Term
| What are the current four major currency pairings? |
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Definition
1) EUR/USD
2) USD/JPY
3) GBP/USD
4) USD/CHF |
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Term
| What differentiates the modern-day foregin exchange market apart from other financial markets? |
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Definition
| Foregin exchange markets are different from other financial markets in the following ways: 1) having greate amount fo liquidity 2) making it difficult for any individual market participant to manipulate foregin exchange prices artificially in any significant manner 3) various market overlapping allows currency trading starting on Sunday at 2:00 P.M (EST) and ending on Friday at 5:00 P.M (EST) 4) only a few major currency pairings are traded making the market simple and straightforward. |
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Term
| Who are the main 'players' in the foregin exchange markets? |
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Definition
| There are three main 'players' involved in the foregin exchange markets. They include: 1) major banks 2) hedge funds and investment firms and 3) individual investors |
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Term
| What are the four most common dollar-based currency pairs traded? |
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Definition
| The four most common dollar-based currency pairs that are traded include: 1) EUR/USD 2) USD/JPY 3) GBP/USD and 4) USD/CHF |
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Term
| What is the first currency in a currency pair referred to? What is the second currency in a currency pair referred to? |
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Definition
| The first currency in a currency pair is referred to the base while the second currency is referred to the quote. |
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Term
| THe follow questions should be referred to the currency pair: GBP/USA. WHat does this currency pair mean? What does it mean to be long in regards to this currency pair? What does it mean to be short in regards to this currency pair? |
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Definition
| This currency pair means the British Pound against the United States Dollar. To be long in this currency pair measn to buy British Pounds. To be short in this currency air means to sell United States Dollars. |
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Term
| In regards to foregin exchange trading, what is a market order? |
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Definition
| A market order means that a trader wishes to enter a currency position at the present moment, whether it is an order to buy or sell a specific currency pair. |
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Term
| In regards to foregin exchange trading, what is an entry order? What are the two primpary types of entry orders? |
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Definition
Entry orders are pending positions whose purpose is to trigger when a certain price level is reached. The two primary types of entry orders are stop entries and limit entries.
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Term
| Define the following terms: buy stop, buy limit, sell stop, and sell limit. |
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Definition
1) buy stop - an entry oder to buy at a price above the current price
2) buy limit: an entry order to buy at a price below the current price
3) sell stop: an entry oder to sell at a price bellow the current price
4) sell limit: an entry order to sell at a price above the current price |
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Term
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Definition
| A stop loss closes an open trade when the trade teaches a predetermined level of loss. It is the price point at which a trader no longer wishes to be involved in the trade because of the desire to limit losses to a manageable level. |
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Term
| Define a trailing stop loss. What is the primary purpose of a trailing stop loss? How does it accomplish its purpose? |
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Definition
| A trailing stop loss is a dynamic oder to close a trade a progressively better prices. The primary purpose of a trailing stop loss order it to limit losses while automatically locking in gains. A trailing stop loss accomplishes this by systematically moving the stop loss as the price moves in favor of the position. |
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Term
| Define profit limits. What is the purpose of a profit limit? |
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Definition
| Profit limits can be considered the direct opposite of stop losses in which profit limits limit the profits of a particular trade. The purpose of a profit limit order is to close an open trade automatically at a pre-determined, profitable level price so that the trader may realize those profits into the trading account. |
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Term
| In regards to the foreign exchange market, what are lots? What are the different tradeable lot sizes? |
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Definition
| Lots are the standardized units of trade that are bought and sold in the foreign exchange market. There are three different tradeable lot sizes: 1) standard lot - 100000 currency units 2) mini lot - 10000 currency units and 3) micro lot - 1000 currency units |
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Term
| In regards to foregin exchange trading, what is margin? What is leverage? |
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Definition
| Margin is the actual amount of trading equity in a trader's account that is available to use for controlling currency positions. Leverage is the multiplier by which a trader can magnify the financial controlling power of margin. |
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Term
| Define a pip. How can one calculate the value per pip? |
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Definition
A pip is the smallest unit of price movement in the exchange rate of a currency pair. A pip most often refers to the smallest change in the fourth decimal place of most major currencies (1/100th of one percent).
Value Per Pip = (Lot Size) * (Number of Lots) * (Pip Size) |
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Term
| In regards to foregin exchange trading, what is a spread? |
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Definition
| A spread is the differnce in pips between the bid price (exchange rate at which a trader can sell a currency pair) and the ask price (exchange rate at which a trader can buy a currency pair). |
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Term
| Define technical analysis. |
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Definition
| A method of evaluating securities by analyzing statisitics generated by market activity, such as past prices and volume. Technical analysts use charts and other tools to indentify patterns that can suggest future activity. |
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Term
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Definition
| A style of chart used by technical analysts. The top of the vertical line indicates the highest price a security traded during the day, and the bottom represents the lowest traded price. The closing price is displayed on the right side of the bar, and the opening price is displayed on the left side of the bar. A single bar represents one day of trading. |
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Term
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Definition
| A price chart that displays the high, low, open, and clost for a security each day over a specified period. If the body is white (or green), it means that it was a bullish candle, if the body is black (or red) it means that it was a bearish candle. |
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Term
| Define support (support level). Define resistance (resistannce level). |
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Definition
| Support is the price level which, historically, a secuirty has had a difficulty falling below. It is thought of as a level at which a lot of buyers tend to enter the security. Resistance is the price level which, historically, a security has had a difficulty passing above. It is thought of as a level a which a lot of buyers tend to sell the security. |
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Term
| What are the three primpary modes of price movement? How can you characterize each mode? |
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Definition
| The three primary modes of price movement include: 1) uptrends - characterized by progessively higher lows and higher highs in price 2) downtrends - characterized by progessively lower highs and lower lows and 3) nontrends - which can be characterized between by price action that stays within support and resistant levels. |
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Term
| How can one draw tendlines (for an uptrend) so that they can be used for technical analysis? How can one draw trendlines for a downtrend? |
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Definition
| To draw an uptrend one would connect progressively higher lows and higher highs (at least 4 to confirm that the trend is in fact an uptrend). To draw a downtrend one would connect progressively lower highs and lower lows (at least 4 to confirm that the trend is in fact a downtrend). |
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Term
| What are possible ways one can measure and evaluate trends? |
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Definition
1) trendlines
2) trend channels
3) moving averages
4) Average Directional Index (ADX)
5) Directional Movement Index (DMI)
6) Elliott Wave |
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Term
| What is a simple moving average (SMA). How can one calculate a SMA? |
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Definition
| A simple moving average (SMA) is a moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. |
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Term
| Define weighted moving average (WMA). How can one calculate the WMA. |
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Definition
| A type of moving average that assigns a higher weighting to recent price data than does the common simple moving average. This average is calculated by taking each of the closing prices over a given time period and multiplying them by its certain postition in the data series. Once the position of the time periods have been accounted for they are summed together and divided by the sum of the number of time periods. |
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Term
| What are the two common types of moving averages? What are two major weaknesses in regards to moving averages? |
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Definition
| The two common types of moving averages are: 1) the simple moving average (SMA) and 2) the weighted moving average (WMA). One major weakness of moving averages are that they lag, or follow pirce. Therefore, moving averages can never be predictive, as price always arrives where it will arrive well before any moving average could. The second major weakness is that moving average are extremly lacking when it comes to signaling changes in trends. |
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Term
| What is a crossover? Why are crossovers used? |
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Definition
| A crossover is the point on a security chart when a security and an indicator (a moving average) intersect. Crossovers are used to aid in forecasting the future movements in the price of a security. |
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Term
| Define whipsaw (price movement). |
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Definition
| A condition where a security's price heads in one direction, but then is followed quickly by a movement in the opposite direction. |
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Term
| Define a doji. What does the doji represent? |
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Definition
| A type of candlestick that form when a security's open are close are virtually equal. The doji represents indecision between a security's buyers and sellers. |
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Term
| Define a spinning top. What does the spinning top represent. |
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Definition
| A type of candlestick formation where the real body (of a security) is small despite a wide range of price movement throughout the trading day. The spinning represents indecision between a security's buyers and sellers. |
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Term
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Definition
| A type of candlestick that forms when a security trades significantly lower than its opening, but closes either above or close to its opening price. |
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Term
| Define a hanging man. What does the hanging man represent? |
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Definition
| A type of candlestick (bearish) that forms at the end of an uptrend. It is created when there is a significant sell-off near the market open, but buyers are able to push the security back up so that it closes at or near the opening price. The hanging man represents that buyers are losing control and demand for the security is waning. |
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Term
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Definition
| A type of candlestick (opposite of a hanging man) that forms when a security's price, at some point during the day, advances well above the opening price but closes lower than the opening price. |
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Term
| Define a bullish engulfing pattern. |
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Definition
| A type of candlestick that forms when a small black (bearish) candlestick is followed by a large white (bullish) candlestick that completely 'engulfs' that previous day's candlestick. |
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Term
| Define a bearish engulfing pattern. |
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Definition
A type of candlestick that forms when a small white (bullish) candlestick is followed by a large black (bearish) candlestick that completely 'engulfs' that previous day's candlestick.
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Term
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Definition
| A harami is the opposite of an engulfing pattern, which consists of a large body followed by a small, encompased body of the opposite color. Therefore, a harami can either be a large bullish candle followed by a small bearish candle, or a large bearish candle followed by a small bullish candle. |
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Term
What are six reversal chart patterns? Indicate wherther each pattern is an uptrend reversal or a downtrend reversal. Draw each thes patterns and indicate where action (buying or selling) should occur.
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Definition
1) double top
2) triple top
3) head-and-shoulders top
4) double bottom
5) tripple bottom
6) head-and-shoulders bottom |
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Term
| Define a flag. Draw a flag (both an uptrend and downtrend) and indicate where trade action (buying or selling) should occur. |
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Definition
| A flag is a smaller, shorter-term continuation patter that is characterized by a sharp move followed by a rectagle consolidation, and then by a continuation of the move prior to the flag. |
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Term
| Define a pennant.Draw a pennant (both an uptrend and downtrend) and indicate where trade action (buying or selling) should occur. |
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Definition
| A pennant is a smaller, shorter-term continuation patterm that is characterized by a sharp move followed by a triangle consolidation, and then by a continuation of the move prior to the pennant. |
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Term
| What are three types of price continuation triangles. What characteristic do all of these triangles share? Draw each triangle and indicate where trade action (buying or selling) should occur. |
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Definition
1) symmetrical triangle
2) acending triangle
3) descending triangle
All of the triangles share a decreasing volatility characteristic. |
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Term
| Define wedges. Draw each wedge and indicate where trade action (buying or selling) should occur. |
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Definition
| Wedges are a technical chart pattern composed of two converging lines connecting a series of peaks and troughs. |
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Term
| Define the Average True Range (ATR). |
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Definition
| The Average True Range (ATR) is an average measure of recent volatility. It is calculated as a moving average of a given past period of price ranges. When the ATR has a high reading, recent volatility has been high. When the ATR has a low reading, recent volatility has been low. |
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Term
| Define the Average Directional Index (ADX). How can the ADX help a foreign exchange trader? |
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Definition
| The Average Directional Index (ADX) measures the strength of the current trend rather than the direction of the trend. Strong trends have high ADX readings, while nontrending, ranging markets have low ADX readings. The ADX is an important indicator that can help a foregin exchange trader determine whether to use trend-trading techniques or range-trading techniques. |
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Term
| Define Bollinger Bands. What is the primary purpose of Bollinger Bands? |
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Definition
| A Bollinger Band consist of a simple moving average (SMA) with two additional lines, one that is a certain number of standard diviations above the SMA (usually 2) and the other that is the same number of standard deviations below the SMA. The primary purpose of the Bollinger Bands are to measure a currency pair's volatility around the mean. The bands are often used to give indicators of impending volatility increases (when the bands tighten). |
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Term
| What is a Parabolic Stop-And Reverse Indicator? |
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Definition
| The Parabolic Indicator is a technical analysis strategy that uses a trailing stop and reverse method called stop and reversal (SAR), to determine good exit and entry points. The Parabolic SAR dots follow price such that if a dot is below the price bar, the trade should be long with a dynamic stop loss at the dot. If the dot is above the price bar. the trade should be short with a dynamic stop loss at the dot. |
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Term
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Definition
| An oscillator provides indivations of overbought or oversold status during ranging markets. When an oscillator reading is above (below) a certain overbought threshold during a trading range, it hints that upward (downward) momentum may soon be exhausted, and that an impending downward (upward) turn may occur |
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Term
| What is the Moving Average Convergence Divergence (MACD)? |
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Definition
| The Moving Average Convergenct Divergence (MACD) is an oscillator that acts as a sign of trend momentum by representiing the relationship between two moving average. MACD can be traded by taking signals from crossovers of the two lines and crossed above and below the zero line. |
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Term
| What is the Relative Strength Index (RSI)? How can it be calculated? |
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Definition
The Relative Strength Index (RSI) is an oscillator that compares the magnitude of recent gains to recents losses in an attempt to determine overbought and oversold conditions of a security. The RSI can be calculated as followed:
100 - 100/(1 + RS)
where RS = average of x days' up closes / average of x days' down closes |
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Term
| What is the Stochastic oscillator? How can this oscillator be calculated? |
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Definition
The Stochastic oscillator is an indicator that compares a security's closing price to its price range over a given time period. The indicator can be calculated as followed:
%K = 100[(C - L14)/(H14 - L14)],
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 - the highest price trades during the same 14-day period |
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Term
| Define the Price Rate of Change (ROC). How can this indicator be calculated? |
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Definition
The Price Rate of Change (ROC) measures the percentage change between the most recent price and the price 'n' periods in the past. ROC is classed as a price momentum indicator because it measures the rate of change or the strength of momentum of change. It is calculated as followed:
(current closing price - closing price 'n' periods ago)/closing price 'n' periods ago |
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Term
| Define Pivot points. What is the significance of Pivot points? |
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Definition
| Pivot points are support and resistance levels derived mathematically from the previous day's key data points. The significance of Pivot points is that they can act as key support and resistance levels, where price may turn in a retracement or correction. |
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Term
| Define Fibonacci Retracement. |
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Definition
| The Fibonacci retracement is the potential retracement of a financial asset's orginal move in price. Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a tendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50% 61.8% and 100%. |
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Term
| Define fundamental analysis. |
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Definition
| A method of evaluating a security that entails attempting to measure its instrinsic value by examining related economic, financial and other qualitative and quantitative factors. These factors can inlucude but are not limited to: 1) interest rates 2) inflation 3) central bank policty 4) economic growth 5) employment and 6) industrial and commercial production |
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Term
| When all other variables are kept equal, how can rising interest rates contribute to an appreciation in a currency? |
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Definition
| The reason why rising interest rates contribute to an appreciation in a currency is because higher-yielding currencies attract more demand from large institutional investors, who are consistently in search of ways to earn more on their money invested. |
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Term
| Why might a central bank increase interest rates? Decrease interest rate? |
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Definition
| Central banks will increase interest rates in order to help stave off excessive inflation. Central banks will decrease interest rates in order to stimulate economic growth. |
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Term
| Define the Gross Domestic Product (GDP). |
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Definition
| The Gross Domestic Product (GDP) is the total market value of all goods and services produced by an economy within a given period of time. Real GDP, which is adjusted for inflation, takes into account price level changes, and so is considered a more accurate reflection of production than the original GDP percentage. |
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Term
| What is the Employment Situation Report? |
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Definition
| The Employment Situation Report is a montly report compiling a set of surveys in an attempt to monitor the labor market. The Employment Situation Report, released by the Bureau of Labor Statistics, consists of: 1) the unemployment rate 2) non-farm payroll employment 3) average workweek (hourly basis) 4) average hourly earnings |
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Term
| What is the Retail sales report? What is the significance of the Retail sales report? |
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Definition
| The Retail sales report releases data for the previous month on the value of merchandise sold to end consumers by a representative sampling of retailers. Retail sales data includes the total retail sales in dollars, with the percentage change from the prior month. The Retail sales data provides traders with a broad measure of sales activity, and therefore, an accurate reflection of the economy's health as a whole. |
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Term
| What is the Consumer Price Index (CPI)? What are the two metrics that comprise the CPI statistics? |
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Definition
| The Consumer Price Index (CPI) takes a basket of common, daily-use consumer products and compares price levels from previous years. The two metrics that comprise the CPI statistics are: 1) the Core CPI (minus food and energy) and 2) the chain-weighted CPI. |
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Term
| What is the Producer Price Index (PPI)? |
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Definition
| The producer Price Index (PPI) is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller. |
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