Forex Dictionary - Glossary of Terms & Definitions

The Average Directional Index (ADX) is a technical analysis indicator used to quantify the strength of a trend in a financial market, regardless of its direction. Ranging from 0 to 100, an ADX value below 20 generally indicates a weak trend (or a range-bound market), while a value above 25 suggests a strong trend. It is often used in conjunction with two other lines, the Plus Directional Indicator (+DI) and the Minus Directional Indicator (-DI), to determine trend direction and potential buy or sell signals. Traders commonly implement the ADX to make informed decisions about entering or exiting trades based on trend strength.

Algorithmic trading is the use of automated systems and algorithms to execute financial market trades based on predefined criteria, such as price, volume, and timing. This approach leverages mathematical models and complex computations to make rapid and accurate trading decisions, allowing traders to capitalize on market opportunities that may be too quick for human execution. Algorithmic trading can enhance market efficiency, reduce transaction costs, and manage risks, but it also requires sophisticated technology and an understanding of both the market mechanisms and the algorithms employed.

The Asian trading session is characterized by high volatility and liquidity, driven by major financial hubs like Tokyo, Hong Kong, and Sydney. It typically runs from 11 PM to 8 AM GMT, when significant economic data releases and geopolitical events can influence currency, commodity, and equity markets. Traders often focus on the Japanese yen, Australian dollar, and New Zealand dollar during this session, utilizing strategies that capitalize on price movements resulting from Asia-specific news and market sentiment.

In Forex trading, the ask price is the price at which a trader can buy a currency pair. It represents the lowest price a seller is willing to accept for that currency. The ask price is always higher than the bid price, which is the price at which a trader can sell the currency pair; the difference between the bid and ask price is known as the spread. This is an important concept for traders as it affects the cost of entering and exiting trades.

The Average True Range (ATR) is a technical analysis indicator that measures market volatility by decomposing the entire range of an asset price for a specific period. Developed by J. Welles Wilder, ATR calculates the average of true ranges over a set number of periods, typically 14. True range considers the highest and lowest prices during a period and the difference between the current close and the previous close, providing a comprehensive understanding of market movement. Traders use ATR to inform their strategies on trade entry and exit points, as well as position sizing.

The Australian Dollar (AUD), often referred to as the "Aussie," is the official currency of Australia, as well as several of its territories and the independent Pacific island nations of Nauru and Tuvalu. It is one of the most traded currencies in the world and is recognized for its stability and relative strength in the global market. The AUD is commonly used as a benchmark in international trade, particularly in commodities such as gold and iron ore, which are significant exports for Australia.