Forex Trading Glossary I-K

Currency Trading Dictionary: Forex Trading Glossary I-K

Importers/Exporters
Produce a regular flow of trading volume in the FX market.

Impulse Wave
(Elliott Wave)

Impulse waves are those that define the main direction of the trending move. They are labeled as waves: 1, 3 and 5. They are comprised of five waves of lesser degree.

Independent Traders
They speculate in the FX markets to make money. With the growth of the Internet and lower trading costs, their numbers are increasing.

Indicators
Indicators are calculated by using mathematical algorithms and are used to represent different characteristics such as overbought/oversold, trending or underlying price direction.

Inflation
Rate at which the prices of goods and services are increasing.

Initial Margin
The amount of money required by a brokerage firm for a trader to execute online currency trades.

Inside Bars and Outside Bars

Inside bars and outside bars are single bar patterns that are often identified as having important qualities and break of the bar’s extremes imply a continuation of the underlying direction.
An “Inside Bar” occurs when the current bars high and low are within the range of the previous bar. This is often interpreted as market price pausing and being uncertain of the underlying direction of the market.
An “Outside Bar” occurs when the current bars high and low exceed the extremes of the previous bar. This is often interpreted as the market having two conflicting views, the market has both buyers and sellers entering the market and thus break of the extremes (high or low) may provoke a further move in one direction.
Often, market players will look at the underlying volume to provide additional evidence of a potential move.

Interbank Market
The market for foreign exchange trading conducted by banks throughout the world, by phone or electronic network.

Interbank Rates
Forex prices quoted by the Interbank Market. Online FX trading now makes Interbank currency prices available to the independent trader.

Interest Differential
Each currency carries an interest rate. Depending on the difference between what interest rates are in one country compared to another (the so-called interest differential), traders can either earn interest on their trading positions over time or they will have to pay out interest.

Interest Rate
The amount of money paid on a bank deposit, expressed as an annual percentage.

Intermarket Analysis
This form of analysis was popularized in separate works by Martin Pring and John Murphy. Comparing the price action or trend of one market to the trend or price movement of another market to anticipate the impact one market may have on another. For example, following the trend of interest rates relative to the trend of the stock market.

Intermediate-term Trend
Represents corrections in a long-term trend.

Intrinsic Value
The difference between the price of the underlying instrument and the strike price of an option.

Inverted Hammer and Shooting Star
(Candlestick Reversal Pattern)

The Inverted Hammer develops in a downtrend and after a long black day a new low is formed with the body at the lower end of the range. The upper shadow is normally twice the size of the body, or slightly less, and there is only a small lower shadow.

After the long black day, the price opens below the close of the previous day. Price then rallies but remains below the previous day’s close. This obviously displays the desire to sell rallies, to maintain the downtrend. On the next trading day, if the price opens above the body of the Inverted Hammer, it implies short covering and further gains.

The Shooting Star develops in an uptrend and after a long white day price opens above the close, rallies to a new high but declines to leave a short body to the low of the day’s range. Normally the upper shadow is two or three times the size of the body and there is almost no upper shadow. An open on the following day below the short body would imply further losses.

Irregular Flat
(Elliott Wave)

Occasionally in a correction the end of wave B will penetrate the extreme of the end of the impulsive wave. Wave C will normally retrace to the extreme of wave A. Wave A will be comprised of three waves. Wave C will be comprised of five waves. These normally occur before an extended wave and will signal a significant trend. This is also called an expanded flat.

ISO Codes
Three-letter abbreviations assigned by the International Standards Organization to designate currencies traded in the FX markets. The first two letters generally are an abbreviation of the country name. The last letter in the code is usually the first letter of the country’s currency.

Forex Trading Glossary I-K

Key Reversal Bar

Essentially a Key Reversal Bar is an Outside Bar that has particular properties and most commonly occurs at the end of a trend. Before following this type of event it is important to analyse market conditions further to decide whether the Key Reversal Bar is valid.

Thus a Downward Key Reversal Bar will occur at the end of an uptrend and the close of the bar will be below the low of the previous bar. This is said to represent an initial follow through of the upward trend to new highs but then failure as the market declines to close below the previous day’s low.

Thus an Upward Key Reversal Bar will occur at the end of a downtrend and the close of the bar will be above the high of the previous bar. This is said to represent an initial follow through of the downward trend to new lows but then failure as the market rallies to close above the previous day’s high.

Kicking – Bullish and Bearish
(Candlestick Reversal Pattern)

The first day of this pattern is a Black/White Marubozu day. This is followed by a White/Black Marubozu day that gaps against the direction of the first day.
The dramatic reversal in price direction is a strong sign that the market is headed in the direction of the second day’s gap.
The significantly strong selling pressure of the first day implied by the Black Marubozu, (in a Bullish Kicking), is reversed the next day by the gap opening. This is most likely caused by an unexpected fundamental event.
The significantly strong buying pressure of the first day implied by the White Marubozu, (in a Bearish Kicking), is reversed the next day by the gap opening. This is most likely caused by an unexpected fundamental event.

Kiwi
A market term for the New Zealand Dollar.