Trading glossary
Thirty-nine essential trading terms, each explained in plain language with an example.
Chart basics
- Breakout
- A breakout is a decisive move of price beyond a defined support or resistance level or pattern boundary, often signalling the start of a new move in that direction.
- Candlestick
- A candlestick is a price-chart bar that shows the open, high, low and close of one period, with a body between open and close and wicks marking the extremes.
- False Breakout
- A false breakout is a move beyond support or resistance that fails to hold, with price quickly returning inside the prior range and trapping traders who entered on the break.
- Market Sentiment
- Market sentiment is the prevailing attitude of traders and investors toward an asset or market, from fearful and bearish to greedy and bullish, regardless of fundamentals.
- Resistance
- Resistance is a price level or zone where selling pressure has repeatedly been strong enough to stop a rise, making it a likely place for price to stall or reverse.
- Support
- Support is a price level or zone where buying interest has repeatedly been strong enough to stop a decline, making it a likely place for price to pause or bounce.
- Timeframe
- A timeframe is the length of time each candle or bar on a price chart represents, such as one minute, one hour, one day or one week.
- Trend
- A trend is the general direction in which price moves over time: an uptrend makes higher highs and higher lows, a downtrend makes lower highs and lower lows.
- Volatility
- Volatility is the degree to which an asset's price varies over a period; high volatility means large, fast price swings, low volatility means small, slow ones.
- Volume
- Volume is the total quantity of an asset traded during a given period, such as shares, contracts or coins, and shows how much participation sits behind a price move.
- Wick
- A wick is the thin line above or below a candlestick's body that marks the highest and lowest prices reached during the period, beyond the open and close.
Orders
- Limit Order
- A limit order is an instruction to buy or sell only at a specified price or better: a buy limit fills at or below the limit, a sell limit at or above it.
- Market Order
- A market order is an instruction to buy or sell immediately at the best price currently available, guaranteeing execution but not the exact fill price.
- Slippage
- Slippage is the difference between the expected price of a trade and the price at which it is actually executed, usually caused by fast markets or thin liquidity.
- Spread
- The spread is the difference between the bid (the highest price a buyer will pay) and the ask (the lowest price a seller will accept) for an asset at a given moment.
- Stop-Loss
- A stop-loss is an order that closes a position automatically once price reaches a preset level, limiting the loss on a trade to an amount chosen in advance.
- Take-Profit
- A take-profit is a limit order that closes a position automatically when price reaches a preset target, locking in the gain without needing to watch the market.
- Trailing Stop
- A trailing stop is a stop-loss that moves automatically in the direction of a profitable trade by a set distance, locking in gains while never moving against you.
Risk & money management
- Drawdown
- Drawdown is the decline in an account or strategy from its highest value to a subsequent low, usually expressed as a percentage of that peak.
- Expectancy
- Expectancy is the average profit or loss a trading strategy produces per trade, combining how often it wins with how large its average wins and losses are.
- Leverage
- Leverage is the use of borrowed funds to control a position larger than the capital you put up, magnifying both gains and losses relative to your account.
- Margin
- Margin is the collateral a trader must deposit with a broker or exchange to open and keep a leveraged position, expressed as a share of the position's total value.
- Margin Call
- A margin call is a broker's demand for more funds, or a warning before forced closure, when losses push account equity below the level required to keep leveraged positions open.
- Position Size
- Position size is the number of units (shares, lots, contracts or coins) in a trade, usually set so that hitting the stop-loss costs a fixed fraction of the account.
- Risk/Reward Ratio
- The risk/reward ratio compares the distance from entry to stop-loss with the distance from entry to target, showing how much a trade can gain for each unit of risk taken.
- Win Rate
- Win rate is the percentage of closed trades that end in profit, calculated as winning trades divided by total trades over a defined sample.
Indicators
- ATR (Average True Range)
- The Average True Range (ATR) is a volatility indicator that averages the true range of each bar, usually over 14 periods, to show how much an asset typically moves.
- Bollinger Bands
- Bollinger Bands are a volatility indicator made of a 20-period simple moving average with an upper and lower band set two standard deviations above and below it.
- EMA (Exponential Moving Average)
- An exponential moving average (EMA) is a moving average that gives progressively more weight to recent prices, so it reacts faster to new moves than a simple moving average.
- Fibonacci Retracement
- Fibonacci retracement is a tool that divides a prior price swing at ratios such as 38.2%, 50% and 61.8% to mark where a pullback may find support or resistance.
- MACD (Moving Average Convergence Divergence)
- MACD (Moving Average Convergence Divergence) is a trend-following momentum indicator equal to the 12-period EMA minus the 26-period EMA, plotted with a 9-period EMA signal line.
- Moving Average
- A moving average is the average closing price over a set number of recent periods, recalculated each period to smooth out noise and show the direction of the trend.
- RSI (Relative Strength Index)
- The Relative Strength Index (RSI) is a momentum oscillator, scaled from 0 to 100, that compares the size of recent gains with recent losses, usually over 14 periods.
- Stochastic Oscillator
- The stochastic oscillator is a momentum indicator, scaled from 0 to 100, that shows where the latest close sits within the high-low range of the last 14 periods.
- VWAP (Volume-Weighted Average Price)
- VWAP (Volume-Weighted Average Price) is the average price an asset has traded at during a session, weighted by volume, and it resets at the start of each new session.
Forex
- Lot
- A lot is a standardised trade size in forex, where one standard lot equals 100,000 units of the base currency, a mini lot 10,000, and a micro lot 1,000.
- Pip
- A pip (percentage in point) is the standard unit of price movement in forex, equal to 0.0001 for most currency pairs and 0.01 for pairs quoted in Japanese yen.
Crypto
- BTC Dominance
- BTC dominance is Bitcoin's market capitalisation divided by the total market capitalisation of all cryptocurrencies, expressed as a percentage.
- Funding Rate
- The funding rate is a periodic payment exchanged between long and short traders on perpetual futures, designed to keep the contract's price close to the underlying spot price.
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