Here is a list of five trading terms you should know before immersing yourself into the world of trading. Do you know what they mean?
Reversal (also known as trend reversal) is a point on the price chart that marks the end of one trend and the beginning of another. Reversal points are of great value to any trader and traders are looking for them when exploring trading opportunities. According to some, a beginning of a new trend could be considered a possibility. However, in order to trade them correctly traders should know the difference between a new trend and a retracement, that is a short-term deviation from the general trend.
Volatility is a measure of intensity of the price change. When the asset price changes rapidly and to a great extent, volatility is said to be high. When the market is flat and no substantial price movement is observed, volatility is said to be low. But isn’t the trend direction more important than volatility? There are several reasons to keep an eye on this metric. 1) Volatile markets, as well as periods of high volatility on otherwise calm markets, offer numerous trading opportunities — and traders don’t usually open deals when the market is flat. 2) Traders open or close positions based on the volatility of the assets they are trading with. When volatility is low, lots of traders prefer not to open new deals.
A trading strategy is something most traders claim they use, yet not all of them truly understand what it is. Put simply, a trading strategy is a set of entry and exit conditions used by a trader to eliminate randomness and emotional aspects in their trades. Market conditions, asset-specific conditions, price patterns, technical analysis readings and external events all can become a part of a trading strategy. A trading strategy is something a trader should develop on his own and constantly improve.
Risk management is a set of measures aimed at risk and loss management. All traders lose. How much and how often they lose, however, will depend on the risk management strategy they utilize. Conservative traders allocate no more than 2% of their entire trading capital to a single position. Risk-takers may go for 5% instead. But under no circumstances should a trader allocate his entire capital to a single deal. Remember that when there is no capital left, there is no more trading.
A multiplier (also known as leverage) is a tool that a trader can use to increase the potential upside of his trades at the expense of additional risks. It is widely used in the Forex market due to relatively low price dynamics. A multiplier is one of those tools you can call a double-edged sword, as it can deplete your account in no time if the market goes against you but also bring payouts if you predict the direction of the trend correctly. Note that it is only available for certain asset types.Trade now