Market Concepts & Theory

Information asymmetry occurs when one market participant has better or faster information than others, gaining an edge in execution.

A black swan event is a rare, unpredictable shock that creates extreme volatility and can overwhelm standard risk controls.

The business cycle describes recurring expansions and contractions in economic activity that drive currency performance.

Contagion occurs when financial stress spreads from one market or region to others, often driving investors into safe havens.

Currency correlation measures how pairs move relative to each other, with values near +1 moving together and -1 moving opposite. Traders use correlation to manage exposure, hedge positions, and confirm market themes.

Curve fitting is over-optimizing a trading strategy to fit historical data, often producing poor real-world performance.

A market cycle moves through accumulation, markup, distribution, and markdown phases, guiding strategy selection.

Elliott Wave Theory views price action as repeating waves driven by crowd psychology, combining impulsive and corrective moves.

The J-curve explains how a falling currency can initially worsen a trade deficit before improving exports as volumes adjust over time.

Market efficiency describes how quickly forex prices incorporate new information, with liquid currency pairs often reflecting data within seconds yet still leaving micro-inefficiencies around sessions, liquidity gaps, and behavioral biases for skilled traders to exploit.

Market microstructure studies how trading mechanisms and order flow shape price discovery, spreads, and execution quality.

Probability quantifies outcome likelihoods. Successful traders anchor decisions in probabilities, not certainties, to maintain positive expectancy.

PPP compares currencies based on the cost of identical goods, offering a long-term valuation benchmark for exchange rates.

Reflexivity describes feedback loops where market participants’ perceptions influence fundamentals, reinforcing trends until sentiment shifts.

Seasonality refers to recurring calendar-driven patterns in currency behavior, such as month-end flows or commodity-linked cycles.

Top-down analysis starts with macro trends, while bottom-up analysis begins with micro data. Traders often blend both for holistic decision-making.