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Terms of Technical Analysis in Forex (FX) Trading

Accelerator/Decelerator Oscillator (AC) - A technical analysis indicator for identifying buying or selling opportunities. AC consists of a zero line and green/red indicator bars on the chart. If the current indicator bar is a green one above the zero line, it is a signal to buy. When the indicator current bar is a red one below the zero line, it is a signal to sell.

ADX - Average Directional Movement Index. ADX is a technical analysis indicator that measures the trend strength of the price movement of a currency pair.

Alligator - A technical analysis indicator for identifying trend of price movement. An Alligator indicator consists of 3 smoothed moving averages (13-period, 8-period and 5-period moving averages that are moved 8 bars, 5 bars, and 3 bars into the future respectively), which are called the Lips, Teeth and Jaw of the Alligator. When the 3 lines are clearly apart, the market is in trend according to the Alligator. Closed or intertwined Lips, Teeth and Jaw indicate sideways market.

Andrew's Pitchfork – A technical analysis charting method developed by Alan H. Andrews to indicate swing possibilities of price movement. In charting with Andrew's Pitchfork, three parallel trendlines are drawn to indicate the support, median and Resistance levels, which resembles the prongs of a pitchfork. Price action tends to gravitate towards the median line 80% of the time, according to Andrews.

Ascending Triangle - A chart pattern of sideways movement in technical analysis. It looks like a triangle with the upper boundary parallel to the horizontal axis and the lower boundary tilts up in charting.

ATR - Average True Range. ATR is a technical analysis indicator developed by J. Welles Wilder for measuring volatility of price movement. The ATR is a moving average of the True Ranges, which is the current high less the current low, or the absolute value of the current high less the previous close, or the absolute value of the current low less the previous close, whichever is the greatest. Low ATR indicates low volatility and probably sideways price movement, while high ATR may indicate situations of panic buying or selling. Sometimes Average True Range is used as stop level in forex trading.

Average Directional Movement Index (ADX) - A technical analysis indicator that measures the trend strength of the price movement of a currency pair.

Average True Range (ATR) - Average True Range (ATR) is a technical analysis indicator developed by J. Welles Wilder for measuring volatility of price movement. The ATR is a moving average of the True Ranges, which is the current high less the current low, or the absolute value of the current high less the previous close, or the absolute value of the current low less the previous close, whichever is the greatest. Low ATR indicates low volatility and probably sideways price movement, while high ATR may indicate situations of panic buying or selling. Sometimes Average True Range is used as stop level in forex trading.

Awesome Oscillator (AO) - A technical analysis indicator for generating buying or selling signals. Awesome Oscillator (AO)indicator consists of a zero line and a green/red indicator on the chart. AO is calculated as subtracting the 34-period simple moving average from the 5-period simple moving average. When the green/red indicator crosses the zero line from below, a buy signal is generated. When the green/red indicator crosses the zero line from above, a sell signal is generated.

Bar Chart - A type of chart that portrays the range between the high and the low of forex prices during a certain trading period with a vertical line. The opening forex price is shown as a short horizontal line to the left of the bar (the vertical line), and the closing forex price is marked by a short horizontal line of the right of the bar.

Bears Power - A technical analysis indicator for generating buying signals. The Bears Power indicator consists of a zero line and a Bears Power index on the chart. The Bears value is calculated as subtracting the 13-period exponential moving average from the lowest price. It is often used together with trend indicators such as moving averages.If the trend indicator indicates upward price movement while the Bears Power index is below zero but increasing in value, a buy signal is generated.

Bear Trap – Bear trap is a technical analysis term describing the situation that the price movement turns bearish by breaking down a support level, but then rises back into the support area.

Bearish Engulfing - Bearish engulfing is a chart pattern in candlestick charting describing the situation that a white (green or not shaded) candle is followed by a black (red or shaded) candle with a longer body in a upward trend. Bearish engulfing indicates a possible downward reversal for the price movement.

Body - A rectangle represents the difference between the opening and the close price in candlestick charts.

Bollinger Bands - Designed by John Bollinger in the early 1980's, Bollinger Bands are statistical measures of relative price highs and lows for a financial instrument. By definition, prices are high at the upper band and low at the lower band. In forex trading, Bollinger Bands are often used for pattern recognition, identification of support/resistance and reversal conditions, and systematic trading decisions.

Breakout – In forex trading, breakout refers to a price movement that pass through the upper or lower boundaries of a trading range or chart pattern in technical analysis. There are forex breakout trading systems or strategies.

Bulls Power - A technical analysis indicator for generating selling signals. The Bulls Powerindicator consists of a zero line and indicator bars on the chart. The Bulls value is calculated as subtracting the 13-period exponential moving average from the highest price. Bulls Power is often used together with trend indicators such as moving averages. If the trend indicators indicate downward price movement while the Bulls Power index is above zero but declining, a sell signal is generated.

Bull Trap - A technical analysis term describing the situation that the price movement turns bullish by breaking up a resistance level, but then falls back into the congestion area.

Bullish Engulfing – Bullish engulfing is a chart pattern in candlestick charting describing the situation that a black (red or shaded) candle is followed by a white (green or not shaded) candle with a longer body in a downward trend. Bullish engulfing indicates a possible reversal to the upside for the price movement.

Candlestick Chart - A charting method first developed by the Japanese that shows price movements with candle-like graphs. On candlestick charts, a rectangle (called the body) represents the difference between the opening and the close prices. A single line, referred as the shadows or wicks, represents the high-low price range. If the open price is lower than the close, the body is white, green or not shaded; if the open price is higher than the close, the body is red, black or shaded.

CCI – Commodity Channel Index. This technical analysis oscillator is typically used to signal over-bought or over-sold conditions in forex trading. It is calculated as the difference between the typical price and its simple moving average (MA), divided by the mean deviation (D): CCI = (Price - MA) / (0.015 * D). Readings above +100 or below -100 imply that prices are over-bought or over-sold.

Channel - In forex charting, a channel is normally two parallel trendlines drawn along the price lows (support) and highs (resistance) on a price chart to indicate the price range and the upward or downward direction of price movement.

Congestion - A term in technical analysis describing the situation that prices move in a sideway range with limited fluctuations.

Consolidation - A term in forex (FX) analysis describing the situation that prices move in a sideway range with limited fluctuations, normally after a significant rise or fall.

Correction - A temporary price movement that partially reverses the previous trend. Some think that the price adjustment needs to be as much as one-third to two-thirds of the previous price movement to be regarded as a correction.
price corrections

Cup and Handle - A chart pattern of price movement in technical analysis, describing the situation that prices fall and rise in the shape of a "U" (the "cup") and then consolidate for a period of time (the "handle"). Normally prices would move up further after the consolidation.

Dark Cloud Cover - A chart pattern in candlestick charting describing the situation that the price opens above the high but close below the range median of the previous period in an uptrend. On the chart it is a black (red or shaded) candle after series of white (green or not shaded) candles. A dark cloud cover is considered as a bearish reversal signal.

DeMarker - A technical analysis indicator for predicting price reversal. The Demarker indicator is based on the comparison of the maximum price of the current period with that of the previous period. A reading below 30 signals that a bullish price reversal would be expected, while a reading above 70 signals a possible bearish price reversal.

Descending Triangle - A chart pattern of price movement in technical analysis. It looks like a triangle with the lower boundary parallel to the horizontal axis and the upper boundary tilts down in charting.

DMI - Directional Movement Index. A trend following indicator developed by J. Welles Wilder. A typical use of DMI is to buy when the +DI crosses above the -DI, or vice versa.

Doji - A candlestick chart pattern describing the situation that the open price and the close price are the same for a period.

Doji Stars - A candlestick chart pattern that consists of a doji candle gapping away from the body of the previous candle. There are so-called morning doji star and evening doji star.

Double Bottom - A chart pattern in technical analysis describing the situation that the prices rise after falling twice to about the same level in a "W" shape. A double bottom is normally considered a bullish reversal signal.

Double Top - A chart pattern technical analysis the situation that the prices fall after rising twice to about the same level in a "M" shape. A double top is normally considered a bearish reversal signal.

Elliott Wave Analysis - An approach of technical analysis using the theory of price movement developed by Ralph Elliot. With Elliott Wave analysis, prices are seen as moving in patterns of five impulsive waves followed by three corrective waves.

EMA – Exponential moving average. A moving average using a weighting factor known as exponential smoothing. With exponential moving average, today's smoothed average is calculated as the sum of the simple weighted average of today's price plus yesterday's smoothed average. Thus a gradually increased weight is given to more recent prices.

Engulfing Pattern - A chart pattern in candlestick charting describing the situation that a candle is followed by a candle of the opposite color with a longer body. There are bullish engulfing and bearish engulfing. Engulfing pattern often indicates a trend reversal.

Evening Doji Star - A three-candle chart pattern for bearish reversal in candlestick charting. An evening doji star consists of a white (green or not shaded) candle, a second doji candle that rises higher than the first one, and a third black (red or shaded) candle that closes below the median of the first candle's body. See also morning doji star.

Evening Star - A three-candle chart pattern for bearish reversal in candlestick charting. An evening star consists of a white (green or not shaded) candle, a second candle (the star) that has a shorter body but rises higher than the first one, and a third black (red or shaded) candle that closes below the median of the first candle's body. See also morning star.

Fibonacci Ratio - The ratio between two successive numbers in the number series discovered by 13th century Italian mathematician Leonardo Fibonacci. The series consists of numbers such as 0, 1, 1, 2, 3, 5, 8, 13, etc, among which the third number is the sum of the preceding two numbers. Fibonacci ratios, including 38.2%, 50%, 61.8%, 100% and 161.8%, are often used in technical analysis for predicting price retracement levels or extension levels (targets).

Flag - A chart pattern of price consolidation in technical analysis. It looks like a flag on the chart, with a flag-pole representing the main trend and a flag representing sideway price movement.

Fractals - A technical analysis indicator developed by Bill Williams for detecting price tops or bottoms. A fractal, identified with an up or down arrow on the chart, consists at least five successive bars, with the highest high in the middle and two lower highs on either side, or with the lowest low in the middle and two lows on either side.

Gann Theory - A theory of price movement developed by W. D. Gann. When applied to technical analysis, the theory is turned into a charting method that uses geometric angles to indicate price and time.

Gap - A chart pattern of technical analysis in which the price range of a bar or candle is completely above or below that of the preceding bar or candle. Gap is not as common in forex market as in other financial markets.

Hammer - A one-candle chart pattern for bullish reversal during a downward trend in candlestick charting. A hammer is a candle, no matter what color, that has a long lower shadow and a short body.

Hanging Man - A one-candle chart pattern for bearish reversal during an uptrend in candlestick charting. A hammer is a candle, no matter what color, that has a long lower shadow and a short body. It looks like a hammer, but it occurs in an uptrend whereas a hammer happens in a downward trend.

Harami - A price chart pattern of candlestick describing the situation that the shorter body of a candle is completely shadowed by the preceding candle's longer body of the opposite color. Harami often indicates a trend reversal.

Head and Shoulders - A chart pattern which is generally considered indicating price trend reversal in technical analysis. Resembling a human head with two shoulders, a head and shoulders pattern consists of a left and a right shoulder (two lower peaks), a head (a peak higher than both shoulders), and a neckline (the support level). Breaking of the neckline normally indicates trend reversal and thus a selling opportunity. This chart pattern is also referred to as a head and shoulders top. The upside-down formation of a head and shoulders top is called a head and shoulders bottom, inverse head and shoulders, or reverse head and shoulders.

Head and Shoulders Bottom - The upside-down chart formation of a head and shoulders top. Breaking of the neckline of a inverse head and shoulders normally indicates reversal of a current downtrend and thus a buying opportunity. It is also called an inverse head and shoulders, or reverse head and shoulders.

Head and Shoulders Top – A chart pattern which is generally considered indicating price trend reversal in technical analysis. Resembling a human head with two shoulders, a head and shoulders pattern consists of a left and a right shoulder (two lower peaks), a head (a peak higher than both shoulders), and a neckline (the support level). Breaking of the neckline normally indicates trend reversal and thus a selling opportunity.

Ichimoku Kinko Hyo - A technical analysis indicator for detecting price trend, support and resistance levels and generating buying and selling signals. The Ichimoku Kinko Hyo indicator consists of Tenkan-sen, Kijun-sen, Senkou Span A, Senkou Span B, and Chinkou Span. The distance between the Senkou lines is called the "cloud", which indicates the the support and resistance levels. If prices are in the "cloud", the market is not trendy; otherwise there is a trend. A buying signal is generated when the Chinkou Span line traverses the price chart in the bottom-up direction, or the Tenkan-sen line crosses the Kijun-sen from below. A selling signal is generated when the Chinkou Span line traverses the price chart downward, or the Tenkan-sen line crosses the Kijun-sen from above.

Impulsive Wave – The wave that moves in the direction of the larger trend. The term comes from Elliott Wave Theory.

Inside Day – A candlestick or bar that has a higher low and lower high than the previous one. An inside day at the end of a trend often indicates the exhaustion and likely reversal of the trend.

Inverse Head and Shoulders - The upside-down chart formation of a head and shoulders top. Breaking of the neckline of an inverse head and shoulders normally indicates reversal of a current downtrend and thus a buying opportunity. It is also called a head and shoulders bottom, or reverse head and shoulders.

Inverted Hammer - A one-candle chart pattern for bullish reversal during a downward trend in candlestick charting. An inverted hammer is a candle, no matter what color, that has a long upper shadow and a short body.

MA - Moving average. A technical analysis indicator for identifying trend in the forex market. It is the mean of prices over a fixed period of time, for instance, the previous 10 trading days. Moving averages are usually classified by its calculation method into simple moving average, linearly weighted moving average, and exponentially smoothed moving average (EMA).

MACD - Moving Average Convergence Divergence. A popular technical analysis indicator using three moving averages for identifying overbought or oversold conditions in price movement.

Momentum - Momentum refers to the speed of price movement or rate of price change in technical analysis.

Momentum Indicator - Technical analysis indicator for assessing future market trends on the basis of price and/or volume data, for example, MACD. Momentum refers to the speed of price movement or rate of price change. Momentum indicator as a term is used in two different ways in forex literature. Some literature considers momentum indicators to be lagging indicators such as MACD and moving averages, in contrast to leading indicators or oscillators. However, oscillator such as RSI and Stochastic are also regarded as momentum indicators in some other forex literature.

Morning Doji Star - A three-candle chart pattern for bullish reversal in candlestick charting. A morning doji star consists of a black (red or shaded) candle, a second doji candle that falls lower than the first one, and a third white (green or not shaded) candle that closes above the median of the first candle's body. See also evening doji star.

Morning Star - A three-candle chart pattern for bullish reversal in candlestick charting. An morning star consists of a black (red or shaded) candle, a second candle (the star) that has a shorter body but falls lower than the first one, and a third white (green or not shaded) candle that closes above the median of the first candle's body. See also evening star.

Moving Average - A technical analysis indicator for identifying trend in forex market. It is the mean of prices over a fixed period of time, for instance, the previous 10 trading days. Moving averages are usually classified by its calculation method into simple moving average, linearly weighted moving average, and exponentially smoothed moving average (EMA).

Moving Average Crossover - When a shorter-term moving average and a longer-term moving average cross each other. Moving average crossover are often considered as entry signals in technical analysis.

Oscillator - Technical indicator for identifying overbought or oversold conditions of price movement. For example: RSI, MACD, Stochastic.

Outside Day – A candlestick or bar that has a higher high and lower low than the previous one. It is the opposite of inside day.

Parabolic SAR - A technical analysis indicator for identifying price trend and exit points. A stop-and-reversal (SAR) line is shown on the price chart; when prices are above the SAR line, it is bullish; when prices are below the SAR line, it is bearish. Long positions are supposed to be closed when the price breaks below the SAR line, while short positions are supposed to be closed when the price breaks above the SAR line. The SAR line is also often used for the purpose of trailing stop in forex trading.

Pennant - A chart pattern of price consolidation in technical analysis. It looks like a pennant on the chart, with a vertical line representing the main trend and a small triangle at the top representing sideways price movement.

Piercing Line - A price chart pattern for bullish reversal during a downward trend in candlestick charting. A piercing line consists of a long black (red or shaded) candle, followed by a long white (green or not shaded) candle that opens blow the previous close but closes above the median of the previous candle's body.

Pivot Levels - High-probability price levels derived and assumed from technical analysis. There are different methods for calculating pivot points. A classical way for pre-determining the pivot point is to divide the sum of the high, low and close prices of the previous period by 3.

Point and Figure Chart - A charting method which uses prices to form patterns of movement while ignoring the time dimension. On the chart a price trend is depicted as a continued movement in one direction until a reversal occurs, with x or o in a box to indicate upward or downward movement respectively.

Rally – An upward price movement.

Range - The difference between the highest and the lowest prices of a currency pair during a given period in forex trading.

Reaction - A decline in the price of a currency pair after a rise in forex trading.

Resistance – Resistance is a term in technical analysis referring to a price level where new selling is expected to appear to balk the rising trend; if broken, the price tends to move up at a significant amount. See also support.

Retracement – A reversal within a major price trend of a currency pair in forex trading.

Reversal – Reversal refers to a change of direction in the price movement of a currency pair in forex trading.

Reverse Head and Shoulders - The upside-down chart formation of a head and shoulders top. Breaking of the neckline of a reverse head and shoulders normally indicates reversal of a current downtrend and thus a buying opportunity. It is also called a head and shoulders bottom, or inverse head and shoulders.

RSI (Relative Strength Index) - A technical analysis oscillator that measures the magnitude of upward price closes of a currency pair versus downward closes over a certain period on a scale of 0 to 100. A low RSI reading, usually below 30, indicates that a currency is oversold. Alternatively, a high RSI reading, usually above 70, indicates that a currency is overbought.

Shooting Star - A candlestick chart pattern that consists of a candle with a short body and a long upper shadow. It occurs during an up trend and serves as a bearish warning.

Simple Moving Average (SMA) - The equally-weighted mean price of a currency pair over a given period of time. For instance, the 10-day SMA of EUR/CAD is usually calculated by summing up each closing price of EUR/CAD during the 10 days, and then dividing the sum by 10. Simple moving average is a technical analysis indicator for identifying trend in the forex market.

Spinning Top - A one-candle chart pattern in candlestick charting. A spinning top is a candle with a short body, relatively long upper and lower shadows. A spinning top often indicates indecisiveness during sideway price movement.

Stars - A candlestick chart pattern that consists of a candle with a short body gapping away from the body of the previous candle. There are so-called morning star and evening star.

Stochastic - A technical analysis oscillator for identifying overbought or oversold conditions in price movement on a scale of 0 to 100. It is derived by comparing closing prices to the price range of a certain time frame. A Stochastic reading above 80 is generally regarded as oversold, while a reading lower than 20 is regarded as overbought.

Support – Support is a term in technical analysis referring to a price level where new buying is expected to appear to balk the falling trend. If the support is broken, the price tends to move down at a significant amount. See also Resistance.

Support Levels - A technique used in technical analysis that indicates a specific price at which a given exchange rate will automatically correct itself. Opposite of resistance.

Technical Analysis - An approach to forecast price movements through analyzing historical price patterns, volumes, rates of change, open interest and so on, while ignoring the underlying fundamental factors. See also fundamental analysis.

Timing Indicator - A technical analysis tool that helps determine times when a selected market may experience highs, lows or general trends. A timing tool does not indicate prices, momentum or magnitude.

Trend - The general direction, either upward or downward, of price movement in forex market.

Trendline - A line drawn in charting along the price lows (support) or highs (resistance) of a price chart to indicate the upward or downward direction of price movement.

Triangle – A chart pattern of price movement in technical analysis. It looks like a triangle, with price ranges gradually narrowing down.

Triple Bottom - A chart pattern in technical analysis describing the situation that the prices rise after falling three times to about the same level in a "W" shape. A triple bottom is normally considered a bullish reversal signal.

Triple Top - A chart pattern in technical analysis describing the situation that the prices fall after rising three times to about the same level in a "M" shape. A triple top is normally considered a bearish reversal signal.

Tweezers Bottoms and Tops - A candlestick chart pattern that consists of two candles with almost the same high and low prices.

Weighted Moving Average (WMA) - The mean of prices over a given period with greater weight given to the latest price. For example, with a 3-day WMA of EUR/NZD, today's price might be assigned a factor of 3, yesterday's price a factor of 2, and the day before yesterday's price a factor of 1. This type of weighted moving average is also known as linearly weighted moving average or simple weighted moving average.

Williams' Percent Range - A technical analysis indicator for detecting overbought or oversold conditions of price movement. A reading above 80% indicates an oversold market, while a reading below 20% indicates an overbought market.

WMA - Weighted moving average. The mean of prices over a given period with greater weight given to the latest price. For example, with a 3-day WMA of EUR/NZD, today's price might be assigned a factor of 3, yesterday's price a factor of 2, and the day before yesterday's price a factor of 1. This type of weighted moving average is also known as linearly weighted moving average or simple weighted moving average.