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FOREX GLOSSARY of
An Elliott wave term for a three-wave countertrend
price movement. Wave A is the first price wave against the trend
of the market. Wave B is a corrective wave to Wave A. Wave C is
the final price move to complete the countertrend pattern. Bar Chart The plotting of price movements using vertical bars to indicate price ranges and tics to the right and/or left of the bar to indicate the last (closing) and opening prices for that time period. Bear Trend A series of successive lower peaks and troughs. Bid and Ask The highest and lowest price that an investor will pay for a tradable. Blow-Off Top A steep and rapid increase in price followed by a steep and rapid drop in price. Breakout When a market moves above or below a particular
chart point/level. Usually this is seen when a market consolidates
or pauses within a trend before resuming. A series of successive higher peaks and troughs. Buy/Sell signals A charting method, originally from Japan, in which the high and low are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. If the close is above the open, the body is white and is generally a bullish indication. If the close is below the open, the body is black and is generally a bearish indication. Channel When prices trend between two parallel lines, the basic trendline and the channel line (rising resistance line). As the market nears or tests the upper and lower extremes of the channel, prices are more likely to react in the opposite direction in correction of the previous wave up or down. Channel Projection When two troughs (lows) are established, a rising
support line can be drawn. A parallel line can then be placed
at the peak (high) that is found between these two troughs (lows),
thus projecting a potential channel resistance area and likely
place for a pull-back. For a channel support projection we draw
a line off of two peaks (highs) and then parallel a line to the
trough (low) that developed between the peaks to create a channel
support projection. An area on a chart when prices moved sideways within
a range and usually takes the shape of a rectangle and may coincide
with other price peaks or troughs from an earlier time. A pause within an existing trend, usually considered a continuation pattern, and can take several shapes. Triangles, rectangles, flags and pennants are typical consolidation patterns. Correction A price reaction in the opposite direction of the
trend which is a prelude to an eventual resumption the underlying
trend. A trade taken in the opposite direction the underlying trend. This type of trade carries a high risk but professional traders will take a chance occasionally with hopes of "scalping" a small profit. Dark Cloud Cover This is a two-period pattern which occurs when
a white (bullish) candle line is followed by a black (bearish)
candle line which has a higher price than the white line and which
closes inside the body of the white line. This is a bearish formation
which indicates that the bulls are unable to sustain the upward
momentum and the bears are taking control. A session in which the open and close are the same or almost the same. Doji lines are among the most important candlestick lines. They are also components of important candlestick patterns. Double Bottom/Top A common reversal pattern which occurs when price fails to overcome a previous high or low within an existing trend and subsequently falls below the interim peak or trough. Price forecasts can be done by projecting the range of double top from the high (in an up-trend) to the interim low/trough, down from the break down point. Elliott Wave Theory A pattern-recognition technique published by Ralph
Nelson Elliott in 1939 which states that the market follows a
rhythm or pattern of five waves up and three waves down to form
a complete cycle of eight waves. The five waves up are called
impulse waves and the three waves down are referred to as corrective
waves. In FX we apply this wave principle to bear markets as well
as bull markets, where as the five waves down are impulsive and
the three waves up are corrective. Also referred to as trading bands, Envelopes are lines that surround price action and are usually based on a moving average or a percentage ratio of the price action. Entry The point at which a trader gets into a position in the market. Failure Swing The inability of price to reaffirm a new high in
an uptrend or a new low in a downtrend. Thus, a lower peak (in
an up-trend) or a higher low (in a down trend) is formed. Countertrend moves in the market, or corrections, tend to fall to certain predictable percentage parameters. In Elliott Wave Theory, Fibonacci ratios of 38.2% and 61.8% percentage ratios are used to forecast retracement zones. A 50% retracement is also a very well know market tendency. Fill Head and Shoulders A major reversal pattern. Following the break of a trendline in an up-trend, the market is unable to recapture the previous high (the head) and a lower peak (right shoulder) is formed. A break below the "neckline", a support line drawn from the trough that formed prior to the head and the trough made prior to the right shoulder, completes the pattern. Price forecasts are made by projecting the range from the neckline to the head, down from the break- down point (the neckline). Inside Day A day in which the daily price range is completely
within the previous day's daily price range. In Candlestick terms
this is know as a "Harami Pattern". A "bullish" key reversal day is when the market, in a bear trend, exceeds the previous days low then rallies and closes above the previous days high. This usually results in higher levels. In a bull trend, the market moves above the previous days high then falls and closes under the previous days low. This usually has bearish implications. Key reversal days are also known as "outside days" or as "bullish and bearish engulfing patterns" in Candlestick terms. Momentum Indicator An indicator utilizing price for predicting the strength or weakness of a current market as well as overbought and oversold conditions which suggest a pause or correction may soon occur. Moving Average A trend following indicator that smoothes price
action by averaging the most recent number of session's closing
prices in order to make it easier to view the underlying trend.
Signals are generate when prices move above and below a moving
average. Multiple moving averages are also used simultaneously
and signals are generated when on or more of these lines cross. The point where the two or more moving average lines
intersect or crossover each other. Technicians use crossovers
to signal buy and sell opportunities. A trendline drawn along the support or resistance points of various reversal patterns such as head and shoulders, double and triple tops/bottoms. Overbought Market prices that have risen too steeply and too fast and may stall or pullback Oversold Market prices that have fallen too steeply and too fast and may stall or bounce. Overshoot To extend beyond a specific targeted level. An indicator that attempts to identify when prices have moved too far and too fast in either direction and are vulnerable to a reaction in the opposite direction of the trend. Profit Taking Exiting a trade at a level that reflects a positive transaction. Profit taking sometimes occurs when a market is considered overbought or oversold and may pause or correct and traders want to lock in profits so they exit their position with a counter order. Range The difference between the high and low price or series of prices during a given time period. Reaction A corrective move, usually short-term, in the opposite direction of the trend. Rectangle When prices move side-ways between two parallel
horizontal lines. Also referred to as a "trading range"
or "congestion area" and usually represents a consolidation
period within an existing trend but can also be a reversal pattern
depending on the breakout direction. An indicator invented by J. Welles Wilder and used to determine overbought/oversold and divergences in the market. Resistance A price level or area above the market where selling pressure overcomes buying pressure and price is turned back. Resistance Line A line drawn from successively lower or equal peaks.
This is a likely place for the next lower peak within a down-trend
to occur. A break of a resistance line is a bullish signal. A pullback in the opposite direction of the underlying trend. Technical analysts use Fibonacci retracement levels such as 38.2%, 50%, and 61.8% to set corrective targets upon the break of trendline. Scalp A speculative buy or sell and a relatively quick exit/cover of the trade in an attempt to make a quick profit. Short/Shorting Selling a particular security or instrument with the hopes of prices declining so a profit can be made when the instrument is bought back. Spike An unusually sharp rise in price over a short period of time. Spike High A peak formed following an unusually sharp rise
in price over in a short period of time that was unable to sustain
and has subsequently fallen as equally sharp. An order placed at a particular level in the market
that initiates a trade when achieved. Protective stops are used
to protect against losses or to lock in profits on winning trades. A price level or area below the market where buying
pressure overcomes selling pressure and price turns higher. A line drawn from successively higher or equal
troughs. This is a likely place for the next higher trough within
an up-trend to occur. A break of a support line is a bearish signal. The difference between the high and low prices traded during a period of time. Also referred to as a consolidation range. Trailing Stop A stop-loss order that moves along in the direction
of the prevailing trend. Trailing stops are typically used to
help lock in profits on a winning trade. The direction of the market. Bull trends are those
with a successive series of higher peaks and troughs, while a
bear trend is identified by a successive series of lower peaks
and troughs. It is also important to remember that the market
trends sideways as well. On of the most valuable tools of the technician.
A straight line that connects at least 3-consecutive peaks or
troughs. A trendline acts as support in an up-trend and resistance
in a downtrend A break of a trendline usually signals a corrective
phase or consolidation phase is likely to occur. Zigzag In Elliott Wave Theory, a three-wave pattern that subdivides into a 5-3-5 sequence with the top of wave B noticeably lower than the start of wave A. In a bear market, this pattern is inverted.
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