Forex Trading Glossary – P

Currenncy Trading Dictionary: Forex Trading Glossary – P

Par
The principal amount of an investment instrument (e.g. 100) or where price equals the original value.

Parabolic Stop
Wells Wilder introduced the Parabolic Indicator, whose shape resembles the curve of a parabolic arc. The Parabolic is useful as a trailing stop because it has an acceleration factor that, over time, moves it closer to prices.

Parameter
A variable setting for an indicator, such as the lookback period for a moving average, or a rule for a system.

Peak
A price high on a currency bar chart.

Penetration of a Trendline
When a currency trades below an uptrend line or above a downtrend line.

Pennant
A pattern formed during a short consolidation in price movement that is contained by two parallel lines and thus looks similar to a triangular flag on a flagpole. Additionally, the price movements before and after the pennant are generally equal in length.

Percentage Retracements
Price corrections often retrace a prior move by a specific percentage, and then resume moving in the original direction of the trend. Charles Dow noticed, as have traders since, that prices often retrace half of a prior move, before continuing in the same direction. In addition to 50% retracement percentage, Dow used one-third and two-thirds retracement levels. Percentage retracements are calculated by taking the distance between a significant price high and low, and multiplying by the selected percentages. Subtract those amounts from the price high to project retracements within an uptrend. Add those amounts to a price low to identify potential retracements within a downtrend.

Piercing Line and Dark Cloud
(Candlestick Reversal Pattern)

The Piercing Line is a bullish reversal in a downtrend. During this trend a long black day develops following which price opens below the low of the black day and rallies to form a long white day. The close of the white day will be below the close of the black day but above the mid point.
The pattern suggests that the underlying bearishness may be overdone and a further move higher to breach the high of the white day will confirm further gains.
A Dark Cloud is the opposite of the Piercing Line. During an uptrend a long white day develops. The following day’s open will be above the high of the white day and price then declines in a long black day to close above the white day’s close but below the mid price.
The pattern suggests that the underlying bullishness may be overdone and a further move lower to breach the low of the black day will confirm further losses.

Pip (Point)
The smallest incremental value by which an exchange rate move is measured in Forex markets. For most currencies a Pip is one 10,000th of an exchange rate, 0.0001. Noted exceptions: Dollar-Yen and Euro-Yen, where a Pip is valued at one 100th or 0.01 of an exchange rate.

Pivot Levels
Pivot levels are created when price fails in the same area on several occasions. Once this level is breached it is common for price to come back and test the same price area, which then reverses its role. i.e. Support becomes resistance and resistance becomes support.

Point (Pip)
The smallest incremental value by which an exchange rate move is measured in Forex markets. For most currencies a Point is one 10,000th of an exchange rate, 0.0001. Noted exceptions of lower valued currencies: Dollar-Yen and Euro-Yen, where a Point is valued at one 100th or 0.01 of an exchange rate.

Point & Figure Charts
The Point and Figure (PF) charting method is a technique that has been used for many years in analyzing the variations in prices of stocks and commodities. The principal advantage of a PF chart is that it is much easier to read and interpret than other types of charts. Two basic symbols are used:

X Denotes the continuance of an increase in price and is always “stacked” in the vertical direction.

O Denotes the continuance of a decrease in price and is always “stacked” in the vertical direction.

While prices are rising, X’s are used. When falling, O’s are used. They are always plotted on rectangular grid graph paper such that columns of X’s and O’s alternate. A Point and Figure chart is characterized by the specification of two parameters: box size and reversal number. The box size dictates the price range associated with a particular box (cubical area within the grid), while the reversal number specifies the conditions which terminate a column of X’s and begin a column of O’s and vice-versa.

Position
The outstanding contracts that a trader is holding in his/her account.

Position Limits
Determining position size, maximum dollar loss per trade, number of contracts being traded and number of points per stop loss.

Positive Carry
A market position held overnight where the currency owned pays a higher interest rate than the one that it is priced against.

Pound
A market term for the Great Britain Pound.

Price Breakout
Price action that breaks or moves beyond a trendline or consolidation pattern, indicating an increase in momentum or a possible change in direction of prices.

Price Chart
Composed of historical and current prices. Used for the purpose of forecasting the direction of currency prices.

Pricing Currency (Quote Currency)
The second currency in a currency pair. Used to price the first or base currency.

Price Filters
Used to identify valid trendline penetrations and to eliminate false signals, known as “whipsaws”. Price filters require that prices break through a trendline by some predetermined price increment in order to signal a valid trend reversal.

Price Retracement
A price move that runs counter to the direction of a trend.

Profit Exit
An exit order that reduces or closes a position once an initial profit target is met.

Pyramid
To increase the size of a position as the market moves in a profitable direction.

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