Trading glossary and dictionary: 221 terms in plain language

A trading dictionary: BOS, CHoCH, FVG, order block, liquidity, imbalance and 215 more terms with short, clear definitions.

market-basics

Asset: what you trade: a currency, a metal, a stock, a cryptocurrency.
base currency Base currency: the first currency in a pair. In EUR/USD the base is the euro, and the price shows how many dollars one euro costs.
quote currency Quote currency: the second currency in a pair, the one the price is measured in.
currency pair Currency pair: two instruments traded against each other. Buying EUR/USD, you buy euros and sell dollars at the same time.
quote Quote: the current price of an instrument.
volatility Volatility: how far price swings over a period. High volatility means big moves in both directions.
gap Gap: a break between the close of one candle and the open of the next. On forex it usually appears after the weekend.
instrument Instrument: the specific thing being traded: EUR/USD, XAU/USD, BTC/USDT.
long, long position Long: buying in expectation of a rise.
short, short position Short: selling in expectation of a fall. You sell what you do not own and buy it back cheaper.
position Position: an open trade.
market maker Market maker: a large participant that provides liquidity: it is always ready to buy and to sell, earning the spread.
pip Pip: the minimum price step in a currency pair. For most pairs it is the fourth decimal place, for yen pairs the second.
point Point: the minimum step of a quote, usually ten times smaller than a pip.
tick Tick: a single change in price.
forex Forex: the over-the-counter currency exchange market.
contract for difference CFD: a derivative: you do not own the asset, you trade the difference between the entry and the exit price.
trading session Trading session: the active period of a particular region: Asia, London, New York. Activity drives volatility and the spread.
spot Spot: a trade with immediate delivery at the current price.

orders

bid Bid: the price you can sell at.
ask Ask: the price you can buy at. Always above the bid.
spread Spread: the difference between bid and ask. Your cost of entering a trade.
commission Commission: the fee a broker or exchange charges for execution, usually a percentage of the size.
swap Swap: the fee for carrying a position overnight. It can be negative or positive.
slippage Slippage: execution at a price different from the one requested. It happens more often on news and in thin liquidity.
market order Market order: executed immediately at the current price.
limit order Limit order: executed only when the stated price or better is reached. Used when you are waiting for price to come back into a zone.
stop order Stop order: turns into a market order once the stated price is reached.
stop-loss Stop loss: an exit level set in advance for a losing trade.
take-profit Take profit: a level set in advance for locking in profit.
trailing stop Trailing stop: a stop that follows price automatically as it moves your way.
breakeven Breakeven: moving the stop to the entry price, after which the trade can no longer end in a loss.
lot Lot: the standard unit of size. On forex a full lot is 100,000 units of the base currency.
Leverage Leverage: the ratio of position size to your own money. Leverage scales both profit and loss in proportion.
margin Margin: the part of your money locked up against an open position.
margin call Margin call: a notice that free funds are not enough to keep the positions open.
stop out Stop out: the forced closing of positions by the broker when margin runs short.
execution Execution: the process of turning your order into a trade.
requote Requote: the broker offering to fill the order at a new price when the old one has gone stale.

candle-chart

candle Candlestick: the element of the chart that shows four prices for a period: open, high, low, close.
candle body Body: the rectangle between the open and the close.
wick, shadow Wick: the thin lines above and below the body that show the high and the low of the period.
open Open: the first price of the period.
high High: the highest price of the period.
low Low: the lowest price of the period.
close Close: the last price of the period. Considered the most important of the four: breakouts are confirmed by the close.
ohlc OHLC: the set of four candle prices: Open, High, Low, Close.
timeframe Timeframe: the period one candle holds: M5 is five minutes, H1 an hour, D1 a day.
bar Bar: the same as a candle, drawn differently.
Heikin-Ashi Heikin Ashi: a candle type with smoothed values. It shows direction more clearly but hides the real prices.
Renko Renko: a chart where a new block appears only when price moves by a set amount, regardless of time.

Classic technical analysis

trend Trend: a steady directional move in price.
uptrend Uptrend: a sequence of higher highs and higher lows.
downtrend Downtrend: a sequence of lower highs and lower lows.
range, flat Range: movement inside a horizontal corridor with no clear direction.
swing Swing: a local extreme, the point where a move turns.
swing high Swing high: a high surrounded by lower highs.
swing low Swing low: a low surrounded by higher lows.
higher high HH: a high above the previous one.
higher low HL: a low above the previous one.
lower high LH: a high below the previous one.
lower low LL: a low below the previous one.
support Support: a level price has previously bounced up from.
resistance Resistance: a level price has previously bounced down from.
trendline Trendline: a straight line drawn through consecutive lows or highs.
channel Channel: two parallel lines that bound the move above and below.
Breakout Breakout: price leaving a level with a candle closing beyond it.
False breakout False breakout: price leaving a level and coming straight back. In Smart Money it is treated as a way of collecting liquidity.
Retest Retest: price returning to a broken level before the move continues.
round level Round number: a price with a round value, like 1.1000 or 100,000. Orders pile up around such levels.
Fibonacci Fibonacci: a set of levels built on the proportions of the number sequence. Used to find retracement zones.
retracement Retracement: a move against the main trend.
extension Extension: levels beyond the original move, used to set targets.
impulse Impulse: a fast directional move with large candles.
pullback Pullback: a corrective move inside the trend.
consolidation Consolidation: the range narrowing, building up before a move.
divergence Divergence: price and the indicator pointing in different directions.
hidden divergence Hidden divergence: a divergence where the indicator makes the new extreme and price does not. Treated as a continuation signal.

Candlestick patterns

Hammer Hammer: a candle with a small body at the top and a long lower wick. It shows that price was pushed down and bought back.
Inverted hammer Inverted hammer: a small body at the bottom, a long upper wick.
Hanging man Hanging man: shaped like a hammer, but at the top of an upward move.
Shooting star Shooting star: shaped like an inverted hammer, but at the top.
Engulfing Engulfing: a candle whose body completely covers the body of the previous, opposite-coloured one.
Doji Doji: a candle whose open and close almost coincide. It shows a balance of forces.
Marubozu Marubozu: a candle with no wicks or almost none, a move one way from open to close.
Harami Harami: a candle that fits entirely inside the body of the previous one.
pin bar Pin bar: a candle with a long wick and a small body, pointing to price being rejected.
Inside bar Inside bar: a candle whose high is below the previous high and whose low is above the previous low. The range compressing.
outside bar Outside bar: a candle that covers the previous one both above and below.
morning star Morning star: three candles: a fall, a pause, a rise.
evening star Evening star: the mirror combination at the top.
three white soldiers Three white soldiers: three rising candles in a row with successively higher closes.
three black crows Three black crows: the mirror combination downwards.
tweezers Tweezer: two neighbouring candles with identical extremes.

Chart patterns

Head and shoulders Head and shoulders: three peaks, the middle one above the outer two. One of the best-known patterns, and therefore one of the most predictable for anyone who knows where the stops of its traders sit.
double top Double top: two highs at the same level.
double bottom Double bottom: two lows at the same level.
Triple top Triple top: three highs at the same level.
triangle Triangle: converging support and resistance lines.
flag Flag: a short correction in a sloped channel after an impulse.
pennant Pennant: the same as a flag, but shaped like a triangle.
Wedge Wedge: converging lines, both pointing the same way.
Diamond Diamond: the range widening and then narrowing again.
cup and handle Cup and handle: a rounded bottom followed by a small correction.
Rectangle Rectangle: movement between two horizontal boundaries.

Indicators

indicator Indicator: a calculation based on price or volume, drawn on the chart.
oscillator Oscillator: an indicator that swings inside a fixed range.
moving average Moving average: the average price over N periods.
simple moving average SMA: the arithmetic mean of prices over the period.
exponential moving average EMA: an average that weights recent values more heavily.
relative strength index RSI: an oscillator from 0 to 100 showing the balance between the strength of rises and falls.
macd MACD: the moving average convergence divergence indicator.
stochastic Stochastic: an oscillator that compares the close with the range of the period.
average true range ATR: a measure of volatility. Used to size stops and to filter out noise.
Bollinger Bands Bollinger Bands: a channel around a moving average, several standard deviations wide.
volume Volume: the number of trades or contracts in a period.
tick volume Tick volume: the number of price changes in a period. On forex it stands in for real volume, which does not exist there.
overbought Overbought: an oscillator sitting in its upper zone. It does not mean a reversal by itself.
oversold Oversold: an oscillator sitting in its lower zone.
lag Lag: a property of every indicator: it is calculated from prices that have already happened and therefore always trails.

Wyckoff

Wyckoff Wyckoff: Richard Wyckoff, author of the method for analysing the behaviour of large capital, formulated in the 1930s. Most of the Smart Money vocabulary is a renaming of his concepts.
composite man Composite Man: a notional figure of the large participant whose behaviour explains the market’s moves.
accumulation Accumulation: the phase where a large participant builds a position inside a sideways range.
Distribution Distribution: the phase of unloading a position.
trading range Trading Range: the sideways area inside which building or unloading happens.
preliminary support PS: the first noticeable stop in a fall.
selling climax SC: a sharp drop at peak panic, after which building begins.
automatic rally AR: the bounce after the climax that sets the upper boundary of the range.
secondary test ST: another approach to the lower boundary to check how ready the sellers are.
spring Spring: a poke below the lower boundary of the range with a quick return inside. In Smart Money vocabulary — a poke down.
upthrust UT: a poke above the upper boundary with a return.
utad UTAD: the final poke upwards before the decline. A poke up.
sign of strength SOS: an impulsive move up with wide candles.
sign of weakness SOW: the mirror move downwards.
last point of support LPS: a higher low in phase D that holds. It comes before the sign of strength, not after it; there can be several in a row.
back-up to the edge BU: a pullback to the broken range boundary after the sign of strength. It checks whether former resistance has become support. Also marked as a last point of support.
last point of supply LPSY: the mirror of LPS in distribution: a lower high in phase D, a sluggish pullback up before the decline.
buying climax BC: a sharp rise at peak optimism.
preliminary supply PSY: the first noticeable resistance at the top.
Phases A–E: the stages of a range: the trend stopping, building, testing, breaking out, moving.
The law of supply and demand: price rises when demand exceeds supply, and the other way round.
The law of cause and effect: the size of the move is proportional to the size of the preparation inside the range.
The law of effort and result: a mismatch between volume and price movement points to a change of control.

Smart Money

smc SMC: the approach that treats price moves as the consequence of large capital acting.
market structure Market structure: the sequence of extremes that sets the direction.
break of structure BOS: price closing beyond the last structure point **in the direction of the trend**. It confirms continuation.
change of character CHoCH: the first close **against** the trend. It points to a possible reversal.
pob POB: the last extreme that did not exceed the previous one. An early sign that the character of the move is changing.
liquidity Liquidity: a cluster of pending orders and stops in a particular zone. The fuel for large capital to move.
equal highs EQH: two or more highs at the same level. Orders pile up under and above them.
equal lows EQL: the mirror construction.
liquidity sweep Liquidity sweep: price stepping beyond a cluster of orders and then coming back.
stop hunt Stop hunt: the same event, named from the point of view of whoever had their stops taken.
liquidity pool Liquidity pool: the zone where pending orders are most concentrated.
Inducement Inducement: a move that creates an obvious entry point for the crowd right before the main move goes the other way.
imbalance Imbalance: a stretch of chart price went through too quickly, without even trading.
fvg FVG: the gap between the wicks of the first and third candle in a triple. The formal expression of an imbalance.
Order block Order block: the last candle in the opposite direction before the impulse that broke structure.
Breaker block Breaker block: an order block that was broken and then approached by price from the other side. It works in the opposite direction.
Mitigation Mitigation: a zone being worked off: price came back into the order block and continued. A mitigated zone counts as used.
demand zone Demand zone: an area where buyers previously showed strength.
supply zone Supply zone: an area where the sellers showed strength.
zone of interest POI: an area marked up to look for an entry point.
premium Premium: the upper half of the range. The zone where selling is better.
discount Discount: the lower half of the range. The zone where buying is better.
equilibrium Equilibrium: the middle of the range, the 0.5 level.
The quartile grid: splitting a zone into quarters: 0, 0.25, 0.5, 0.75, 1. The boundaries serve as readiness levels, the middle part as the area to look for an entry.
range Range: the area between two boundaries inside which price moves with no clear direction.
Poke: stepping beyond a range boundary and returning inside. The same thing as Wyckoff’s spring and UTAD.
internal structure Internal structure: the lower-order structure inside a higher-order move.
multi-timeframe MTF: analysing one instrument on several timeframes at once.
smt-divergence SMT divergence: a mismatch in the behaviour of correlated instruments: one made a new extreme, the other did not.
killzone Killzone: a period of heightened activity inside a trading session.
displacement Displacement: a sharp impulsive move that leaves an imbalance and confirms a change of control.

risk

Risk per trade: the share of the account you are ready to risk in one trade. Set in advance and not changed along the way.
position size Position sizing: the size calculated so that the stop being hit costs a set percentage of the account.
risk unit R: the amount risked in one trade, taken as the unit of measure. Profit is best measured in R rather than in money.
risk-to-reward ratio R:R: the distance to the take divided by the distance to the stop.
win rate Win rate: the share of profitable trades. On its own it says nothing about the result without the R:R.
Expectancy Expectancy: the average result of one trade given the win rate and the average size of a win and a loss. The main measure of a strategy.
profit factor Profit factor: total profit divided by total loss.
Drawdown Drawdown: a fall in the account from a local high.
maximum drawdown Max drawdown: the largest such fall over the period.
equity curve Equity curve: the chart of the account over time. The main artefact a trader is judged by.
Risk of ruin Risk of ruin: the probability of losing the account given your risk settings and trade statistics.
losing streak Losing streak: several losing trades in a row. At any win rate below 100% such streaks are statistically inevitable.
correlation Correlation: how closely two instruments move together. Positions in strongly correlated instruments are effectively one position of a larger size.
backtest Backtest: testing a strategy on historical data.
forward test Forward test: testing on data that was not used while building the strategy.
overfitting Overfitting: tuning parameters to one particular history. Such a strategy looks good on the past and stops working afterwards.
look-ahead bias Look-ahead bias: a testing error where information unavailable at the moment of the decision is used.
sample size Sample size: the number of trades a strategy is judged on. A small sample cannot separate skill from chance.

Psychology

Tilt Tilt: the state where decisions come from emotion rather than the plan. It is recognised by acceleration: the time between decisions shrinks, the position size grows.
fear of missing out FOMO: entering a trade because the move has already started without you.
Loss aversion Loss aversion: the trait where a loss feels roughly twice as strong as an equal gain. The reason behind taking profit quickly and holding losses for a long time.
Outcome bias Outcome bias: judging whether a decision was right by how it turned out. A profitable trade does not mean a correct decision.
Survivorship bias Survivorship bias: judging by the visible successful examples without counting the invisible unsuccessful ones.
confirmation bias Confirmation bias: looking for information that confirms a decision already made.
sunk cost Sunk cost: the tendency to keep going with a failing action because of the effort already put in.
martingale Martingale: increasing size after a loss in the hope of winning it back. Mathematically it leads to zero with any finite amount of money.
overtrading Overtrading: taking trades beyond the plan, without meeting the criteria.
Revenge trading Revenge trading: trying to win back what was lost immediately.
Discipline Discipline: following your own plan regardless of your current state. It shows up in numbers, not in intentions.
trading plan Trading plan: a set of rules written down in advance: entry conditions, risk per trade, minimum R:R, trade limit.
trading journal Trading journal: a record of every trade with the reason for entry and a review afterwards.
calibration Calibration: how well your stated confidence matches your real accuracy. A well-calibrated trader turns out to be right about 70% of the time when they say “70% sure”.

crypto

cryptocurrency Cryptocurrency: a digital asset accounted for on a distributed ledger.
Bitcoin BTC: the first and largest cryptocurrency by capitalisation.
Ethereum ETH: the second by capitalisation, a platform for smart contracts.
stablecoin Stablecoin: a cryptocurrency pegged to the value of an outside asset, most often the dollar.
usdt USDT: the most widespread stablecoin, pegged to the dollar.
exchange Exchange: a venue for trading cryptocurrencies.
spot trading Spot trading: buying and selling the asset itself, without leverage.
futures Futures: a contract to buy or sell an asset in the future at an agreed price.
perpetual contract Perpetual: a future with no expiry date, the main instrument of leveraged crypto trading.
funding rate Funding rate: a periodic payment between holders of long and short positions that keeps the contract price near spot.
liquidation Liquidation: the forced closing of a position when margin runs out.
order book Order book: the table of current buy and sell orders.
halving Halving: the scheduled halving of the bitcoin mining reward, roughly every four years.
altcoin Altcoin: any cryptocurrency other than bitcoin.
bitcoin dominance BTC dominance: bitcoin’s share of the total capitalisation of the crypto market.