— Glossary —

Plain-English definitions.

A working reference for 59 terms across 8 categories. Search by term, or filter by category.

59 terms

Market Basics 8 terms

Bull Market: A market characterized by rising prices and optimistic sentiment over an extended period. Traders are described as "bullish" when they expect prices to rise.
Bear Market: A market in sustained decline, typically defined as a drop of 20% or more from recent highs. Traders are "bearish" when they expect prices to fall.
Long: A position that profits when price goes up. To "go long" is to buy with the expectation of selling higher later.
Short: A position that profits when price goes down. Short sellers borrow an asset, sell it, and aim to buy it back cheaper.
Position: An open trade. The size and direction of a trader's exposure to a particular asset.
Liquidity: How easily an asset can be bought or sold without moving its price. High-liquidity markets have tight spreads and fast execution.
Volatility: The degree to which an asset's price fluctuates over time. High volatility means larger and faster price swings.
Spread: The difference between the bid (buy) price and the ask (sell) price. A tighter spread generally means a more liquid market.

Market Order: An order to buy or sell immediately at the best available price. Guarantees execution but not price.
Limit Order: An order to buy or sell at a specified price or better. Guarantees price but not execution.
Stop Order: An order that becomes a market order once a specific price is reached. Often used to enter trades on breakouts.
Stop-Loss: A predefined order to exit a losing trade at a set price. The single most important risk-management tool for most traders.
Take-Profit: A predefined order to exit a winning trade at a set price, locking in gains automatically.
Trailing Stop: A stop-loss that adjusts as price moves in your favor, locking in profit while letting winners run.

Candlestick: A visual representation of price action over a set time period, showing the open, high, low, and close.
Body: The thick part of a candlestick, representing the range between the open and the close.
Wick (Shadow): The thin lines extending above and below a candlestick's body, marking the high and low of the period.
Bullish Candle: A candle where the close is higher than the open, typically shown in green or white.
Bearish Candle: A candle where the close is lower than the open, typically shown in red or black.
Timeframe: The duration each candle represents — a 1-minute chart, an hourly chart, a daily chart, etc. Lower timeframes show finer detail; higher timeframes show broader context.
Volume: The number of shares or contracts traded in a given period. Often used to confirm the strength of a price move.

Doji: A candle where the open and close are nearly identical, forming a cross. Indicates indecision in the market.
Hammer: A candle with a small body near the top and a long lower wick, suggesting buyers stepped in at the lows. Often a bullish reversal signal after a downtrend.
Shooting Star: The inverse of a hammer — small body near the bottom, long upper wick. Often a bearish reversal signal after an uptrend.
Engulfing Pattern: A two-candle formation where the second candle's body completely covers the first. Bullish or bearish depending on direction.
Marubozu: A candle with little or no wick, indicating one side dominated the entire session.
Spinning Top: A small-bodied candle with longer wicks on both sides. Like a doji, it suggests indecision.

Support: A price level where buying pressure has historically been strong enough to stop a decline.
Resistance: A price level where selling pressure has historically been strong enough to stop an advance.
Trendline: A diagonal line drawn along successive highs (downtrend) or lows (uptrend) to visualize a directional move.
Breakout: When price moves decisively beyond a defined support, resistance, or pattern boundary.
Fakeout: A breakout that fails — price moves through a level briefly, then reverses, often trapping traders who entered on the break.
Consolidation: A period of sideways price action with no clear trend, typically representing a pause before the next directional move.
Reversal: A change in the prevailing direction of price.
Continuation: A pause in price action that resumes in the original direction, rather than reversing.
Higher High / Higher Low: The structural definition of an uptrend — each peak and each trough is higher than the last.
Lower High / Lower Low: The structural definition of a downtrend.

Moving Average (MA): The average price over a given number of periods, used to smooth out noise and identify trend direction.
Exponential Moving Average (EMA): A moving average that weights recent prices more heavily, making it more responsive to recent moves.
RSI (Relative Strength Index): A momentum oscillator measuring the speed of price changes, scaled 0–100. Readings above 70 are often considered overbought; below 30, oversold.
MACD (Moving Average Convergence Divergence): A trend-and-momentum indicator showing the relationship between two moving averages of price.
Bollinger Bands: A volatility indicator consisting of a moving average with bands plotted two standard deviations above and below it.
Volume Profile: A display of how much volume traded at each price level over a chosen period, revealing where interest concentrated.
Divergence: When price moves in one direction but an indicator moves in the opposite direction. Often a leading signal that the current move is weakening.

Risk/Reward Ratio: The relationship between how much you stand to lose and how much you stand to gain on a trade. A 1:3 ratio means risking $1 to make $3.
Position Sizing: Determining how much of a portfolio to risk on a single trade, usually expressed as a percentage of total capital.
Drawdown: The peak-to-trough decline of an account or strategy. Important for understanding worst-case scenarios.
Leverage: Borrowed capital used to increase position size. Magnifies both gains and losses.
Margin: The collateral required to open and maintain a leveraged position.
Margin Call: A demand from a broker for additional funds to maintain a losing leveraged position. Failure to meet it typically results in forced liquidation.
Win Rate: The percentage of trades that are profitable. A high win rate is not the same as a profitable strategy if losses are larger than gains.
Expectancy: The average amount a strategy can be expected to win or lose per trade, accounting for both win rate and average win/loss size.

FOMO (Fear of Missing Out): The urge to enter a trade after a move has already begun, often resulting in poor entries.
Revenge Trading: Taking impulsive trades to recover losses, usually compounding them. One of the most common destroyers of trading accounts.
Overtrading: Taking more trades than a strategy or market conditions warrant, often driven by boredom or pressure to perform.
Confirmation Bias: Seeking out information that supports an existing position while ignoring evidence against it.
Recency Bias: Overweighting recent events when forming expectations about the future.
Loss Aversion: The well-documented tendency to feel losses more strongly than equivalent gains, often causing traders to hold losers too long and cut winners too early.
Edge: A demonstrable, repeatable advantage that produces profit over a large enough sample of trades. Without an edge, trading is gambling.