Learn forex, one concept at a time.
From your first quote to position sizing and a thoughtful review process.
Introduction to the Forex Market
Spot foreign exchange exchanges one currency for another. It operates through a network of participants rather than a single central order book. Quotes can differ between providers.
Understanding Candlestick Charts
A candle summarises four prices for a chosen interval. The body connects open and close; the wicks show high and low. The colour describes the direction during that interval.
Currency Pairs, Base Currency and Quote Currency
In GBP/USD, GBP is the base and USD is the quote. A price of 1.27000 means one pound is valued at 1.27 dollars. Buying the pair creates long base and short quote exposure.
Pips, Lots and Pip Value
A pip is commonly 0.0001 for most pairs and 0.01 for JPY-quoted pairs. An additional decimal is a fractional pip. Price display precision and pip size are separate concepts.
Forex Market Sessions and Session Overlaps
Sydney, Tokyo, London and New York are useful descriptions of regional activity. They are not centrally enforced opening bells. Activity depends on participants and provider availability.
Market, Limit and Stop Orders
A simulated buy fills at the ask; a sell fills at the bid. Adverse slippage may be added. A market order prioritises execution rather than a specified price.
Trends and Market Structure
Swing points describe local highs and lows relative to neighbouring candles. The definition should be consistent across a study to avoid changing the rules after seeing an outcome.
Support and Resistance
Support and resistance describe areas where price has previously changed direction or paused. Treat them as zones rather than exact barriers that must hold.
Technical Indicators
A simple average weights each selected close equally. An exponential average gives more weight to recent values. Both transform existing data and introduce lag.
Risk Management and Position Sizing
A hypothetical risk budget is account equity multiplied by a chosen percentage. It is a planning input, not a promise that losses cannot exceed it. Gaps and costs can change outcomes.
Spread, Leverage and Margin
The spread is ask minus bid. A new position starts with an unrealised spread cost when valued at its closing side. Wider spreads increase the distance needed to break even.
Fundamental Drivers and Economic Events
Interest-rate expectations can influence relative currency demand. Inflation data can alter those expectations, but the same release can have different effects in different contexts.
Psychology and Trading Discipline
Confirmation bias favours evidence that supports an existing belief. Outcome bias judges a decision only by its result. A journal can separate the planned process from the realised outcome.