Forex Dictionary with Trading Terms Glossary

A pending order in forex trading is a type of order that allows traders to set a specific price at which they want to buy or sell a currency pair in the future, rather than executing immediately at the current market price. There are several types of pending orders, including limit orders (to buy or sell at a specified price or better) and stop orders (to buy or sell once the market reaches a certain price). This strategy helps traders take advantage of anticipated price movements and manage their entries and exits more effectively.

In trading, a "period" refers to a specific length of time over which price data is analyzed, typically used in charting and technical analysis. Common periods include minutes, hours, days, weeks, or months, and they help traders identify trends, patterns, and potential entry and exit points. Different periods can reveal varying insights into market behavior, with shorter periods offering more granular details and longer periods providing a broader perspective on overall trends.

A pip, or "percentage in point," is the smallest price move that a currency pair can make in the foreign exchange (Forex) market, typically representing a one-digit change in the fourth decimal place (0.0001) for most currency pairs. In pairs that involve the Japanese yen, a pip is represented by a change in the second decimal place (0.01). Pips are crucial for traders to measure price movements and potential profits or losses, and they serve as a foundation for calculating trade sizes and risk management strategies.

A pipette is a fractional pip, equal to one-tenth of a pip, used in forex trading to provide more precise measurements of price movements in currency pairs. While a standard pip typically represents a 0.0001 change in value for most pairs, a pipette adds an extra decimal place, making it a 0.00001 change. This allows traders to better assess market fluctuations and is particularly useful in high-precision trading strategies. For example, if a forex pair moves from 1.23456 to 1.23457, the change can be expressed as a one pipette increase.

Pivot points are technical analysis indicators used to determine potential support and resistance levels in financial markets. They are calculated using the previous period's high, low, and close prices, providing traders with a reference point to predict price movements. The main pivot point (PP) is the average of these prices, while additional support (S1, S2) and resistance (R1, R2) levels are derived from this central point. Traders often use these levels to make informed decisions about entry and exit points in their trading strategies.

A trading portfolio is a collection of financial assets, such as stocks, bonds, commodities, and currencies, that an investor manages to achieve specific investment objectives, including capital appreciation, income generation, or risk management. Successful portfolio management involves diversifying investments to reduce risk, regularly monitoring performance, and adjusting asset allocation based on changing market conditions or personal financial goals. Additionally, traders employ various strategies, such as day trading or swing trading, to capitalize on short-term price movements, while long-term investors may focus on fundamentals and market trends.

Position trading is a long-term trading strategy where traders focus on holding positions for an extended period, ranging from weeks to years. This approach relies on fundamental analysis, with traders looking to capitalize on major price movements by establishing positions based on economic indicators, market trends, and financial reports. Unlike day trading or swing trading, position traders are less concerned with short-term fluctuations and market volatility, instead prioritizing the overall direction of the market and significant price changes over time.

A price channel is a technical analysis tool that consists of two parallel lines drawn above and below a price chart, which help traders identify potential support and resistance levels. The upper line, called the resistance line, reflects a higher price level where selling pressure may occur, while the lower line, known as the support line, indicates a lower price level where buying pressure could emerge. Price channels can be ascending, descending, or horizontal, and they enable traders to determine the direction of price movement, spot potential breakouts, and make informed trading decisions based on price behavior within the channel.

The Profit/Loss Ratio is a metric used to evaluate the potential profitability of a trading strategy by comparing the average profit of winning trades to the average loss of losing trades. It is calculated by dividing the average profit of winning trades by the average loss of losing trades. A ratio greater than 1 indicates that the average profit exceeds the average loss, suggesting a potentially profitable strategy, while a ratio less than 1 implies the opposite. Effective traders often aim for a ratio of at least 1.5 or 2, alongside other factors like win rate and risk management, to enhance their overall trading performance.

The Parabolic SAR (Stop and Reverse) is a trend-following indicator designed to provide potential entry and exit points in financial markets. Developed by J. Welles Wilder Jr., it appears as dots positioned either above or below the price chart, depending on the direction of the trend. When the price is in an uptrend, the dots are typically beneath the price, indicating a stop-loss level; conversely, in a downtrend, the dots are above the price. The indicator is particularly useful for identifying momentum shifts and potential reversals but can produce false signals in choppy or sideways markets.