Glossary

Accumulation

A quiet sideways range where price builds up before a bigger move. The A in AMD.

AMD (Accumulation, Manipulation, Distribution)

A three-step idea: a quiet range, a false move that sweeps one side, then the real move the other way.

ATR (Average True Range)

How far a market normally moves in one candle, on average. Useful for setting stops.

Backtest

Testing a strategy on past prices to see how it would have done. Good past results do not guarantee future ones.

Bid and ask

The bid is the price you can sell at; the ask is the price you can buy at. The difference is the spread.

Break of structure (BOS)

When price breaks the last swing high in an uptrend, or the last swing low in a downtrend: a sign the trend is carrying on.

Breakeven

Moving your stop loss to your entry price, so the trade can no longer lose money apart from costs.

Breakout

When price moves through a support or resistance level and keeps going.

Candle

One period of price on a chart, showing the open, high, low and close.

CFD

Contract for difference: a contract on a price, so you can trade a market without owning it.

Change of character (CHoCH)

The first break against the trend, such as a lower low in an uptrend. An early sign the trend may be turning.

Correlation

How closely two markets move together, from +1 (always together) to −1 (always opposite).

Demo account

A practice account with pretend money and real prices. The safest place to learn.

Distribution

The real move after a sweep. The D in AMD.

Divergence

When price makes a new high or low but an indicator such as RSI does not. A sign the move may be tiring.

Doji

A candle where the open and close are almost the same, showing that buyers and sellers are evenly matched.

Drawdown

How far your account has fallen from its highest point.

Economic calendar

A list of upcoming news and data, such as interest rate decisions and jobs reports, that can move markets.

Engulfing candle

A candle whose body completely covers the body of the one before it. Often a sign of a turn.

Expectancy

The average result per trade, in R. Positive expectancy means a strategy has made money over many trades.

Fair value gap (FVG)

A three-candle gap where price moved so fast that the wicks of the first and third candles do not overlap. Price often comes back to it.

Fibonacci retracement

Levels at 23.6%, 38.2%, 50%, 61.8% and 78.6% of a move, where traders watch for a pullback to end.

Gap

A jump between one candle’s close and the next candle’s open, most common after the weekend.

Golden zone

The area between the 50% and 61.8% Fibonacci levels: a popular place to look for a pullback to finish.

Indicator

A calculation from price (and sometimes volume) drawn on the chart, such as a moving average or RSI.

Leverage

Controlling a bigger position than your deposit. It makes profits and losses bigger.

Limit order

An order to buy below, or sell above, the current price. It only fills at your price or better.

Liquidity

How easy it is to buy or sell without moving the price. Busy markets are liquid.

Long and short

Long is a buy (you want price to rise); short is a sell (you want price to fall).

Lot

The size of a trade. In forex, 1 standard lot is 100,000 units of the first currency; 0.1 is a mini lot and 0.01 a micro lot.

Manipulation

A quick false move that sweeps the stops on one side of a range before the real move. The M in AMD.

Margin

The money your broker holds as a deposit while a trade is open.

Margin call

A warning (or automatic closing of trades) when your account no longer has enough money to keep your trades open.

Market structure

The pattern of swing highs and lows. Higher highs and higher lows make an uptrend; lower highs and lower lows make a downtrend.

Moving average

The average price over a set number of candles, drawn as a line to smooth out the noise.

Negative balance protection

A rule that stops a retail client losing more than the money in their account. FCA-regulated brokers must offer it to retail clients.

Order block

The last opposite candle before a strong move. Some traders watch it as a zone where price may react again.

Over-fitting

Tweaking a strategy until it fits past prices perfectly. It then usually does much worse on new prices.

Overbought and oversold

When price has risen or fallen a lot in a short time, often measured with RSI. It does not mean price must turn.

Pip

The standard step in a currency price: 0.0001 for most pairs and 0.01 for yen pairs.

Point

The standard step for indices, metals and crypto, set by your broker.

Position size

How big your trade is. Set it so that if your stop is hit you lose only your chosen risk, such as 1% of your account.

Profit factor

Total money won divided by total money lost. Above 1 means a strategy made money overall.

Pullback

A short move against the trend before the trend carries on.

R

The amount you risk on a trade. A 2R win made twice what you risked; a −1R loss lost exactly what you risked.

Risk : reward

What you could lose compared with what you could make. 1:2 means risking 1 to make 2.

Risk-on and risk-off

Risk-on is when traders buy riskier markets such as stock indices. Risk-off is when they move to safer ones such as gold, the yen or the Swiss franc.

RSI (Relative Strength Index)

A 0 to 100 gauge of how strong recent moves have been. Over 70 is often called overbought and under 30 oversold.

Session

The main trading hours of a region: Asia, London and New York. Markets are usually busiest when London and New York overlap.

Slippage

When your order fills at a worse price than you asked for, often around news.

Spread

The difference between the buy and sell price: the broker’s main cost to you.

Spread bet

A UK way to trade price moves in pounds per point. Profits are usually free of Capital Gains Tax, but tax depends on your situation and rules can change.

Stop loss

An order that closes your trade automatically at a set loss.

Stop order

An order to buy above, or sell below, the current price. Often used to enter a breakout.

Support and resistance

Price areas where buyers (support) or sellers (resistance) have stepped in before.

Swap

A small fee or payment for holding a trade open overnight.

Sweep

When price pokes just past a high or low, triggering the stops there, then turns back. Also called a liquidity sweep.

Swing high and swing low

A peak with lower highs either side, or a dip with higher lows either side. The building blocks of market structure.

Take profit

An order that closes your trade automatically at a set profit.

Timeframe

How much time each candle covers, for example 15 minutes or 1 day.

Trailing stop

A stop loss that moves with price as the trade goes your way, locking in some profit.

Trend

The general direction of price: up (higher highs and lows), down, or sideways (a range).

Volatility

How much and how fast a price moves.

VWAP (Volume Weighted Average Price)

The day’s average price, weighted by how much was traded at each price. Many big traders compare their prices to it.

Wick

The thin line above or below a candle body, showing the highest and lowest prices reached.

Win rate

The share of trades that win. On its own it says little: 40% can be profitable if the winners are bigger than the losers.

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