Trading Glossary
100+ essential trading terms explained with clear definitions, real examples, and related concepts.
Technical Analysis
Average True Range (ATR)
Average True Range is a volatility indicator that measures the average range between the high and low price over a set p...
Bollinger Bands
Bollinger Bands are a volatility indicator consisting of a middle band (usually a 20-period SMA) with an upper and lower...
Breakout
A breakout occurs when the price moves above a resistance level or below a support level with increased volume, signalin...
Candlestick Chart
A candlestick chart is a price chart that displays the open, high, low, and close prices for each time period using rect...
Chart Patterns
Chart patterns are recognizable formations in price charts that traders use to identify potential trend continuations or...
Cup and Handle Pattern
The cup and handle is a bullish continuation pattern resembling a teacup, where a rounded bottom (cup) is followed by a ...
Death Cross
A death cross is a bearish chart pattern that occurs when a shorter-term moving average (typically the 50-day) crosses b...
Divergence
Divergence occurs when a technical indicator moves in the opposite direction of the price, signaling that the current tr...
Doji Candlestick
A doji is a candlestick pattern where the opening and closing prices are nearly identical, forming a cross or plus sign ...
Double Bottom
A double bottom is a bullish reversal pattern where the price drops to approximately the same low twice with a moderate ...
Double Top
A double top is a bearish reversal pattern where the price reaches approximately the same high twice with a moderate dec...
Exponential Moving Average (EMA)
The Exponential Moving Average is a type of moving average that gives more weight to recent prices, making it more respo...
False Breakout
A false breakout occurs when the price moves above resistance or below support but quickly reverses back into the range,...
Fibonacci Retracement
Fibonacci retracement is a technical analysis tool using horizontal lines at key Fibonacci ratios (23.6%, 38.2%, 50%, 61...
Flag Pattern
A flag pattern is a continuation pattern where a strong price move (the flagpole) is followed by a brief consolidation p...
Golden Cross
A golden cross is a bullish chart pattern that occurs when a shorter-term moving average (typically the 50-day) crosses ...
Hammer Candlestick
A hammer is a bullish reversal candlestick pattern with a small body at the top and a long lower shadow (at least 2x the...
Head and Shoulders Pattern
The head and shoulders pattern is a bearish reversal pattern consisting of three peaks: a higher middle peak (head) flan...
Level 2 Data
Level 2 data shows the full order book for a security, displaying all pending buy and sell orders at each price level, g...
MACD (Moving Average Convergence Divergence)
MACD is a trend-following momentum indicator that shows the relationship between two exponential moving averages of a se...
Moving Average
A moving average is a technical indicator that smooths out price data by creating a constantly updated average price ove...
On-Balance Volume (OBV)
On-balance volume is a momentum indicator that adds volume on up days and subtracts volume on down days, measuring buyin...
Order Flow
Order flow is the real-time stream of buy and sell orders being executed in the market, analyzed to understand the direc...
Overbought and Oversold
Overbought describes a security that has risen too far too fast and may be due for a pullback. Oversold describes a secu...
Price Channel
A price channel is a technical analysis pattern formed by drawing parallel trend lines connecting highs and lows, creati...
Pullback
A pullback is a temporary reversal in the direction of a stock's price within a larger trend, offering traders an opport...
Relative Strength
Relative strength compares a stock's performance to a benchmark index or another stock, identifying which assets are out...
Relative Strength Index (RSI)
The Relative Strength Index is a momentum oscillator that measures the speed and magnitude of recent price changes, osci...
Reversal Pattern
A reversal pattern is a chart formation that signals the current trend is ending and the price is likely to change direc...
Standard Deviation
Standard deviation is a statistical measure of how spread out prices are from the average, used in trading to quantify v...
Stochastic Oscillator
The Stochastic Oscillator is a momentum indicator comparing a security's closing price to its price range over a set per...
Support and Resistance
Support is a price level where buying pressure tends to prevent further decline. Resistance is a price level where selli...
Technical Analysis
Technical analysis is the study of historical price and volume data to predict future price movements, using charts, ind...
Trend Line
A trend line is a diagonal line drawn on a chart connecting a series of higher swing lows (uptrend) or lower swing highs...
Triangle Pattern
A triangle pattern is a consolidation formation where the price range narrows over time, creating converging trend lines...
Volume
Volume is the total number of shares or contracts traded for a security during a given period, representing the intensit...
Market Concepts
52-Week High
The 52-week high is the highest price a stock has traded at in the past year. It serves as a significant psychological a...
Accumulation
Accumulation is a phase where institutional investors and smart money are quietly buying a security, often during period...
After-Hours Trading
After-hours trading occurs outside regular market hours (9:30 AM - 4:00 PM ET), typically from 4:00 PM to 8:00 PM ET and...
Algorithmic Trading
Algorithmic trading uses computer programs to execute trades automatically based on predefined rules and strategies, rem...
All-Time High (ATH)
An all-time high is the highest price a security has ever reached in its trading history. Stocks making new ATHs are con...
Bear Market
A bear market is an extended period of declining asset prices, typically defined as a 20% or greater drop from recent hi...
Blue Chip Stock
A blue chip stock is a share in a large, well-established, financially sound company with a history of reliable performa...
Bull Market
A bull market is an extended period of rising asset prices, typically defined as a 20% or greater increase from recent l...
Distribution
Distribution is a phase where institutional investors and smart money are selling their holdings into buying pressure, o...
Fear and Greed Index
The Fear and Greed Index is a sentiment indicator that measures the emotional state of the market on a scale from 0 (ext...
IPO (Initial Public Offering)
An IPO is the first time a privately held company offers shares to the public on a stock exchange, transitioning from pr...
Large Cap Stock
Large cap stocks are shares of companies with a market capitalization of $10 billion or more, typically well-established...
Leverage
Leverage is using borrowed capital or financial instruments to increase the potential return on investment, simultaneous...
Liquidity
Liquidity refers to how easily a security can be bought or sold without significantly affecting its price. Highly liquid...
Margin Trading
Margin trading is using borrowed money from your broker to buy securities, amplifying both potential gains and losses. T...
Market Capitalization
Market capitalization is the total value of a company's outstanding shares, calculated by multiplying the current share ...
Market Correction
A market correction is a decline of 10% to 19.9% from a recent peak in the price of a security or market index. Correcti...
Market Cycle
A market cycle is the natural pattern of expansion and contraction in financial markets, moving through four phases: acc...
Market Sentiment
Market sentiment is the overall attitude of investors toward a particular security or the broader market, ranging from b...
Pre-Market Trading
Pre-market trading occurs before the regular market open, typically from 4:00 AM to 9:30 AM ET, allowing traders to reac...
Short Squeeze
A short squeeze occurs when a heavily shorted stock suddenly rises in price, forcing short sellers to buy shares to cove...
Small Cap Stock
Small cap stocks are shares of companies with a market capitalization between $300 million and $2 billion, offering high...
VIX (Volatility Index)
The VIX is the Chicago Board Options Exchange Volatility Index, measuring the stock market's expectation of 30-day volat...
Volatility
Volatility is a statistical measure of how much a security's price fluctuates over time, calculated as the standard devi...
Trading Strategies
Contrarian Trading
Contrarian trading is a strategy that goes against prevailing market sentiment, buying when others are selling (fear) an...
Gap Trading
A gap occurs when a stock's price opens significantly higher or lower than the previous day's close, creating a visible ...
Mean Reversion
Mean reversion is the theory that prices and returns tend to move back toward their historical average or mean over time...
Momentum Trading
Momentum trading is a strategy that seeks to capture gains by riding established price trends, buying assets that are ri...
Range Trading
Range trading is a strategy where traders buy near support and sell near resistance within a horizontal price channel, p...
Reversal Trading
Reversal trading is a strategy that attempts to identify the point where a trend changes direction, entering positions a...
Scalping Strategy
Scalping is a day trading strategy focused on making small profits from numerous trades throughout the day, with positio...
Sector Rotation
Sector rotation is an investment strategy that moves capital between business sectors based on where we are in the econo...
Short Selling
Short selling is the practice of borrowing shares and selling them with the obligation to buy them back later, profiting...
Trading Setup
A trading setup is a specific combination of technical conditions and price action that meets your predefined criteria f...
Trend Trading
Trend trading is a strategy that aims to capture gains by analyzing an asset's momentum in a particular direction, enter...
Value Investing
Value investing is a strategy that selects stocks trading below their intrinsic value, based on fundamental analysis of ...
Trading Psychology
Backtesting
Backtesting is the process of testing a trading strategy against historical price data to evaluate how it would have per...
Emotional Trading
Emotional trading is making buy or sell decisions driven by feelings — fear, greed, frustration, or excitement — rather ...
FOMO (Fear of Missing Out)
FOMO in trading is the anxiety-driven impulse to enter a trade because a stock is moving aggressively and you fear missi...
Paper Trading
Paper trading is simulated trading with fake money that allows you to practice strategies and test your trading plan wit...
Revenge Trading
Revenge trading is the emotional act of immediately entering a new trade after a loss in an attempt to recover the lost ...
Trading Discipline
Trading discipline is the ability to consistently follow your trading plan, rules, and risk management protocols regardl...
Trading Journal
A trading journal is a detailed record of every trade you take, including the reasoning, entry and exit prices, emotions...
Trading Plan
A trading plan is a comprehensive written document that defines your trading strategy, entry and exit criteria, risk man...
Performance
Drawdown
A drawdown is the peak-to-trough decline in your trading account equity, usually expressed as a percentage from the high...
Expectancy
Expectancy is the average dollar amount you expect to make per trade based on your historical win rate, average win size...
Performance Tracking
Performance tracking is the systematic measurement and analysis of your trading results over time, including win rate, p...
Profit Factor
Profit factor is the ratio of gross profits to gross losses over a specific period, measuring how many dollars of profit...
Risk-Adjusted Return
Risk-adjusted return measures how much return an investment generates relative to the amount of risk taken, providing a ...
Sharpe Ratio
The Sharpe ratio measures risk-adjusted returns by dividing the excess return of a portfolio (above the risk-free rate) ...
Win Rate
Win rate is the percentage of your total trades that are profitable, calculated as winning trades divided by total trade...
Fundamentals
Dividend
A dividend is a portion of a company's earnings distributed to shareholders, usually quarterly, as cash payment or addit...
Dividend Yield
Dividend yield is the annual dividend per share divided by the current stock price, expressed as a percentage. It measur...
Earnings Per Share (EPS)
Earnings per share is a company's net profit divided by its outstanding shares, representing the portion of profit alloc...
Earnings Report
An earnings report is a quarterly financial statement (10-Q) that public companies must file, showing revenue, earnings ...
Fundamental Analysis
Fundamental analysis evaluates a security's intrinsic value by examining financial statements, industry conditions, comp...
P/E Ratio (Price-to-Earnings)
The P/E ratio divides a company's stock price by its earnings per share, indicating how much investors are willing to pa...
Stock Valuation
Stock valuation is the process of determining the fair value of a company's shares using fundamental metrics like earnin...
Risk Management
Position Sizing
Position sizing is the process of determining how many shares or contracts to trade based on your account size, risk tol...
Risk Management
Risk management is the systematic process of identifying, measuring, and controlling the potential for loss in trading t...
Risk-Reward Ratio
The risk-reward ratio compares the potential loss of a trade to its potential profit, expressed as a ratio such as 1:2 m...
Stop Loss
A stop loss is an order placed with a broker to buy or sell a security when it reaches a certain price, designed to limi...
Take Profit
A take profit order is an instruction to automatically close a position when the price reaches a specified level of prof...
Trailing Stop
A trailing stop is a stop loss order that moves dynamically with the price of the asset, maintaining a set distance belo...
Order Types
Bid-Ask Spread
The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a se...
Limit Order
A limit order is an instruction to buy or sell a security at a specific price or better, giving you control over the exe...
Market Order
A market order is an instruction to buy or sell a security immediately at the best available current price, prioritizing...
Slippage
Slippage is the difference between the expected price of a trade and the actual price at which it executes, typically oc...
Stop Limit Order
A stop limit order combines a stop order and a limit order. Once the stop price is triggered, it becomes a limit order r...
Stop Order
A stop order is an order that becomes a market order only after a specified price level (the stop price) has been reache...
Derivatives
Call Option
A call option gives the holder the right to buy 100 shares of the underlying stock at the strike price before the expira...
Implied Volatility (IV)
Implied volatility is the market's expectation of how much a stock's price will fluctuate in the future, derived from op...
Options Trading
Options are financial derivatives that give the buyer the right, but not the obligation, to buy (call) or sell (put) an ...
Put Option
A put option gives the holder the right to sell 100 shares of the underlying stock at the strike price before the expira...
Strike Price
The strike price is the predetermined price at which an option holder can buy (call) or sell (put) the underlying asset....
Portfolio Management
Correlation
Correlation measures how closely two assets move in relation to each other, ranging from -1 (perfect inverse) to +1 (per...
Diversification
Diversification is the practice of spreading investments across different assets, sectors, and strategies to reduce the ...
Dollar Cost Averaging (DCA)
Dollar cost averaging is investing a fixed amount at regular intervals regardless of price, buying more shares when pric...
Hedge
A hedge is an investment or trade made specifically to reduce the risk of adverse price movements in another position, e...
Portfolio Allocation
Portfolio allocation is the strategic distribution of investment capital across different asset classes, sectors, and po...
Trading Styles
Day Trading
Day trading is a trading style where positions are opened and closed within the same trading day, with no positions held...
Position Trading
Position trading is a long-term trading strategy where positions are held for weeks to months, based on long-term trends...
Scalping
Scalping is an ultra-short-term trading strategy that aims to profit from small price changes, often holding positions f...
Swing Trading
Swing trading is a trading style that holds positions for several days to several weeks, aiming to capture short-to-medi...
Regulation
Capital Gains
Capital gains are profits earned from selling a security for more than its purchase price. Short-term gains (held less t...
Pattern Day Trader (PDT)
A pattern day trader is any US margin account holder who executes four or more day trades within five business days, req...
Wash Sale Rule
The wash sale rule prohibits claiming a tax loss on a security if you buy a substantially identical security within 30 d...
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