57 terms
Trading Glossary
The terms used across this site and across the market, defined without circular jargon. Where a term has a full guide, it is linked.
A
- Ask
- The lowest price a seller is currently willing to accept. When you buy at market, you pay the ask.
- ATR (Average True Range)
- A measure of how far a market typically moves in a period, including gaps. Commonly used to set stop distances that adapt to volatility instead of using a fixed percentage.
- Averaging down
- Buying more of a position after the price has fallen, lowering your average cost. It reduces your break-even price and increases your exposure to something already moving against you. Read the full guide →
B
- Bear market
- A sustained decline in prices, conventionally a fall of 20% or more from a recent peak.
- Bid
- The highest price a buyer is currently willing to pay. When you sell at market, you receive the bid.
- Bid-ask spread
- The gap between the bid and the ask. It is a real cost of trading: you cross it on entry and again on exit.
- Body (real body)
- The thick part of a candlestick, spanning the open and the close. It shows where the session started and finished, ignoring the extremes. Read the full guide →
- Breakout
- A move beyond an established level of support or resistance, often on increased volume. Breakouts that fail and reverse quickly are called false breakouts.
- Bull market
- A sustained rise in prices, conventionally a gain of 20% or more from a recent low.
C
- CAGR
- Compound annual growth rate: the constant yearly rate that would produce a given result over a period. It smooths away the volatility that occurred along the way. Read the full guide →
- Candlestick
- A chart element showing the open, high, low and close for a period. The body spans open to close; the shadows reach to the extremes. Read the full guide →
- Confirmation
- A subsequent price action that supports a pattern before you act on it, typically a close beyond the pattern high or low. It lowers your entry quality and raises your win rate.
- Consolidation
- A period where price moves sideways in a range rather than trending, usually with declining volume, as the market pauses.
- Correlation
- The degree to which two instruments move together. Positions in correlated instruments are not independent bets, and in a selloff correlations tend to converge towards one. Read the full guide →
- Cost basis
- The total amount paid for a position divided by the shares held. The figure used to calculate profit, loss and tax. Read the full guide →
D
- Dead cat bounce
- A short-lived rally within a continuing downtrend, typically driven by short covering rather than genuine demand.
- Doji
- A candle whose open and close are almost identical, leaving essentially no body. It signals that buyers and sellers finished the session level. Read the full guide →
- Drawdown
- The decline from a peak in account equity to a subsequent trough, expressed as a percentage. The gain needed to recover rises faster than the drawdown itself. Read the full guide →
E
- Engulfing pattern
- A two-candle reversal where the second candle body completely covers the first. Bullish after a decline, bearish after a rally. Read the full guide →
- Expectancy
- The average result per trade over a large sample, usually expressed in R. Calculated as (win rate times average win) minus (loss rate times average loss). Read the full guide →
F
- Fill
- The execution of an order. The fill price can differ from the price you expected, especially in fast or thin markets.
- Float
- The number of shares available for public trading, excluding restricted and closely held shares. Low-float stocks tend to move more violently.
G
- Gap
- A price jump between one period close and the next open, leaving no trading in between. Gaps can carry price straight through a stop order.
H
- Hammer
- A single-candle bullish reversal with a small body at the top of the range and a long lower shadow, appearing after a decline. Read the full guide →
- Hanging man
- The same shape as a hammer but appearing after an uptrend, where it is read as a bearish warning instead. Read the full guide →
L
- Leverage
- Using borrowed capital to increase position size. It multiplies both gains and losses, and it shortens the time available to be wrong.
- Limit order
- An order to buy or sell at a specified price or better. It controls price but does not guarantee execution.
- Liquidity
- How easily an instrument can be traded without moving its price. Thin liquidity means wider spreads and worse fills, particularly on exit.
- Long
- A position that profits when price rises. Buying first and selling later.
M
- Margin
- Borrowed funds from a broker used to increase buying power. A margin call requires you to add funds or have positions closed for you.
- Market order
- An order to execute immediately at the best available price. It guarantees execution but not price.
- Moving average
- The average closing price over a set number of periods, updated as new data arrives. Used to smooth price and identify trend direction.
O
- Open interest
- The number of derivative contracts currently outstanding. Rising open interest alongside a price move suggests new money is entering.
- Overbought
- A condition where an indicator suggests price has risen quickly relative to its recent range. It is not a sell signal; strong trends stay overbought for extended periods.
- Oversold
- The mirror of overbought. It is not a buy signal; markets in decline can stay oversold for a long time.
P
- Pip
- The smallest standard price increment in a currency pair, usually the fourth decimal place. Used to measure forex moves and position risk.
- Portfolio heat
- The sum of the risk across all open positions. Six positions each risking 1% put 6% of the account at stake, not 1%. Read the full guide →
- Position sizing
- Deciding how many shares or contracts to trade so that a stop-out costs a pre-decided amount. The variable with the largest effect on long-term results. Read the full guide →
- Pullback
- A temporary move against the prevailing trend. Often used as an entry point in the trend direction.
R
- R multiple
- A trade result expressed as a multiple of the amount risked. Making twice what you risked is +2R, and a planned full loss is -1R. Read the full guide →
- Resistance
- A price area where selling has previously overwhelmed buying, capping advances. It often becomes support once decisively broken.
- Reward-to-risk ratio
- The distance to your target divided by the distance to your stop. It determines the win rate you need simply to break even. Read the full guide →
- RSI
- Relative Strength Index: a momentum oscillator from 0 to 100 measuring the speed and size of recent price changes.
S
- Shadow (wick)
- The thin lines above and below a candlestick body, marking the high and low of the period. Long shadows indicate rejection of those prices.
- Shooting star
- A single-candle bearish reversal with a small body at the bottom of the range and a long upper shadow, appearing after a rally. Read the full guide →
- Short
- A position that profits when price falls. Selling borrowed shares first and buying them back later. Losses are theoretically unlimited.
- Short squeeze
- A rapid price rise forcing short sellers to buy back, whose buying pushes price higher still, forcing more covering.
- Slippage
- The difference between the price you expected and the price you got. It grows in fast markets and thin instruments.
- Stop loss
- An order to exit a position at a predetermined price, limiting the loss. It is an order rather than a guarantee; gaps can fill you well beyond it. Read the full guide →
- Support
- A price area where buying has previously overwhelmed selling, halting declines. It often becomes resistance once decisively broken.
- Swing trading
- Holding positions for several days to several weeks to capture a single move, rather than trading intraday or investing long term.
T
- Trend
- A sustained directional bias in price. An uptrend makes higher highs and higher lows; a downtrend makes lower highs and lower lows.
V
- Volatility
- The size and speed of price movement. Higher volatility requires wider stops, which in turn requires smaller positions for the same risk.
- Volume
- The number of shares or contracts traded in a period. Rising volume on a move suggests genuine participation behind it.
- VWAP
- Volume-weighted average price: the average price weighted by volume traded at each level. Widely used by institutions as an execution benchmark.
W
- Whipsaw
- A sharp move in one direction that immediately reverses, stopping out traders on both sides. Common in choppy, range-bound markets.
- Win rate
- The percentage of trades that are profitable. It is meaningless without the reward-to-risk ratio alongside it. Read the full guide →