Trading glossary
Plain-language explanations of trading and technical analysis terms with illustrations: candlesticks, wicks, support, resistance, RSI, MACD and more.
- Candlestick (OHLC)
- A single candle shows four prices for one period: the open, the high, the low and the close.
- Body
- The part of the candle between the open and the close. A large body means a strong move in one direction.
- Wick (shadow)
- The thin lines above and below the body, reaching the high and the low. A long wick means price got there but was rejected.
- Bullish / bearish candle
- A bullish (green) candle closes above its open, a bearish (red) one below it. “Bulls” are buyers, “bears” are sellers.
- Timeframe (TF)
- How much time one candle represents: 5 min, 1 hour, 1 day… The same moment looks different on different timeframes.
- Trend
- The general direction of price. An uptrend makes higher highs and higher lows, a downtrend lower highs and lower lows, and a sideways trend moves within a range.
- Swing high / low
- A local high or low, a point where price turned. The sequence of highs and lows defines the market structure.
- Support
- A price zone below the current price where buyers previously stopped the decline.
- Resistance
- A price zone above the current price where sellers previously stopped the rise.
- Role reversal
- Broken resistance often becomes support, and broken support becomes resistance.
- ATR
- Average True Range of a candle. It measures the market’s “normal” volatility and serves as the unit of distance in the game.
- MA (moving average)
- The average of the last N closes. MA20 is fast, MA50 slower. It smooths out noise and shows direction.
- Golden cross / death cross
- MA20 crosses MA50 upward (golden cross, bullish) or downward (death cross, bearish).
- RSI
- A strength indicator from 0 to 100. Above 70 is overbought, below 30 oversold. In a strong trend it can stay at an extreme for a long time.
- Volume
- The amount traded. A move on high volume is more reliable than a move without participation.
- Top-down analysis
- First look at the higher TF (direction), then the lower TF (entry timing). Trade in the direction of the higher TF.
- Confluence
- When several independent signals agree (trend + level + pattern + volume). One signal is weak; several together are stronger.
- Calibration
- Whether your confidence matches reality. When you say “70% sure”, you should be right in about 70% of cases.
- Brier score
- A measure of the quality of probabilistic forecasts: (confidence − outcome)². Random guessing gives 0.25, and lower is better.
- Stop-loss (SL)
- A predefined price at which you close a losing position. It limits the loss and protects your account.
- Take-profit (TP)
- A predefined price at which you close a winning position and lock in the profit.
- R and R:R
- R is the amount you risk on a trade. A result of +2R means you made twice your risk. R:R is the ratio of potential reward to risk.
- Risk management
- Risk a small, constant share of your account (e.g. 1%). Position size is calculated from the stop-loss distance, not the other way around.
- Profit factor
- Total profit divided by total loss. Above 1 means the system makes money.
- Drawdown
- The decline of the account from its peak. It shows how many painful stretches a strategy has.
- False breakout (fakeout)
- Price closes beyond a level, then quickly comes back. A common trap for traders who enter right on the breakout.
- Retest
- Price returns to a broken level, which now holds from the other side. Many traders only enter at that point.
- Divergence
- Price makes a new high or low, but the indicator (e.g. RSI) doesn’t. It’s a sign that momentum is fading.
- Neckline
- A line through the lows (or highs) of a reversal pattern. Its breakout confirms the pattern.
- Measured move (target)
- The height of the pattern projected from the breakout point. It gives a rough target for the move.
- Fibonacci
- Retracement levels of 23.6%, 38.2%, 50%, 61.8% and 78.6% between the start and end of an impulse. Pullbacks in a trend often stop in the “golden zone” of 50–61.8%. Draw it from low to high (in an uptrend) or from high to low (in a downtrend).
- Confidence interval
- The range in which, with 95% confidence, your “true” accuracy lies. If it includes 50%, you haven’t yet proven you beat random.