Trading Glossary
219 trading terms explained in plain English, each on a page of its own.219 trading terms explained in plain English, from your first candlestick to Smart Money Concepts. Every term has its own page with how traders use it, what to watch for and the terms it connects to.
219
terms explained
13
topics
37
with a chart or figure
197
taught in an Academy lesson
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A
4 terms
- Asian rangeThe high and low of the quiet Asian session; London often sweeps one side of it before the real move.
- AskThe lowest price a seller will accept right now. You buy at the ask.
- Asset classA group of similar assets, such as stocks, indices, forex, commodities and crypto.
- ATRWilder's measure of volatility: how far price typically moves per candle, including gaps. No direction.
B
13 terms
- BacktestingApplying exact rules to past data, trade by trade, to see whether an idea has an edge.
- Balanced price rangeBPRThe overlap of a bullish and a bearish fair value gap, where price moved fast both ways.
- Bank NiftyAn NSE index of India's largest and most traded bank stocks, long a favourite of derivatives traders.
- BiasYour working assumption of direction, usually from the higher timeframe; you trade with it and update it when structure says so.
- BidThe highest price a buyer is willing to pay right now. You sell at the bid.
- Bollinger BandsBBA 20-period SMA with bands two standard deviations above and below; narrow bands (a squeeze) often precede big moves.
- Break of structureBOSA close beyond the last swing point in the direction of the trend, confirming the trend continues.
- Breaker blockAn order block that failed after a liquidity sweep and flipped: a broken bearish block becomes bullish support.
- Breakeven stopMoving your stop to your entry once a trade is in profit, so being stopped out costs about nothing instead of a full loss.
- Breakeven win rateThe win rate at which a given reward to risk neither makes nor loses money: 1 ÷ (1 + R:R).
- BreakoutPrice closing beyond a level or pattern, ideally on strong volume, and staying there.
- BrokerThe company that gives you access to markets and sends your orders on for execution.
- Buy-side liquidityBSLBuy orders resting above highs: short sellers' stop-losses and breakout traders' buy stops.
C
17 terms
- CandlestickA chart bar showing the open, high, low and close of a period, with a coloured body between open and close.
- CE and PEThe labels for call options (CE) and put options (PE) on Indian exchanges; the E stands for European.
- Central bankThe institution that sets a country's interest rates: the Fed, ECB, Bank of England, Bank of Japan and others.
- CFDA contract with your broker that pays the change in an asset's price; you never own the asset.
- Change of characterThe first close against the trend through its last protected swing, an early sign the trend may be turning.
- Circuit limitThe most a share or an index is allowed to move in one day before trading in it is restricted or halted.
- CommissionThe fee your broker charges per trade, contract or share.
- CommodityA raw material such as gold, oil, silver or wheat, usually traded through futures or CFDs.
- ConfirmationWaiting for extra evidence, like a close beyond a level, before acting; fewer false signals but a later entry.
- Confirmation biasNoticing only the evidence that agrees with the trade you already want to take.
- ConfluenceSeveral independent reasons pointing to the same price and direction; it raises the odds, never to certainty.
- ConsensusEconomists' expected value for a release; markets react to the surprise between actual and consensus.
- Consequent encroachmentCEThe 50% level of a fair value gap (or of a long wick); healthy gaps tend to hold it.
- CorrelationHow closely two markets move together; positions in correlated markets are really one bigger bet.
- CPIThe US inflation report, monthly at 8:30 am New York time; core CPI leaves out food and energy.
- CryptocurrencyDigital assets like Bitcoin and Ether that trade on crypto exchanges 24 hours a day, 7 days a week.
- Currency pairTwo currencies quoted against each other; the price shows how much of the second buys one of the first.
D
13 terms
- Daily loss limitA hard cap on how much you can lose in a day; hit it and you stop trading until tomorrow.
- Dealing rangeThe range between the swing low and swing high of the current leg, usually the one that broke structure.
- Demand zoneThe base price left in a hurry before a strong rally (a supply zone is the base before a strong drop).
- Demat accountThe account that holds your shares and other securities in electronic form; you need one to invest in the Indian stock market.
- DisplacementA fast, large-bodied move with little wick that shows intent, breaks structure and leaves fair value gaps.
- Disposition effectSelling winners too early and holding losers too long; it can turn a winning strategy into a losing one.
- DivergencePrice and an oscillator disagreeing: a higher high in price with a lower high in RSI, for example.
- DojiA candle whose open and close are almost equal: buyers and sellers fought to a draw.
- Dollar indexA measure of the US dollar against a basket of major currencies; it often moves opposite to EUR/USD and gold.
- Double topTwo failed attempts at the same high, completed by a close below the low between them (the neckline).
- Dow theoryCharles Dow's ideas, developed by Hamilton in 1922: trends defined by highs and lows, three trends at once, and confirmation.
- Draw on liquidityDOLThe pool of liquidity or imbalance price is most likely heading for next, which sets your bias.
- DrawdownA fall from your account's peak to a later low; recovering takes a bigger gain than the loss.
E
10 terms
- EarningsA company's quarterly results; the forecast for next quarter (guidance) often moves the stock most.
- Economic calendarA schedule of data releases and events with their time, expected impact, forecast, previous and actual values.
- EdgeA repeatable advantage that makes more than it loses over many trades, after costs.
- Engulfing patternA candle whose body completely covers the previous candle's opposite-coloured body.
- Equal highs and lowsTwo or more highs (or lows) at almost the same price: an obvious pool of stops that tends to get taken.
- ETFA fund that trades on an exchange like a stock and tracks an index, sector, commodity or theme.
- ExchangeAn organised marketplace where buy and sell orders meet in one central order book, under one set of rules.
- ExpectancyWhat a strategy makes per trade on average: win rate × average win − loss rate × average loss.
- Expiry dayThe day a futures or options contract stops trading and is settled; after it, the contract no longer exists.
- External range liquidityERLLiquidity beyond the range's swing highs and lows (ERL), as opposed to internal liquidity like fair value gaps inside it (IRL).
F
13 terms
- F&OFutures and options: the derivatives segment of the Indian stock market, where contracts on indices and stocks trade in fixed lots.
- Fair value gapFVGA three-candle gap where candle 1's wick and candle 3's wick don't overlap, left by a fast move.
- FakeoutA break of a level that fails and falls back inside, trapping breakout traders.
- Fibonacci extensionLevels beyond the old high (127.2%, 161.8%) used to estimate targets for the next leg.
- Fibonacci retracementLevels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a move, used to judge how deep a pullback might go.
- FII and DIIForeign and domestic institutional investors: the two groups of large funds whose daily buying and selling is published for Indian markets.
- FlagA small channel sloping against a sharp move (the pole), usually followed by continuation.
- FOMCThe Fed committee that sets US interest rates, eight times a year: decision at 2:00 pm, press conference at 2:30 pm.
- FOMOThe urge to jump into a move that is running away, usually with a poor entry and too much size.
- ForexTrading one currency against another, quoted in pairs like EUR/USD.
- Forward testingTrading a strategy in real time, first on demo and then with very small size, before scaling up.
- Funding rateRegular payments between longs and shorts on crypto perpetual futures that keep their price near spot.
- Futures contractA standardised agreement to buy or sell something at a set price on a future date, traded on an exchange.
G
3 terms
- GapEmpty space on a chart where price opened away from the previous close and nothing traded in between.
- GIFT NiftyNifty 50 futures priced in US dollars and traded at GIFT City in Gujarat for about 21 hours a day.
- Golden crossThe 50-day moving average crossing above the 200-day; the death cross is the cross below.
H
6 terms
- HalvingThe cut in new Bitcoin issued per block, every 210,000 blocks (roughly every four years).
- HammerA small body near the top with a long lower wick, after a decline: lower prices were rejected.
- Head and shouldersThree peaks with the middle one highest; a close through the neckline completes the reversal.
- HedgerA business that uses markets to reduce a risk it already has, rather than to bet on price.
- High-frequency tradingHFTComputer programs that send and cancel orders in microseconds to capture tiny price differences.
- Higher high and higher lowEach peak above the last and each dip above the last: the definition of an uptrend.
I
13 terms
- ICTThe trader whose teachings popularised fair value gaps, killzones, Power of 3, OTE and many other SMC terms.
- ImpulseA fast move in the direction of the trend, with big candles covering a lot of ground.
- IndexA single number that tracks a basket of stocks, like the S&P 500 or the Nasdaq-100.
- India VIXThe NSE's volatility index: how much the market expects the Nifty 50 to move over the next 30 days, worked out from Nifty option prices.
- Indian market hoursIndian stock exchanges trade from 9:15 am to 3:30 pm India time, Monday to Friday, with a pre-open session from 9:00 am.
- IndicatorA formula applied to past prices or volume; it describes what price did and always lags.
- InducementAn early, obvious level in front of the real point of interest that lures traders in too soon.
- Inside barA candle whose whole range sits inside the previous candle's range: a pause before a possible breakout.
- InstitutionA large professional participant, such as a pension fund, hedge fund or bank, that trades huge size.
- Interest rateThe price of money set by central banks; higher rates usually lift the currency and weigh on stocks and gold.
- Internal structureThe smaller zigzag inside one swing leg, as opposed to the major swing structure.
- Intraday and deliveryThe two ways to trade shares in India: intraday, where the position is closed the same day, and delivery, where the shares are paid for in full and kept.
- Inverse fair value gapIFVGA fair value gap that price closed straight through; it flips and acts in the opposite direction.
L
12 terms
- LeverageControlling a position larger than your cash; it magnifies gains and losses equally.
- Limit orderAn order to buy at a set price or lower, or sell at a set price or higher: it guarantees the price, not the fill.
- LiquidationYour broker or exchange force-closing a leveraged position because your margin ran out.
- LiquidityIn SMC, the pools of resting orders, especially stop-losses, that sit beyond obvious highs and lows.
- Liquidity sweepPrice wicking through an obvious high or low to take the stops, then closing back inside and reversing.
- Liquidity voidA stretch price crossed so fast and one-sidedly that little trading happened there; often revisited later.
- Log scaleA chart scale where equal heights mean equal percentage moves, not equal price amounts.
- LongBuying first to sell later at a higher price; you profit if price rises.
- Look-ahead biasUsing information you couldn't have had at the time, such as a candle that hadn't closed yet.
- Loss aversionFeeling a loss about twice as strongly as a gain of the same size (Kahneman and Tversky).
- LotA forex position size unit: standard 100,000, mini 10,000, micro 1,000 units.
- Lower high and lower lowEach rally peaking lower and each drop going further: the definition of a downtrend.
M
19 terms
- MACDThe gap between a 12 and a 26-period EMA, with a 9-period signal line and a histogram.
- Maker and takerMakers add liquidity with resting limit orders; takers remove it with market orders and often pay higher fees.
- MarginThe deposit needed to open and hold a leveraged position.
- Margin callA demand to add money because losses pushed your margin below the required level.
- Market makerA firm that quotes both a buy and a sell price all day and earns the spread between them.
- Market maker modelICT's big-picture cycle: consolidation, a stair-step move one way, a reversal at a key level, and a stair-step return.
- Market orderAn order to fill immediately at the best available price: it guarantees the fill, not the price.
- Market structure shiftMSSICT's stricter change of character: a break against the trend that comes with displacement, often right after a liquidity sweep.
- MarubozuA big-bodied candle with little or no wick: one side controlled the whole period.
- Mean thresholdThe 50% level of an order block's body.
- Measured moveA rough target that projects a pattern's height from its breakout point.
- Micro futuresFutures contracts one tenth the size of the standard ones, so smaller accounts can size positions properly.
- Midnight openThe price at 12:00 am New York time, which ICT treats as the start of the trading day.
- Mitigation blockLike a breaker, a failed order block that flips, but formed without a liquidity sweep.
- MomentumThe speed and strength of a price move; oscillators like RSI and MACD measure it.
- Morning starA three-candle bottoming pattern: a strong red candle, a small pause candle, then a strong green one. Evening star is the bearish mirror.
- Moving averageMAThe average closing price of the last N candles, recalculated each candle to smooth out noise.
- MSS and FVG entrySweep liquidity, displace into a structure shift, then enter on the retrace into the fair value gap it left.
- Multi-timeframe analysisUsing a higher timeframe for direction and a lower one for timing the entry.
N
4 terms
- NDOG and NWOGFutures gaps between the 5 pm close and the 6 pm reopen (NDOG), or between Friday's close and Sunday's open (NWOG).
- Nifty 50The benchmark index of India's National Stock Exchange, tracking 50 of the largest companies listed on it.
- Non-farm payrollsNFPThe US jobs report, usually the first Friday of the month at 8:30 am New York time.
- NSE and BSEIndia's two main stock exchanges: the National Stock Exchange, home of the Nifty 50, and the Bombay Stock Exchange, home of the Sensex.
O
11 terms
- OHLCOpen, high, low and close: the four prices every bar or candle summarises.
- Open interestOIThe number of futures or options contracts that are open and not yet closed or settled.
- Optimal trade entryOTEICT's entry zone between the 62% and 79% retracement of a leg, with 70.5% as the sweet spot.
- OptionA contract giving the right, but not the obligation, to buy (call) or sell (put) at a set price before a set date.
- Option chainA table of every available option on one asset for one expiry, with calls on one side, puts on the other and strike prices down the middle.
- Order blockOBThe last opposite-coloured candle before a displacement that breaks structure; price often reacts when it returns.
- Order bookThe live list of every waiting buy and sell order, with the size at each price.
- OTCTrading directly between parties through dealers, with no single central exchange.
- Overbought and oversoldOscillator readings at an extreme (RSI above 70 or below 30); they describe strength, not a turning point.
- OverfittingTweaking rules until they fit the past perfectly, so they fail on new data.
- OvertradingTaking too many trades, often low-quality ones; studies find the most active traders tend to earn the least.
P
12 terms
- Partial profitClosing part of a position at a first target and letting the rest run.
- Perpetual futuresCrypto futures with no expiry date, kept close to the spot price by regular funding payments.
- PipThe standard unit of forex movement: 0.0001 for most pairs, 0.01 for yen pairs.
- Point of interestPOIAny zone you might trade from: a fair value gap, order block, breaker and so on.
- Position sizingChoosing your size so that your stop distance costs exactly your planned risk.
- Power of 3ICT's idea that a candle forms in three phases: accumulation, manipulation (a false move) and distribution (the real move).
- Pre-market and after-hoursThinner stock trading sessions before 9:30 am and after 4:00 pm New York time, with wider spreads.
- Premium and discountAbove the 50% (equilibrium) of the dealing range is premium, below it is discount: buy in discount, sell in premium.
- Priced inWhen an expected event is already reflected in the price before it happens.
- Prop firmA company that lets you trade its capital after paying for and passing an evaluation with strict loss limits.
- PullbackA slower move against the trend between impulses; where many traders look for entries.
- Put-call ratioPCROpen interest (or volume) in put options divided by that in call options, used as a rough gauge of market mood.
R
15 terms
- R-multipleA trade's result measured in units of what you risked: −1R is a full loss, +2R is twice your risk.
- RangePrice bouncing between similar highs and lows with neither side in control.
- RBIThe Reserve Bank of India: the country's central bank, which sets the repo rate and manages the rupee.
- RegulatorA government body that licenses firms and polices markets, like the SEC and CFTC in the US or the FCA in the UK.
- Rejection blockThe long wick at a swing point, from the wick's extreme to the body; a propulsion block is an order block formed on top of an older one.
- ResistanceA price area where rising prices have stopped before, because sellers stepped in.
- Retail traderAn individual trading their own money through a broker or app.
- RetestPrice returning to a level it just broke, often to test it from the other side.
- Revenge tradingTrading to win back a loss right away, usually bigger and sloppier; small losses become big ones.
- Risk of ruinThe chance a strategy loses so much you can't or won't continue; driven mostly by risk per trade.
- Risk per tradeThe share of your account you can lose if a trade's stop is hit, usually 0.5% to 2%.
- Risk to rewardRRThe distance to your target compared with the distance to your stop, decided before entry.
- Role reversalBroken resistance becoming support (or broken support becoming resistance).
- Round numberPrices like 1.1000 or 100,000 where orders cluster, so they act like support and resistance.
- RSIWilder's momentum oscillator from 0 to 100 comparing recent gains with recent losses.
S
26 terms
- Safe havenAssets investors run to when scared, like gold, the yen and the Swiss franc (risk-off); the opposite mood is risk-on.
- Sample sizeHow many trades your conclusions rest on; under about 30 is mostly noise, aim for 50 to 100 or more.
- SEBIThe Securities and Exchange Board of India: the regulator of India's stock exchanges, brokers, mutual funds and listed companies.
- Sell-side liquiditySSLSell orders resting below lows: long traders' stop-losses and breakdown sell stops.
- SensexThe benchmark index of the Bombay Stock Exchange, tracking 30 large, well-established Indian companies.
- Setup and triggerThe setup is when conditions are worth trading; the trigger is the exact event that gets you in.
- Shooting starA small body near the bottom with a long upper wick, after a rally: higher prices were rejected.
- ShortSelling first to buy back later at a lower price; you profit if price falls.
- Short squeezeA sharp rally as short sellers rush to buy back at the same time, pushing price even higher.
- Silver BulletICT's one-hour model: an FVG entry toward the draw on liquidity inside 3-4 am, 10-11 am or 2-3 pm New York time.
- SlippageThe difference between the price you expected and the price you actually got.
- Smart Money ConceptsSMCA framework that reads charts through liquidity, imbalances and the footprints of large traders.
- SMT divergenceCorrelated markets disagreeing at a key level, for example NQ making a lower low while ES doesn't.
- Spinning topA small-bodied candle with wicks on both sides, showing indecision.
- SpreadThe gap between the ask and the bid; a cost you pay on every round trip.
- StochasticA momentum oscillator comparing the close with the recent high-low range.
- StockA small piece of ownership in a company, traded on an exchange.
- Stop huntA move that runs the stops clustered at an obvious level before price turns.
- Stop orderAn order that becomes a market order once price reaches your stop price.
- Stop-limit orderAn order that places a limit order, instead of a market order, once the stop price is hit.
- Stop-lossSLThe price where your trade idea is proven wrong and you get out, placed as an order before you need it.
- Strong low and weak highIn an uptrend, the low that launched a break of structure is strong (protected); the newest unbroken high is weak (a likely target).
- STTSecurities transaction tax: a tax the Indian government charges on every trade made on a stock exchange.
- SupportA price area where falling prices have stopped before, because buyers stepped in.
- SwapInterest charged or paid for holding a forex or CFD position past the daily rollover at 5 pm New York.
- Swing highA turning point whose high is above the highs on both sides (a swing low is the mirror).
T
14 terms
- Take-profitTPThe price where you plan to close a winning trade, ideally at the next pool of liquidity.
- TickThe smallest price step a futures contract can move, worth a fixed dollar amount.
- Tick volumeThe number of price changes in a candle, used as a stand-in for volume in spot forex.
- TiltA state where emotion has taken over your decisions; the only good trade on tilt is no trade.
- TimeframeHow much time each candle covers: 1 minute, 15 minutes, 1 hour, 1 day and so on.
- Trading journalA record of every trade, with context and behaviour, used to find what works and what you keep getting wrong.
- Trading planA short written document of what, when and how you trade, with your risk limits and routines.
- Trading sessionThe hours when a major financial centre is active; forex moves from Sydney to Tokyo to London to New York.
- Trading styleHow long you hold trades: scalping (minutes), day trading (flat by the close), swing (days to weeks), position (weeks to months).
- Trailing stopA stop that follows price in your favour, behind new swing points or by an ATR multiple.
- TrendlineA line joining swing lows in an uptrend (or highs in a downtrend); a parallel line makes a channel.
- Trendline liquidityThe row of stops that builds up just beyond a clean, many-touch trendline.
- TrianglePrice squeezing between two converging lines until it breaks out.
- Turtle soupFading a failed run above an obvious high (or below a low) once price fails back inside and shifts structure.
V
5 terms
- VolatilityHow much and how fast price moves; high volatility means bigger swings in both directions.
- VolumeHow much of an asset traded during each candle.
- Volume imbalanceVIA gap between two neighbouring candles' bodies while their wicks still overlap.
- Volume profileVolume shown by price instead of by time; the busiest price is the point of control (POC).
- VWAPThe volume-weighted average price of the session; above it leans bullish, below it bearish.
W
5 terms
- WedgeTwo converging lines sloping the same way; rising wedges often break down, falling wedges often break up.
- Weekly reviewA weekly look at your numbers, rule breaks and best and worst trades, ending in one change to make.
- WickThe thin line above or below a candle's body, reaching to its high or low.
- Win rateThe share of trades that end in profit; meaningless without the size of wins and losses.
- Wyckoff methodRichard Wyckoff's early 1900s model of accumulation and distribution ranges; his spring is SMC's liquidity sweep.