Basic Terms that every novice traders should know
Forex is an online currency exchange platform, where people earn money from buying and selling currencies. One can earn a lot of money from this industry, while others can lose a massive amount. The profits and losses entirely depend on the knowledge and experience of the traders. Many newbies start dealing soon after entering the market without obtaining the basic knowledge.
In this article, we will mention and describe some of the basic terms of the Forex industry, and this knowledge will help the traders to achieve more advanced knowledge. In addition to this, they can also make profits from the market consistently and successfully.
1. Market types
After joining the trading industry, the first thing that everyone sees is the chart. Realizing the ups and downs is quite difficult for beginners. But there is nothing to worry about because we will help you to learn those graphs and movements. There are three common types of charts or direction, and they are –
- Upward movement: When the graph starts moving upward, then it is called uptrend, upward movement, or bullish movement.
- Downward movement: When the graph starts moving downward, it is called downtrend, downward movement, or bearish movement.
- Sideways or ranging market: In this type, there are no significant fluctuations of the currency’s price. The price either remains constant or moves a little.
2. Resistance and support level
Resistance and support level are two terms that are widely used in technical analysis. To get a clear understanding, you may use a demo account. Feel free to try it out here and you will become more confident with the use of support and resistance level. So, what are support and resistance level? For your better understanding, we are going to give you a simple definition.
- Resistance level: Resistance level is the highest value that an uptrend reaches and then starts moving downward.
- Support level: This is the lowest value that a downtrend reaches and then starts moving upward.
Resistance is considered an ideal spot for selling the currencies as it indicates that the price is the highest. On the other hand, support is considered an excellent spot for buying the currencies since it signifies that the price of a currency is the lowest.
3. Analysis method
Method analysis indicates the way to analyze the chart and predict the imminent direction of the industry. This one is important to find out the upcoming market condition. There are two methods to analyze the chart –
- Fundamental analysis: In this method, the trader needs to analyze the economic conditions by using fundamental indicators, including economic growth, GDPs, interest rates, inflation, CPI etc. Political issues or any major events are also related to this analysis. Anything that may affect the economic growth or recession of a country needs to be considered.
- Technical analysis: In this method, the trader needs to use technical indicators to predict the movement of the graph, and those indicators are – moving average, moving average convergence divergence, momentum, relative strength index, and so on. This analysis is used for a shorter timeframe, where an investor needs to hold his currency for a short period ranging a few seconds or an hour.
Now it is about the timeframe, and it will determine the strategy and the method of analysis that a beginner will choose for trading. There are two different types of timeframes –
- Lower timeframe: In this timeframe, the rookies have to hold the bought currency for a shorter duration, and the duration may range between a few seconds or a few hours. Scalping and day trading are two trading examples that follow this timeframe.
- Higher timeframe: In this timeframe, the beginners need to retain the purchased currency for a longer duration, which ranges from a few days, weeks to a couple of months. Position trading and swing trading are two trading styles that follow this timeframe.
These are the most basic terminologies, which will help a novice to obtain further knowledge about this industry easily. But don’t think knowing about these terms is enough. You have to keep on reading books and articles to gain more knowledge.