Glossary
Terms, defined plainly
- AskMarkets
- The lowest price a seller is currently willing to accept. You buy at the ask.
- Lesson: Exchanges, brokers, and the order book
- AssignmentOptions
- Being required to fulfil a short option's obligation after the holder exercises.
- Lesson: Expiration, exercise and assignment
- Balance sheetFundamentals
- A snapshot on one date of what a company owns, owes, and the residual owners' equity.
- Lesson: The three financial statements
- BidMarkets
- The highest price a buyer is currently willing to pay. You sell at the bid.
- Lesson: Exchanges, brokers, and the order book
- Bracket orderFutures
- An entry with attached stop and target orders; one exit cancels the other (OCO).
- Lesson: Order types and execution
- Break of structure (BOS)SMC
- A close beyond the latest swing in the direction of the existing trend — a continuation label.
- Lesson: Break of structure vs change of character
- Breakeven win rateRisk
- Win rate needed to break even at a fixed reward:risk of k:1, equal to 1 ÷ (1 + k) before costs.
- Lesson: R-multiples and expectancy
- BreakoutTechnicals
- A decisive move beyond a support or resistance zone, ideally with expanded volume.
- Lesson: Support, resistance, and zones
- Call optionOptions
- The right, not obligation, to buy the underlying at the strike before or at expiration.
- Lesson: Calls and puts: rights and obligations
- CandlestickTechnicals
- A bar showing open, high, low and close for one period; the body and wicks reveal who won the session.
- Lesson: Reading candlesticks
- CapexFundamentals
- Capital expenditure: cash spent on long-lived assets such as property and equipment.
- Lesson: Cash flow and free cash flow
- Cash flow statementFundamentals
- Reconciles reported profit to the cash that actually moved during the period.
- Lesson: The three financial statements
- Change of character (CHoCH)SMC
- The first close beyond a swing against the prevailing structure; a warning, not a confirmed reversal.
- Lesson: Break of structure vs change of character
- Confirmation biasRisk
- Favouring information that supports what you already believe.
- Lesson: Cognitive biases that cost traders
- Covered callOptions
- Owning shares and selling a call against them: premium income, capped upside, stock downside remains.
- Lesson: Covered calls and protective puts
- Daily loss limitRisk
- A pre-set loss level at which you stop trading for the day.
- Lesson: Building a rules-based process
- Dealing rangeSMC
- A chosen swing low-to-high range used to define premium, discount and equilibrium.
- Lesson: Premium, discount and the dealing range
- DeltaOptions
- Approximate change in option price for a $1 change in the underlying.
- Lesson: Delta, theta, vega and implied volatility
- DisplacementSMC
- An unusually large, one-sided move, e.g. candle bodies above 1.5-2x the recent average range.
- Lesson: Displacement and fair value gaps
- Disposition effectRisk
- Selling winners too early and holding losers too long.
- Lesson: Cognitive biases that cost traders
- DivergenceTechnicals
- Price and an indicator disagreeing, such as a higher price high with a lower RSI high.
- Lesson: RSI and momentum
- DiversificationRisk
- Spreading capital across holdings with different drivers to reduce company-specific risk.
- Lesson: Diversification and the risk you cannot remove
- DividendMarkets
- Cash a company distributes to shareholders out of its profits.
- Lesson: What a share actually is
- DojiTechnicals
- A candle whose open and close are nearly equal, indicating balance between buyers and sellers.
- Lesson: Reading candlesticks
- DrawdownRisk
- A decline from a portfolio peak. Recovery requires a larger percentage gain than the loss.
- Lesson: Risk management and position sizing
- Economic calendarFutures
- Schedule of data releases and central-bank events that often drive volatility.
- Lesson: Sessions and economic-event volatility
- EMATechnicals
- Exponential moving average, weighting recent prices more heavily so it reacts faster than an SMA.
- Lesson: Moving averages
- EPSFundamentals
- Earnings per share: net income divided by shares outstanding. Can rise from buybacks alone.
- Lesson: Revenue, earnings, and what sits between
- Equal highs / equal lowsSMC
- Two or more swings within a small tolerance of each other; treated as an obvious liquidity pool.
- Lesson: Liquidity pools, equal highs/lows and sweeps
- EV/EBITDAFundamentals
- Enterprise value over pre-interest, pre-tax, pre-depreciation profit; more comparable across debt levels.
- Lesson: Valuation multiples and their traps
- ExpectancyRisk
- Average outcome per trade: (win rate x average win) minus (loss rate x average loss).
- Lesson: Risk management and position sizing
- ExposureRisk
- Money committed to a position (size × price), distinct from the amount at risk.
- Lesson: Risk per trade and position sizing
- Fair value gap (FVG)SMC
- A three-candle imbalance: candle 3's low above candle 1's high (bullish) or the mirror (bearish).
- Lesson: Displacement and fair value gaps
- False breakoutTechnicals
- A move beyond a zone that quickly reverses back inside the prior range.
- Lesson: Support, resistance, and zones
- Free cash flowFundamentals
- Operating cash flow minus capital expenditure: cash genuinely available to owners and creditors.
- Lesson: Cash flow and free cash flow
- Futures contractFutures
- A standardised exchange-traded agreement to buy or sell an underlying at a future date.
- Lesson: Contract specs, ticks and notional value
- Gap riskRisk
- The chance that price opens beyond your stop, filling at a much worse level.
- Lesson: Stop placement, gaps and slippage
- Gross marginFundamentals
- Gross profit as a percentage of revenue; how much of each sale survives direct costs.
- Lesson: Margins: gross, operating, net
- Idiosyncratic riskRisk
- Risk specific to one company, such as a product failure or fraud. Diversification dilutes it.
- Lesson: Diversification and the risk you cannot remove
- Implied volatilityOptions
- The volatility level implied by an option's price; expected magnitude, not direction.
- Lesson: Delta, theta, vega and implied volatility
- Income statementFundamentals
- Reports revenue, costs and profit over a period such as a quarter or year.
- Lesson: The three financial statements
- Initial marginFutures
- The deposit required to open a futures position — a performance bond, not a cost or a loss limit.
- Lesson: Margin is not risk
- Intrinsic valueOptions
- The amount an option is in the money: max(0, S − K) for calls, max(0, K − S) for puts.
- Lesson: Premium: intrinsic value and time value
- InvalidationRisk
- The pre-defined price at which a trade idea is objectively wrong; the basis for stop placement and sizing.
- Lesson: Risk management and invalidation in SMC
- LeverageFutures
- Notional exposure divided by account equity; scales percentage gains and losses.
- Lesson: Leverage and liquidation
- Limit orderMarkets
- An instruction to trade only at a specified price or better. Guarantees price, not execution.
- Lesson: Order types and what they promise
- LiquidationFutures
- Forced closing of positions by a broker when margin is insufficient.
- Lesson: Leverage and liquidation
- LiquidityMarkets
- How much you can trade without moving the price. Deep books and tight spreads mean high liquidity.
- Lesson: Exchanges, brokers, and the order book
- Liquidity poolSMC
- A price area where resting stop and breakout orders are presumed to cluster, such as above obvious highs or below obvious lows.
- Lesson: Liquidity pools, equal highs/lows and sweeps
- Liquidity sweepSMC
- Price trades through a pool but closes back inside within 1-2 candles. A sweep alone is not a signal.
- Lesson: Liquidity pools, equal highs/lows and sweeps
- Loss aversionRisk
- The tendency to feel losses more strongly than equal gains.
- Lesson: Cognitive biases that cost traders
- Maintenance marginFutures
- The minimum equity required to keep a position open; falling below it can trigger a margin call or liquidation.
- Lesson: Margin is not risk
- Mark-to-marketFutures
- Daily (and intraday) settlement of gains and losses into the account.
- Lesson: Margin is not risk
- Market capitalisationMarkets
- Share price times shares outstanding: the market's price for the entire company.
- Lesson: What a share actually is
- Market orderMarkets
- An instruction to trade immediately at the best available price. Guarantees execution, not price.
- Lesson: Order types and what they promise
- Micro contractFutures
- A smaller version of a standard futures contract, such as MES relative to ES.
- Lesson: Position sizing with ES and MES
- MitigationSMC
- Price returning into an FVG or order block after it formed.
- Lesson: Order blocks and mitigation
- MultiplierFutures
- Dollars per point of price movement for one contract (illustrative: ES $50, MES $5).
- Lesson: Contract specs, ticks and notional value
- Net incomeFundamentals
- Profit remaining after all costs, interest and tax. Also called the bottom line.
- Lesson: Revenue, earnings, and what sits between
- Notional valueFutures
- Price × multiplier: the economic exposure of one contract.
- Lesson: Contract specs, ticks and notional value
- Open interestOptions
- Number of option contracts outstanding that have not been closed or exercised.
- Lesson: Option liquidity and bid-ask spreads
- Operating leverageFundamentals
- The amplifying effect of fixed costs, which magnifies profit swings in both directions.
- Lesson: Margins: gross, operating, net
- Operating marginFundamentals
- Operating income as a percentage of revenue; profitability of the core business after running costs.
- Lesson: Margins: gross, operating, net
- Option breakevenOptions
- Underlying price at expiration where P/L is zero: strike + premium for calls, strike − premium for puts.
- Lesson: Payoff diagrams, breakeven and maximum loss
- Option premiumOptions
- The price of an option, quoted per share; one standard contract usually covers 100 shares.
- Lesson: Calls and puts: rights and obligations
- Order block (OB)SMC
- The last opposing candle before a displacement that breaks structure; a candidate zone, not proof of orders.
- Lesson: Order blocks and mitigation
- P/E ratioFundamentals
- Price per share divided by earnings per share; what investors pay for each unit of current earnings.
- Lesson: Valuation multiples and their traps
- Point of interest (POI)SMC
- A pre-marked zone (FVG, OB, liquidity) where a trader plans to look for lower-timeframe confirmation.
- Lesson: Multi-timeframe narrative
- Position sizingRisk
- Choosing share count from portfolio risk budget divided by the per-share distance to invalidation.
- Lesson: Risk management and position sizing
- Premium / discountSMC
- The upper and lower halves of a dealing range. A geometric location, not a valuation.
- Lesson: Premium, discount and the dealing range
- Protective putOptions
- Owning shares and buying a put to set a floor, at the cost of the premium.
- Lesson: Covered calls and protective puts
- Put optionOptions
- The right, not obligation, to sell the underlying at the strike before or at expiration.
- Lesson: Calls and puts: rights and obligations
- R-multipleRisk
- A trade result expressed in units of initial planned risk (1R).
- Lesson: R-multiples and expectancy
- Recovery gainRisk
- Gain needed after a drawdown d to return to the peak: d ÷ (1 − d).
- Lesson: Drawdowns, losing streaks and risk of ruin
- ResistanceTechnicals
- A price zone where selling has repeatedly overwhelmed buying.
- Lesson: Support, resistance, and zones
- RevenueFundamentals
- Total value of sales in a period, before any costs. Also called the top line.
- Lesson: Revenue, earnings, and what sits between
- Reward-to-riskRisk
- Expected gain to target divided by the loss to invalidation, measured before entering.
- Lesson: Risk management and position sizing
- Risk of ruinRisk
- The probability of losing enough capital that you cannot or will not continue.
- Lesson: Drawdowns, losing streaks and risk of ruin
- Risk per tradeRisk
- The planned loss if a trade reaches its stop, usually a fixed % of the account.
- Lesson: Risk per trade and position sizing
- RSITechnicals
- Relative Strength Index: momentum on a 0-100 scale comparing average gains to average losses.
- Lesson: RSI and momentum
- SlippageRisk
- The difference between the price you expected and the price you actually received.
- Lesson: Order types and what they promise
- SMATechnicals
- Simple moving average: the mean of the last N closing prices, recalculated each period.
- Lesson: Moving averages
- Smart Money Concepts (SMC)SMC
- A discretionary framework for labelling price action (structure, liquidity, FVGs, order blocks). Definitions vary among practitioners; it does not reveal real institutional orders.
- Lesson: Market structure and swing points
- SpreadMarkets
- The gap between bid and ask; the immediate cost of entering and exiting a position.
- Lesson: Exchanges, brokers, and the order book
- Stop orderRisk
- A dormant order that becomes a market order once price reaches a trigger level. It does not guarantee a fill price.
- Lesson: Order types and what they promise
- Stop-limit orderFutures
- Becomes a limit order at its trigger: controls price but may not fill.
- Lesson: Order types and execution
- Strike priceOptions
- The price at which an option lets the holder buy (call) or sell (put).
- Lesson: Calls and puts: rights and obligations
- SupportTechnicals
- A price zone where buying has repeatedly overwhelmed selling.
- Lesson: Support, resistance, and zones
- Swing highSMC
- A candle whose high exceeds the highs of N candles either side; only confirmed N candles later.
- Lesson: Market structure and swing points
- Swing lowSMC
- A candle whose low is below the lows of N candles either side; only confirmed N candles later.
- Lesson: Market structure and swing points
- Systematic riskRisk
- Risk affecting the whole market, such as recessions or rate shocks. Diversification cannot remove it.
- Lesson: Diversification and the risk you cannot remove
- ThetaOptions
- Approximate daily change in option price from the passage of time.
- Lesson: Delta, theta, vega and implied volatility
- Tick sizeFutures
- The minimum price increment of a contract; tick value = tick size × multiplier.
- Lesson: Contract specs, ticks and notional value
- Time valueOptions
- Premium minus intrinsic value; decays toward zero at expiration.
- Lesson: Premium: intrinsic value and time value
- Trade journalRisk
- A record of each trade's plan, execution, result and state of mind, used for review.
- Lesson: Journaling and trade review
- Trailing drawdownFutures
- A provider-specific rule where the loss floor follows the account's peak at a fixed distance.
- Lesson: Funded-account (prop firm) rules: examples, not standards
- UptrendTechnicals
- A sequence of higher swing highs and higher swing lows.
- Lesson: Trend structure and volume confirmation
- Value trapFundamentals
- A stock that looks cheap on current earnings but is cheap because those earnings are set to fall.
- Lesson: Valuation multiples and their traps
- VegaOptions
- Approximate change in option price for a 1-point change in implied volatility.
- Lesson: Delta, theta, vega and implied volatility
- VolumeTechnicals
- Shares traded in a period; a measure of participation, with no direction of its own.
- Lesson: Trend structure and volume confirmation
- WhipsawTechnicals
- Repeated false signals when price oscillates across an indicator in a sideways market.
- Lesson: Moving averages
- Working capitalFundamentals
- Short-term operating assets minus liabilities; its changes consume or release cash.
- Lesson: Cash flow and free cash flow