Semantics

Every industry and group has its own language and way of communicating. We need to be sure we’re speaking the same language, so we’ll take a few minutes now to look at some common words you’ll see often.

Key Terms

 

ET

Entrepreneurial Trader – someone who builds a trading account as he would run a business.

Go Short

To sell. Example: to short the Yen means to sell the Yen.

Go Long

To buy. Example: to long the Euro means to buy the Euro.

Market

A generic term that refers to (1) all participants that affect the market price; or (2) the market price.

Enter the Market

To initiate, or open a trade.

An Open Trade

A buy or sell trade that has not been closed.

Trade Position

A financial stake (an open trade) in the market. This also means the trader has a (long or short) bias of future market prices.

No Position

No financial stake (no open trade) in the market.

Lot

A specific amount of currency that’s being traded. A standard lot = 100,000 units. A mini lot = 10,000 units. A micro lot = 1,000 units.

Scaling In / Adding On

Gradually entering more lots into an existing trade position

Scaling Out / Lightening Up

Gradually exiting lots out of an existing trade position

Square Off

To close a trade.

In-The-Money Trade

An open trade with a paper gain.

Out-Of-The-Money Trade

An open trade with a paper loss.

Fundamental Analysis

The study of economic and political factors that affect market prices.

Technical Analysis

The study of technical indicators and chart-specific factors that affect market prices.

Rally

Market prices moving up.

Dip

Market prices moving down.

Bulls

Buyers in the market.

Bears

Sellers in the market.

Trending Market

A situation where market prices are generally moving up (or down).

Ranging Market

A situation where market prices are not trending.

Back-testing

Applying a trading system to historical prices, to see if it would have made money.

(In my opinion, back-testing is practically useless for retail traders because it’s easy to design a system that makes money based on price moves that have already happened.)

Forward-testing

Applying a trading system to ‘Live’ prices, to see if it makes money.

(For retail traders, this is the only way to truly test a trading methodology.)

The Fed

The U.S. Federal Reserve. (details)

ECB

European Central Bank. (details)

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