Rule #2) from your decisions.
Rule #14 advises against catching a “Falling Knife” (buying a sharp drop). Instead, wait for the price to stabilize, bounce, and retest the low. Only enter when the market confirms a reversal.
As per Rule #30 (“Study Hard”), practice is essential. Use the TesterPad simulator to test strategies in the Strategy Tester before deploying real capital.
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