Forex and CFD trading glossary

The ATR indicator (average true range) measures volatility as the average size of recent candles’ true ranges, in price units, and says nothing about direction.

A bearish candle is a candlestick whose close is below its open, meaning price finished that period lower than it started.

The bid is the price you sell at and the ask is the price you buy at. The ask is always higher, and the gap between them is the spread, your cost of opening a trade.

BOS in trading means break of structure, which is an informal label for a new swing beyond the previous one in a trend’s direction, such as a new higher high in an uptrend.

A bull flag is a short pause after a sharp price rise, where price drifts down or sideways in a small channel; a close above the channel confirms it.

A bullish candle is a candlestick whose close is above its open, meaning price finished that period higher than it started.

Bullish describes a view that prices will rise or a move in which they have risen; bearish describes a view that prices will fall or a move in which they have fallen.

A buy limit is a pending order to buy at a set price below the current Ask; it fills at that price or better if the Ask falls to it.

Consolidation in forex is a period when price moves sideways in a narrower range than before, with no clear trend, often after a strong move.

A currency pair is two currencies quoted together, where the price shows how much of the second (quote) currency is needed to buy one unit of the first (base) currency.

Divergence in forex is when price and a momentum indicator such as RSI move in different directions, for example price making a higher high while the indicator makes a lower high.

A doji candle is a candlestick whose open and close are at or very near the same price, so it has almost no body and shows only wicks.

A double bottom is two troughs at roughly the same price after a fall, with a rally between them, describing price holding twice at the same area.

A double top pattern is two peaks at roughly the same price after a rise, with a dip between them, describing price failing twice at the same area.

An engulfing candle is a two-candle chart pattern in which the second candle’s body fully covers the first candle’s body, and its direction is opposite to the first.

A fair value gap is a retail chart-reading term for a space between the high of one candle and the low of the candle two bars later, left by a fast middle candle.

Market sentiment is the overall mood of traders toward a currency, pair or market, bullish when most expect prices to rise, bearish when most expect a fall. Forex traders read it from positioning data, risk-on and risk-off moves and fear gauges such as the VIX.

GDP, gross domestic product, is the value of all final goods and services an economy produces in a period. Each quarterly GDP release can move that country’s currency when growth lands above or below forecast.

A golden cross is the point where a 50-period moving average crosses above a 200-period moving average; the opposite crossing is called a death cross.

A hammer candlestick is a candle with a small body near the top and a long lower wick, seen after a decline, showing price fell sharply and then recovered.

A hanging man candlestick is a candle with a small body near the top and a long lower wick that appears after a rise; it has the same shape as a hammer.

A head and shoulders pattern is three peaks in a row after a rise, with the middle peak highest, that traders read as a reversal pattern once price closes beyond the neckline.

Hedging means opening a position that moves opposite to one you already hold, to reduce the risk of a loss from an adverse price move, usually at a cost.

Heikin Ashi is a candlestick chart style that recalculates each candle from averaged prices, giving smoother-looking candles whose open and close are not actual traded prices.

Liquidity in forex is how easily you can buy or sell a currency pair near the quoted price without moving that price much, usually seen in tight spreads and deep order volume.

A liquidity sweep is price briefly trading past an obvious high or low, where traders place stop orders, and then closing back inside the earlier range.

A martingale strategy doubles the position size after every loss so that one win recovers all earlier losses plus the first trade’s gain; the size grows exponentially with each consecutive loss.

A morning star is a three-candle chart pattern made of a long bearish candle, a small-bodied candle, then a long bullish candle that closes up into the first candle’s body.

OPEC, the Organization of the Petroleum Exporting Countries, is a group of oil-exporting nations that sets production targets for its members. Its decisions move the oil price, oil CFDs and oil-linked currencies.

An order block is a chart-reading term for the last opposing candle before a strong price move; traders mark its range as a zone to watch when price returns.

OTC, short for over-the-counter, means a trade agreed directly between two parties, usually through a dealer or broker, instead of on a central exchange. Forex is the largest OTC market.

A pennant pattern is a short pause after a sharp price move in which the highs fall and the lows rise, forming a small triangle at the end of a pole.

A pin bar is a candle or bar with one long wick and a small body at the other end, showing that price moved far in one direction and pulled back.

A wedge pattern is a narrowing price range between two trendlines that slope the same way. A rising wedge slopes up and usually breaks down; a falling wedge slopes down and usually breaks up.

A safe haven is an asset investors buy when fear rises, expecting it to hold or gain value while riskier assets fall. In forex the usual safe havens are the Japanese yen, Swiss franc and US dollar, with gold alongside them.

A shooting star is a candlestick with a small body near its low and a long upper wick that appears after a price rise, which traders read as selling pressure.

The stochastic oscillator is an indicator that shows where the latest close sits within the highest high and lowest low of a recent period, on a 0 to 100 scale.

A swing high is a peak on a price chart, a candle whose high is above the highs of the candles on either side of it; a swing low is the matching trough.

A triangle pattern is a period in which price swings narrow between two converging lines, drawn as ascending, descending or symmetrical depending on the slopes.

Volatility is how much and how fast a price moves over a period of time; bigger and faster swings mean higher volatility.

CPI, the consumer price index, measures the change in prices consumers pay for a basket of goods and services. Its yearly change is the headline inflation rate, which central banks target and forex traders watch for rate moves.

Yield is the yearly return on an investment as a percentage of its price. A bond yield is that return on a bond, it moves opposite to the bond price, and the gap between two countries’ yields helps drive their exchange rate.