Born to Trade

A

Algo Trading: Algorithmic trading — placing orders automatically based on pre-defined rules executed by software.
Alpha: Excess return of a strategy compared to its benchmark; a measure of skill above market returns.
Arbitrage: Profiting from price differences of the same asset across different markets or formats.
Ask (Ask Price): The price at which a seller is willing to sell. The higher side of the bid-ask spread.
Asset Class: A group of investments with similar characteristics: forex, equities, commodities, crypto, bonds, etc.
ATR (Average True Range): Indicator measuring market volatility by averaging the price range over a number of periods.
Averaging Down: Adding to a losing position to lower the average entry price — risky if the trend continues against you.

B

Backtesting: Testing a strategy against historical data to estimate how it would have performed.
Bear Market: An extended period of falling prices, typically a drop of 20% or more from recent highs.
Bid (Bid Price): The price at which a buyer is willing to buy. The lower side of the bid-ask spread.
Bid-Ask Spread: Difference between the bid and ask prices — effectively the cost of entering a trade.
Black Swan: An unpredictable, high-impact event with severe consequences (e.g., 2008 crisis, COVID crash).
Blue Chip: Stock of a large, well-established, financially sound company with a history of reliable performance.
Bollinger Bands: Volatility bands placed above and below a moving average, expanding and contracting with volatility.
Break-Even (BE): Price level where a trade returns to its entry price, resulting in neither profit nor loss.
Breakout: Price moving beyond a defined support or resistance level, often signaling continuation of a trend.
Bull Market: An extended period of rising prices, typically gaining 20% or more from recent lows.

C

Candlestick: Price chart format showing open, high, low and close for a period — the foundation of price action analysis.
CFD (Contract for Difference): Derivative contract allowing speculation on price movement without owning the underlying asset.
Churning: Excessive trading by a broker in a client’s account to generate commissions; illegal in regulated markets.
Commodity: Raw material or primary product traded on exchanges — oil, gold, wheat, etc.
Consolidation: Period of sideways price movement after a trend, often resolving in a continuation or reversal.
Correlation: Statistical measure of how two assets move relative to each other (range −1 to +1).

D

Day Trading: Buying and selling positions within the same trading day — no overnight exposure.
DCA (Dollar Cost Averaging): Investing fixed amounts at regular intervals regardless of price — a passive risk-reduction strategy.
Delta: How much the price of a derivative changes per $1 move in the underlying. Range 0 to 1 for calls.
Derivative: Financial instrument whose value derives from an underlying asset (futures, options, CFDs).
Divergence: When price and an indicator move in opposite directions, often signaling a potential reversal.
Drawdown: Peak-to-trough decline in account equity, measured in percent or money terms.

E

Edge: A statistical advantage that, applied consistently, produces positive expectancy over time.
EMA (Exponential Moving Average): Moving average that gives more weight to recent prices, reacting faster than SMA.
Equity: Total account value including unrealized P/L of open positions.
Expectancy: Average expected profit per trade over many trades. Formula: (Win% × AvgWin) − (Loss% × AvgLoss).
Exit: The decision to close a position — either at profit, loss or break-even.

F

Fade: To trade against the current move, anticipating a reversal.
Fakeout: A false breakout — price briefly breaks a level, then reverses.
Fibonacci Retracement: Horizontal lines at 23.6%, 38.2%, 50%, 61.8%, 78.6% of a price move — used to identify support/resistance.
Fill: The execution of a buy or sell order. “Partial fill” means only part of the order was executed.
Floating P/L: Unrealized profit or loss of open positions, updated tick-by-tick.
FOMO (Fear of Missing Out): Emotional trap of entering trades late because price has already moved a lot.
Forex (FX): Foreign exchange market — trading currency pairs like EUR/USD, GBP/JPY.
Forward Test: Testing a strategy on live (or recent unseen) data to validate backtest results.
Fundamental Analysis: Evaluating an asset based on economic, financial and other qualitative/quantitative factors.
Futures: Standardised contract obligating buy/sell of an asset at a future date at an agreed price.

G

Gap: Price area on a chart where no trades occurred — usually between session close and next open.
Gearing: UK term for leverage — ratio of borrowed funds to own capital.
Golden Cross: Bullish signal when 50-period MA crosses above 200-period MA.
Greeks: Options metrics: Delta, Gamma, Theta, Vega, Rho — each describing sensitivity to a factor.

H

Hedge: An offsetting position taken to reduce risk on another position (e.g., short the index to hedge a long stock).
HFT (High-Frequency Trading): Algorithmic trading at very high speeds (microseconds), exploiting tiny price inefficiencies.
Holding: An asset currently owned in the portfolio.

I

Illiquid: Market or asset with low trading volume and wide spreads — harder to enter/exit at fair prices.
Indicator: Calculated value derived from price/volume data, plotted on a chart to identify trends, momentum, etc.
Inflation: General rise in price levels over time, reducing purchasing power. Tracked via CPI.
Initial Margin: Amount required to open a leveraged position — a percentage of full notional value.
Intraday: Trading activity occurring within the same day. Synonymous with day trading.

K

Kelly Criterion: Mathematical formula for optimal bet sizing based on win rate and risk-reward; rarely used “full” in practice.

L

Lagging Indicator: Indicator that follows price action (e.g., MAs), confirming trends but giving late signals.
Leverage: Using borrowed capital to amplify exposure — e.g., 1:10 leverage means $1 controls $10.
Limit Order: Order to buy/sell at a specified price or better — not guaranteed to execute.
Liquidity: How easily an asset can be bought/sold without affecting its price. High liquidity = tight spreads.
Long Position: Buying an asset expecting its price to rise.
Lot Size: Standard quantity unit. In forex: 1 standard lot = 100,000 units of base currency.

M

MACD (Moving Average Convergence Divergence): Momentum indicator showing the relationship between two EMAs (typically 12 and 26).
Margin: Collateral held by the broker against open leveraged positions.
Margin Call: Broker demand for additional funds when account equity falls below required margin level.
Market Maker: Participant that quotes both buy and sell prices, providing liquidity and profiting from the spread.
Market Order: Order to buy/sell immediately at the best available price — guaranteed execution, not price.
Mean Reversion: Strategy assuming prices tend to return to a long-term average after extreme moves.
Momentum: Rate and strength of price movement; momentum strategies enter in the direction of fast moves.
Moving Average (MA): Average price over a defined number of periods, smoothing out short-term fluctuations.

N

NFP (Non-Farm Payrolls): Monthly US employment report (excluding farm jobs); a major market-moving event released first Friday.
News Trading: Strategy that focuses on price reactions to scheduled economic news releases.
Notional Value: Total market value of a leveraged position — not the margin paid, but the full exposure.

O

OCO (One Cancels Other): Two linked orders; execution of one automatically cancels the other.
Open Interest: Total number of outstanding contracts (futures/options) not yet settled or closed.
Order Flow: Real-time stream of buy/sell orders, used by short-term traders to read market intent.
Oscillator: Indicator that moves between fixed bounds (e.g., RSI 0–100) signaling overbought/oversold conditions.
Overbought: Asset whose price has risen sharply and may be due for a pullback. Often defined by oscillator levels.
Oversold: Opposite of overbought — asset has fallen sharply, potentially due for a bounce.
Overtrading: Taking too many trades, often driven by emotion rather than strategy — one of the most common ways to lose money.

P

Pair Trading: Market-neutral strategy: long one correlated asset, short another, profiting from spread changes.
Paper Trading: Simulated trading without real money — used to practice strategies or platforms.
Pip (Percentage in Point): Smallest standard price change in forex (typically 0.0001 for most pairs, 0.01 for JPY pairs).
Pivot Point: Calculated price level used as reference for intraday support/resistance.
Position Sizing: Deciding how much capital to risk on a single trade — often the most important risk parameter.
Price Action: Trading based purely on price movement and chart structure, without lagging indicators.
Pullback: Short-term move against the prevailing trend — often an entry opportunity.
Pyramiding: Adding to a winning position as it moves further in your favor.

Q

Quant (Quantitative Analyst): Specialist using mathematical and statistical models to identify trading opportunities.
Quote: Current bid/ask price of an asset.

R

Range: Price area bounded by support and resistance where the market moves sideways.
Resistance: Price level where selling pressure typically halts an uptrend.
Reversal: Change in direction of a price trend.
Risk-Reward Ratio (R:R): Ratio of potential loss to potential gain on a trade. Higher R:R needs lower win rate to be profitable.
ROI (Return on Investment): Percentage return earned on capital invested.
Round Trip: Complete trade from entry to exit, including all costs.
RSI (Relative Strength Index): Momentum oscillator measuring speed and magnitude of price changes; ranges 0–100.

S

Scalping: Very short-term trading style aiming for small profits from many trades per day.
Scaling In / Out: Building up or reducing a position in multiple parts rather than all at once.
Sharpe Ratio: Risk-adjusted return measure: (return − risk-free rate) / standard deviation.
Short Position: Selling an asset you don’t own (borrowed), expecting to buy back lower for a profit.
Sideways: Market moving in a horizontal range with no clear trend.
Slippage: Difference between expected order price and actual fill price — often costs you on stop-losses.
SMA (Simple Moving Average): Average of closing prices over N periods, with equal weight to each period.
Spread: Difference between bid and ask prices — the cost of entering a trade.
Stop Loss (SL): Order to close a losing trade automatically at a predefined price.
Stop Limit: Combination order: triggers at stop price, but executes only at limit price or better.
Support: Price level where buying pressure typically halts a downtrend.
Swap: Overnight financing fee charged or paid for holding leveraged positions past market close.
Swing Trading: Trading style holding positions from days to weeks, aiming to capture larger moves.

T

Take Profit (TP): Order to close a winning trade automatically at a predefined price.
Technical Analysis: Studying price charts and indicators to forecast future market direction.
Tick: Smallest price change for a given instrument.
Time Frame: Period each candle/bar represents on a chart (M1, M5, H1, D1, W1, etc.).
Trailing Stop: Stop-loss that automatically moves in your favor as price advances, locking in profit.
Trend: General direction of price movement: uptrend, downtrend or sideways.
Triangle Pattern: Chart pattern where price converges into a tightening range, often resolving in a breakout.

U

Underlying: The actual asset on which a derivative contract is based (e.g., stock underlying an option).
Uptrend: Series of higher highs and higher lows over time.

V

VaR (Value at Risk): Statistical measure of maximum expected loss over a defined period at a given confidence level.
Volatility: Degree of price variation over time. Higher volatility means larger swings.
Volume: Number of units (shares, contracts) traded in a given period — a measure of activity.
VWAP (Volume Weighted Average Price): Average price weighted by volume traded at each price level — used as fair-value reference.

W

Whipsaw: Sharp price movement quickly reversing — frustrating traders who entered the initial move.
Wick: The thin line on a candle above or below the body, showing the high or low of the period.
WMA (Weighted Moving Average): Moving average that assigns more weight to recent prices — faster than SMA, smoother than EMA.

Y

Yield: Income return on an investment, expressed as a percentage of price (e.g., dividend yield, bond yield).

Z

Zone: An area on the chart (rather than a single line) where support or resistance is expected — price often reacts within this range.

Trading Glossary

A

B

C

D

E

F

G

H

I

K

L

M

N

O

P

Q

R

S

T

U

V

W

Y

Z

A new chapter is coming.