800s.call
An option to purchase a currency.
cambist
An expert trader who rapidly buys and sells currency throughout the day.
candlestick chart A chart that indicates the trading range for the day as well as theopening and closing price. If the open price is higher than the close price, the rectanglebetween the two is shaded. If the close price is higher than the open price, that area ofthe chart is not shaded.cash market The market in the actual financial instrument on which a futures or options contract is based.central bank A government or quasi-governmental organization that manages acountry’s monetary policy. For example, the U.S. central bank is the Federal Reserve,and the German central bank is the Bundesbank.centralized market Any market where all orders routed to one central exchange.FOREX is not a centralized market.CFTC
Commodity Futures Trading Commission.
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chartist An individual who uses charts and graphs and interprets historical data tofind trends and predict future movements. Also referred to as technical trader.cleared funds
Funds that are freely available, sent in to settle a trade.
closed position Exposures in foreign currencies that no longer exist. The process toclose a position is to sell or buy a certain amount of currency to offset an equal amountof the open position. This will square the position.clearing The process of settling a trade.CME
Chicago Mercantile Exchange.
consumer price index (CPI) A weighted average of prices of a basket of consumergoods and services, such as food, medical, and transportation. The CPI is calculated bytaking price changes for each item in a specified basket of goods and averaging themaccording to their estimated importance.contagion The tendency of an economic crisis to spread from one market to another.In 1997, political instability in Indonesia caused high volatility in their domestic currency, the rupiah. From there, the contagion spread to other Asian emerging currencies, and then to Latin America, and is now referred to as the Asian contagion.collateral Something given to secure a loan or as a guarantee of performance.commission A transaction fee charged by a broker.confirmation A document exchanged by counterparts to a transaction that states theterms of said transaction.contract The standard unit of trading in futures and options.counter currency The second listed currency in a currency pair. See also quote currency.counterparty One of the participants in a financial transaction.country risk Risk associated with a cross-border transaction, including but notlimited to legal and political conditions.cross currency pair A foreign exchange transaction in which one foreign currency istraded against a second foreign currency—for example, EUR/GBP.cross rate Same as cross currency pair.currency Any form of money issued by a government or central bank and used aslegal tender and a basis for trade.currency pair The two currencies that make up a foreign exchange rate. For example,EUR/USD.currency risk
The probability of an adverse change in exchange rates.
day trader A speculator who takes positions in currencies, which are then liquidatedprior to the close of the same trading session or day.dealer An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firmthat acts as an intermediary, putting together buyers and sellers for a fee or commission.
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deficit A negative balance of trade or payments.delivery A FOREX trade where both sides make and take actual delivery of the currencies traded.depreciation
A fall in the value of a currency due to market forces.
derivative A contract that changes in value in relation to the price movements of a related or underlying security, future, or other physical instrument. An option is the mostcommon derivative instrument.devaluation The deliberate downward adjustment of a currency’s price, normally byofficial announcement.directional movement In technical analysis, the net price change from one specifiedtime unit to another specified time unit. See also volatility.downtick
A new price quote at a price lower than the preceding quote.
econometric analysis The use of mathematical formulas or models to make tradingdecisions with fundamental information and data.economic indicator A government-issued statistic that indicates current economicgrowth and stability. Common indicators include employment rates, gross domesticproduct (GDP), inflation, retail sales, and so forth.electronic communications network (ECN) A system wherein orders to buy and sellare matched through a network of banks and/or dealers. See market maker, the otherwidely used method of order execution, and NDD, a hybrid.European currency unit (ECU) See European Monetary Union (EMU).end of day order (EOD) An order to buy or sell at a specified price. This order remains open until the end of the trading day, which is typically 5:00 P.M. Eastern time.European Monetary Union (EMU) The principal goal of the EMU was to establisha single European currency called the euro, which officially replaced the nationalcurrencies of the member EU countries in 2002. On January 1, 1999, the transitional phase to introduce the euro began. The euro now exists as a banking currency,and paper financial transactions and foreign exchange are made in euros. This transition period lasted for three years, at which time euro notes and coins entered circulation. As of July 1, 2002, only euros are legal tender for EMU participants, and thenational currencies of the member countries have ceased to exist. The current members of the EMU (as of March 2007) are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, andSpain.euro the currency of the European Monetary Union (EMU). A replacement for theEuropean Currency Unit (ECU).European Central Bank (ECB)Union.
The central bank for the new European Monetary
exotics A currency pair with the USD and a lesser-traded currency such as the Thaibaht or the Chilean peso; considered riskier to trade than the majors or minors.
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fast market A market is fast when it is hit with a large volume of orders over a shortperiod of time. Markets are often fast after an unexpected news announcement.Federal Deposit Insurance Corporation (FDIC) The regulatory agency responsiblefor administering bank depository insurance in the United States.Federal Reserve (Fed) The central bank for the United States.first in, first out (FIFO) Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.flat/square A trader on the sidelines with no position.floating stop
An automated trailing stop.
foreign exchange (FOREX, FX)ing of another.FOREX futures
The simultaneous buying of one currency and sell-
FOREX traded as a futures contract.
forward The prespecified exchange rate for a foreign exchange contract settling atsome agreed future date, based on the interest rate differential between the two currencies involved.forward points The pips added to or subtracted from the current exchange rate tocalculate a forward price.fundamental analysis Analysis of economic and political information with the objective of determining future movements in a financial market.futures contract An obligation to exchange a good or instrument at a set price on afuture date. The primary difference between a future and a forward is that futures aretypically traded over an exchange (exchange-traded contracts, or ETC), versus forwards, which are considered over-the-counter (OTC) contracts. An OTC is any contract not traded on an exchange.FX
Foreign exchange.
G8 The eight leading industrial countries, namely the United States, Germany,Japan, France, the United Kingdom, Canada, Italy, and Russia.going long The purchase of a stock, commodity, or currency for investment orspeculation.going short The selling of a currency or instrument not owned by the seller.gold standard A monetary system whereby a country allows its monetary unit to befreely converted into fixed amounts of gold and vice versa.gross domestic product (GDP) Total value of a country’s output, income, or expenditure produced within the country’s physical borders.gross national product (GNP) Gross domestic product plus income earned from investment or work abroad.good till cancelled order (GTC) An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.
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guerilla trader Similar to a scalper, but a guerilla trades in bursts with a flurry oftrades and then quickly retreats to the sidelines; also called a sniper.hedge A position or combination of positions that reduces the risk of your primaryposition.high-frequency trading Trading very frequently; scalping. See ultra high frequency trading.hit the bid Acceptance of purchasing at the offer or selling at the bid.inflation An economic condition whereby prices for consumer goods rise, erodingpurchasing power.initial margin The initial deposit of collateral required to enter into a position as aguarantee on future performance.interbank rates The foreign exchange rates at which large international banks quoteother large international banks.intervention Action by a central bank to affect the value of its currency by enteringthe market. Concerted intervention refers to action by a number of central banks tocontrol exchange rates.introducing broker Generally a small broker who relies on a larger broker/dealer toexecute his trades and hold fiduciary responsibility for client funds.King Kong syndrome The emotional high that overtakes a trader when he does exceptionally well for a period of time, such as making a dozen consecutive winningtrades. It is usually followed by a large losing trade and a reality check.kiwi Slang for the New Zealand dollar.leading indicators Statistics that are considered to predict future economic activity.leverage Also called margin. The ratio of the amount used in a transaction to the required security deposit.London Interbank Offered Rate (LIBOR) Banks use LIBOR when borrowing fromanother bank.limit order An order with restrictions on the maximum price to be paid or the minimum price to be received. As an example, if the current price of USD/YEN is117.00/05, then a limit order to buy USD would be at a price below 116.50.liquidation The closing of an existing position through the execution of an offsettingtransaction.liquidity The ability of a market to accept large transactions with minimal to no impact on price stability; also the ability to enter and exit a market quickly.long position A position that appreciates in value if market prices increase. When thebase currency in the pair is bought, the position is said to be long.loonie Slang for the Canadian dollar.lot A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number of lots.major currency Any of the following: euro, pound sterling, Australian dollar, NewZealand dollar, U.S. dollar, Canadian dollar, Swiss franc, Japanese yen. See also minorcurrency.
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managed account An account in which a third party such as a professional moneymanager makes trading decisions for you. Also called a discretionary account.margin The required equity that an investor must deposit to collateralize a position.margin call A request from a broker or dealer for additional funds or other collateralto guarantee performance on a position that has moved against the customer.market maker A dealer who regularly quotes both bid and ask prices and is ready tomake a two-sided market for any financial instrument. Most retail FOREX dealers aremarket makers. A market maker is said to have a dealing desk.market risk Exposure to changes in market prices.mark-to-market Process of reevaluating all open positions with the current marketprices. These new values then determine margin requirements.maturity The date for settlement or expiry of a financial instrument.mercury chart A modified bar chart used in commodity futures. Each bar shows theprice range for a time unit and changes in open interest and volume from the previoustime unit.minor currency Any of the currencies between a major currency and an exotic. TheItalian lira and Swedish krona are minor currencies.money management The techniques a trader utilizes to manage his money both inthe aggregate and for specific trades.money supply The aggregate quantity of coins, bills, loans, credit and any other liquid monetary instruments or equivalents within a given country’s economy.mundo A synthetic global currency calculated as the average of multiple ISO currency pairs. See Michael Archer and James Bickford, FOREX Chartist Companion (NewYork: John Wiley & Sons, 2006).NDD A “no dealing desk” broker. Provides a platform where liquidity providers suchas banks can offer prices; incoming orders are routed to the best available bid or offer.See also market maker and electronic communications network (ECN).net position The amount of currency bought or sold which has not yet been offset byopposite transactions.NFA National Futures Association.offer The rate at which a dealer is willing to sell a currency. See ask price.offsetting transaction A trade that serves to cancel or offset some or all of the marketrisk of an open position.one cancels the other order (OCO) A designation for two orders whereby when onepart of the two orders is executed the other is automatically cancelled.open order An order that will be executed when a market moves to its designatedprice. Normally associated with good till cancelled orders.open position An active trade with corresponding unrealized profit and loss, whichhas not been offset by an equal and opposite deal.option A FOREX option is the right to purchase or sell a currency at a specified pricefor a specified time period.
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over-the-counter (OTC) Used to describe any transaction that is not conducted overan exchange.overnight position A trade that remains open until the next business day.order
An instruction to execute a trade at a specified rate.
pip The smallest unit of price for any foreign currency. Digits added to or subtractedfrom the fourth decimal place, that is, 0.0001. Also called points.point 100 pips.point and figure charts Similar to swing charts but using X’s to denote upwardmoving prices and O’s to denote downward-moving prices.political risk Exposure to changes in governmental policy that will have an adverseeffect on an investor’s position.position An investor’s netted total holdings of a given currency.position trader A trader who holds positions over multiple trading sessions.premium In the currency markets, describes the amount by which the forward or futures price exceeds the spot price.pretzel chart A price chart connecting the open, high, low, and close in such a fashion that it resembles a pretzel with two closed three-sided spaces connected through acenter point.price transparency Describes quotes to which every market participant has equal access.profit/loss (P/L) or gain/loss The actual realized gain or loss resulting from tradingactivities on closed positions, plus the theoretical unrealized gain or loss on open positions that have been marked-to-market.programmed trading See algorithmic trading.put An option to sell a currency.pyramiding Adding to a position as the market moves up or down. Pyramiding awinning position is risky; pyramiding a losing position is suicide.quote An indicative market price, normally used for information purposes only.quote currency The second currency quoted in a FOREX currency pair. In a directquote, the quote currency is the foreign currency itself. In an indirect quote, the quotecurrency is the domestic currency. See also base currency and counter currency.rally A recovery in price after a period of decline.range The difference between the highest and lowest price of a future recordedduring a given trading session.rate The price of one currency in terms of another, typically used for dealing purposes.requoting The practice of a broker/dealer filling an order at a price not seen on theirpublic price feed. Like ballooning and running stops, requoting is most typical of marketmakers and is frowned upon by traders. Also referred to as dealer intervention.resistance level A term used in technical analysis indicating a specific price level atwhich analysis concludes people will sell.
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revaluation An increase in the exchange rate for a currency as a result of central bankintervention. Opposite of devaluation.risk Exposure to uncertain change, most often used with a negative connotation ofadverse change.risk management The employment of financial analysis and trading techniques toreduce and control exposure to various types of risk.rollover Process whereby the settlement of a deal is rolled forward to another valuedate. The cost of this process is based on the interest rate differential of the twocurrencies.round trip Buying and selling of a specified amount of currency.running stops The practice of market makers entering orders for the purpose of hitting customer stop-loss orders. Also called harvesting stops. Like ballooning, considereda negative practice by traders.scalper Someone who trades very often. Trades are typically measured in minutes butsometimes seconds.settlement The process by which a trade is entered into the books and records of thecounterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another.short position An investment position that benefits from a decline in market price.When the base currency in the pair is sold, the position is said to be short.slippage The difference in pips between the order price approved by the client andthe price at which the order is actually executed.spot price The current market price. Settlement of spot transactions usually occurswithin two business days.spread
The difference between the bid and offer prices.
sterling Slang for British pound.stop-loss order Order type whereby an open position is automatically liquidated at aspecific price. Often used to minimize exposure to losses if the market moves against aninvestor’s position. As an example, an investor who is long USD at 156.27 might wishto put in a stop-loss order for 155.49, which would limit losses should the dollar depreciate, possibly below 155.49.support level A technique used in technical analysis that indicates a specific priceceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance level.swap A currency swap is the simultaneous sale and purchase of the same amount of agiven currency at a forward exchange rate.swing chart A form of charting connecting prices filtered by a minimum increment. Similar to point and figure charts. Pugh swing charts use vertical lines connected by short horizontal lines. Line swing charts use angular lines connectingprice to price. Swing charts are said to be price-functional; the time frame is not aparameter.
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GLOSSARYMarket slang for Swiss franc.
technical analysis An effort to forecast prices by analyzing market data—that is,historical price trends and averages, volumes, open interest, and so forth.tick A minimum change in time required for the price to change, up or down.trading session The term most commonly means one of the three 8-hour sessionsfor trading FOREX over a 24-hour period: Asian, European, and North American.Technically there are five sessions between Sunday evening and Friday evening: TheNew York exchange trades from 7:30 A.M. to 5 P.M. EST. The Sydney, Auckland,and Wellington exchanges trade from 3 P.M. to 11 P.M. EST. The Tokyo exchangetrades from 6 P.M. to 11 P.M., stopping for an hour-long lunch break and then trading again until 4 A.M. EST. The Hong Kong and Singapore exchanges trade from7 P.M. to 3 A.M. EST. The last exchanges trading are the Munich, Zurich, Paris,Frankfurt, Brussels, Amsterdam, and London exchanges; these all trade from 2:30 A.M.to 11:30 A.M. EST.trailing stop The practice of moving a stop-loss in the direction of the market’smovement. Used primarily to protect profits. See also floating stop.transaction cost The cost of buying or selling a financial instrument.transaction date The date on which a trade occurs.turnover The total money value of all executed transactions in a given time period;volume.two-way price
When both a bid and offer rate are quoted for a FOREX transaction.
ultra high frequency trading Trading extremely frequently; limited only by howfast you can click the mouse. Called “churning the customer’s account” in the olddays.unrealized gain/loss The theoretical gain or loss on open positions valued at currentmarket rates, as determined by the broker in its sole discretion. Unrealized gains/lossesbecome profits/losses when the position is closed.uptick A new price quote at a price higher than the preceding quote.uptick rule In the United States, a regulation whereby a security may not be soldshort unless the last trade prior to the short sale was at a price lower than the price atwhich the short sale is executed.U.S. prime rate The interest rate at which U.S. banks will lend to their prime corporate customers.value date The date on which counterparts to a financial transaction agree to settletheir respective obligations—that is, exchange payments. For spot currency transactions,the value date is normally two business days forward. Also known as maturity date.variation margin Funds a broker must request from the client to have the requiredmargin deposited. The term usually refers to additional funds that must be deposited asa result of unfavorable price movements.
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volatility A statistical measure of a market’s price movements over time characterizedby deviations from a predetermined central value (usually the arithmetic mean); thegross price movement over a specified period of time given a minimum price changevalue. See also directional movement for net price movement.whipsaw Slang for a condition where any securities market begins moving laterallyexhibiting very little volatility.yard
Slang for a billion.
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Index
A
C
Aby, Carroll, 153Arms, Richard, 154At-the-money options, 155
Call options, 155–156Camtasia, 151Cancellation, in GSCS, 88, 89Candlestick charts, 25–26, 27, 152Capital allocation, 55, 104–106Carryover, in GSCS, 88, 89Central bank announcement dates, 37Charting Commodity Market PriceBehavior (Belveal), 154Charts, 5, 25–30bar charts, see Bar chartsbooks about, 153candlestick charts, 25–26, 27, 152point and figure charts, 26–29, 153style and, 102swing charts, 27, 29, 30, 77–80in toolbox, 38transparency of, 14Codex notebook, 59–64. See alsoRecord-keepingkeeping hard copy of, 60–61sections of, 61–63Codex process, see also FxCodexanalysis and selection, 129–132contrasted to traditional approach,59–60entering a trade, 52, 110–111,133–136exiting a trade, 52-53, 110–112,142–144in general, 1–7, 123–124monitoring trades, 137–141in notebook, 63
BBar charts, 25, 26books about, 153broker/dealer selection and,113–114market tracking and, 125in toolbox, 70–76trading platform and, 116–118Bathtub analysis, 76, 152Behavior analysis, 33–35Belgian Dentist approach, 7, 69Belveal, Les, 154Bickford, James, 154Black boxes, 15Box options, 158–159Brackets, in GSCS, 88, 90Brandt, Peter, 153Breakaway method of entry, 134,135Breaking even, 49, 109–110Brokers/dealers:market makers and electroniccommunication networks,167–169reviews of, 169selection of, 113–114Bulkowski, Thomas, 153Butterfly strategy, 156
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INDEX
record keeping, 47, 63, 147–151tracking, 123–128Cohen, A. W., 153Computer hardware and softwarerequirements, 116–118Condor strategy, 156Congestion Phase System, The(Nofri), 94–95Contingency planning, 47–48Cross, defined, 42Currency pairs, see Market selectionCycle analysis, 31, 33, 34DDagger method of entry, 134, 135Daily trade plan, 149–150Day traders, 44, 45, 98, 99market tiers and, 125staying over of, 138Demo accounts, 104, 114–116De Villiers, Victor, 153DiNapoli levels, 153Directional movement (DM),40–41, 43DM/V indicator, 95in toolbox, 67–69Dobson, Edward L., 82
185
Entry points, 52, 110–111in Codex process, 133–136Euro/USD pair, 101–102Exit points, 52–53, 110–112in Codex process, 142–144EXPO econometric software, 23–24Eyeballing a market, 66–70FFear, 46–47, 102–106Federal Reserve announcementdates, 3750 percent retracement and measuredmove rule, 81–84Flat/complex rule, in GSCS, 86, 87, 91FOREX Chartist Companion (Bickfordand Archer), 154Fundamental analysis, technicalanalysis contrasted to, 15–24Future, conceptualizing of, 149–150FxCodex, 3, 5–6, 8. See also Codexcharting and, 5entry points, 134principles of, 3–4toolbox elements, 97fxpraxis.com, 154G
EEconometric analysis, 23–24Edwards, Robert, 153Electronic communication networks(ECNs), 167–169Elliott wave theory, versus Goodmanwave, 84, 85, 86Emotions, 102–106charting of, 46–47, 103–104successful trading and,161–162Encyclopedia of Chart Patterns(Bulkowski), 153
GC swing chart, 79–80Global banking hours chart, 45Goodman, Charles B., 5, 7, 76, 79, 103Goodman Cycle Count System(GCCS), 92–94Goodman Swing Charts, 25Goodman Swing Count System(GSCS), 5analysis and selection, 130,131–132market tracking and, 126–128in toolbox, 77, 80–86trading with, 90–92
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186Goodman wave, 84–86Gould, Bruce, 55, 105Great Wheat Secret, The (Pugh), 77,81, 153Greed, 46–47, 102–106Guerrilla traders, 44, 98, 99, 125IImpact ratio indicator, 95–96Indicators, 5, 6, 30–32book about, 153opacity of, 14in toolbox, 38, 95–96Internet resources, 154Intersections, in GSCS, 86–88, 91JJapanese Candlestick Charting(Nison), 152
INDEX
McKee, John, 153Mini accounts, 110, 167Money management, 6–7, 49–55,108–112analysis and selection, 130basic parameters of, 108–109breaking even and, 49, 109–110capital allocation, 55, 104–106in Codex notebook, 63entry points, 52, 110–111exit points, 52–53, 110–112monitoring trades, 111–112options and, 156–158risk and reward ratios and, 50–52stops, 53–55, 111trade size and, 110Money managers, 15. See alsoBrokers/dealersMoving averages, 5, 6N
Lindsay, Charles L., 81Losing trades:handling of, 104–106ten most common causes of, 106
New Concepts in Technical TradingTechniques (Welles), 153Nison, Steve, 152Nofri, Eugene, 94–95Nofri characteristics, 130Notebook, see Codex notebook
M
O
Market environment (ME), 40–42,102in toolbox, 66–70Market filters, 6, 35–36, 37in toolbox, 38Market makers, 167–169Market selection, 6–7, 42–43in Codex method, 124–128list of frequently traded pairs, 42trader profile and, 101–102Market tiers, 124–125Matrices, in GCSC, 83–84
OANDA Corporation, 158–159Opaqueness, 14, 36, 49Open interest, 33–34, 71books about, 153–154Options, 154–159box options, 158–159definition and terminology of,154–155money management and, 156–158Philadelphia Options Exchange, 158types of, 155–156Oscillators, 5, 6
L
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