Strength indicators

Market strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest is the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume)

Volatility indicators

Volatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands)

Forex Value Dates

All Forex quotes are typically based on settlement business days after the transaction was executed (the one major exception being the USD/Canadian Dollar which settles after one business day).

Theoretically a currency trader will take physical delivery of the currency in two days; however, delivery is avoided by rolling the positions forward one day, usually referred to as Tomorrow Next Day (Tom Next) procedures. The newly opened position is assigned a new value date allowing the client to hold this position another day without taking delivery of the currency. The Tom Next rate is determined by the respective difference in interest rates between the two currencies held. If a trader is long a high interest currency and short a low interest currency he will earn interest for one day. If a trader is holding the foreign currency with the lower rate of interest he will pay interest. These payments are received during the establishment of the new opening rate, in the form of a slightly better or worse price after the roll (swap) has taken place.

During the roll procedure all open positions are closed at the current market rate, and any unrealized profits or losses are realized. This new rate is determined by the price the position was closed out at plus or minus the Tom Next rate. If a trader is flat e.g. long €2 million EUR/USD and short €2 million EUR/USD it is not necessary to roll positions.

Read and understand a Forex Quote

A Forex quote is always a two-sided quote with a ‘bid’ and ‘offer’. The ‘bid’ is the price at which you can sell the base currency (i.e. buy the second currency). The ‘offer’ is the price at which you can buy the base currency (i.e. sell the second currency).

As mentioned before, the first currency listed is the base currency. In the major currency pairs the

US dollar is traditionally treated as the base currency this includes USD/JPY, USD/CHF and USD/CAD. In this case $1 USD (the base currency) is quoted in terms of the second currency.

For example, a quote of USD/JPY = 112.25 means that one US dollar is equal to 112.25 Japanese Yen.