Bulls and Bears
You will come across these terms quite often. Bulls are traders that open buy transactions. Bears prefer to sell. Thus, if the market or the trend is bullish then the price is growing. Conversely, the bearish mood means that the trend is downward.
If you will be confused at first, try to imagine how a bull raises something on its horns while the bear beats its paw down.
Long and Short Positions
Traders use these concepts quite often. Perhaps this is the easiest term for today:
- Long positions are buy trades
- Short positions are sell trades
Price Levels
In order to predict the future price behavior with high probability, you will need special guidelines. That’s what the price levels are for. Here are a few main lines:
- Trend line
- Support
- Resistance
- Moving Average, etc.
The market behavior around the price levels will provide you the main signals for opening and closing a transaction, for setting Stop Loss and Take Profit levels, which we will talk about a little later.
Highs and Lows
The price on Forex always moves in waves. The top of such a wave is called a high while the bottom is called a low. That’s where the traders set their key price levels.
Support and Resistance
These price levels are key in technical market analysis. Price tends to act on certain patterns. That is why, if it was difficult for the market to break through a certain level, forming a high or low, then it is highly likely that in the future the price will also reverse without breaking this line.
Support lines are set at previous lows and resistance is drawn at a previous high.
Stop Loss and Take Profit
Truly essential tools. These are special orders that will close your positions the moment the market touches specified levels:
- Stop Loss is set against the movement of your order, limiting the maximum loss for your transaction.
- Take Profit is placed in the direction of your order. It will automatically close your trade at the specified level to protect the profit you’ve already made.
Moving Average
Another useful price level. It shows where the market was some time ago. For example, the MA200 shows where the price was 200 candles back. Due to the market tendency to repeat its movements, the moving average can also be used for technical analysis:
- If the price is above this level, then it is worth opening buy transactions
- If the chart falls below the moving average you can switch to sell trades
Margin
This is a kind of additional security for your transactions. It’s like insurance for your position. When executing an order, the broker will separate part of your balance to maintain your position. Margin size directly depends on your leverage. With a leverage of 1:100, the margin will be 1% of the volume of your transaction.
Let's say you opened a position at 0.1 standard lot with a leverage at 1:100. In this case, the volume of your transaction is $10,000 and the margin is $100.
Margin Call and Stop Out
To maintain open transactions you need a certain amount of margin. If the amount of your funds begins to decline during a drawdown you’ll receive a request to enlarge your margin. This is called a Margin Call. When you receive such a message you have two outputs:
- Instantly deposit or make an internal transfer to your trading account so that there are enough funds to support your positions until they turn in your direction.
- Close one or more losing trades to reduce pressure on your margin.
If you don’t perform one of these actions or the market situation doesn’t turn in your direction, then your unprofitable positions will begin to close one after the other, starting with the most unprofitable, until the margin level gets back to a sufficient level. The order to close those trades is called a Stop Out.
Not the most fun note to end the article with. However, it is worth remembering that Forex trading is not just a game. You will have setbacks and it is important to prepare carefully for them. That’s the only way to survive them and move on to your successful future.