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Knowing and understanding basic trading terms can help to build the confidence of a trader. This confidence is exuded not only in trading activities but also in financial discussions with other traders. Comprehending the basic terminology also aids the learning process itself, since knowledge is cumulative, building on previous concepts mastered. Try adding these essential terms to your financial vocabulary.
Going Long
When entering a simple trade, a trader will typically take one of two positions. One possibility is buying a particular currency. When this position is assumed, the trader is said to be going long. Therefore, going long is equivalent to buying the currency. Incidentally, the ask price would be used for this purpose.
Going Short
The second possibility for the trader is selling the currency, even where it is not presently owned. This is called, going short. As buying equals long, selling equals short. The bid price is used by the trader for the short sale. It is a general rule of profitable trading to buy low and sell high. If a trader believes that the price of a currency will be going up, he will buy it. If he thinks it is going down, he will sell.
Indicator
One method of trading involves a process called technical analysis. This approach, as distinguished from fundamental analysis, utilizes tools called indicators. Examples of indicators would be the Moving Average Convergence Divergence (MACD), Exponential Moving Average (EMA) and the Relative Strength Index (RSI). By no means is this an exhaustive list, as there are many other types. By reading these indicators, a technical trader seeks to determine the direction in which the price of a particular currency is headed and trades accordingly.
Support Level
There is an ever-changing price range in which a particular currency may float over a given period of time. The bottom level of that range is known as the support level. From the perspective of a technical analyst, it is largely expected that the price will retrace when the support level is reached.
Resistance Level
Indicators are used to determine both the bottom and top of the range in which a currency may move in the future. The top side of the range in which a currency may move is known as the resistance level. As with the support level, it is expected that the price will retrace when it reaches the resistance level.