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Trading Glossary
A-Z definitions of essential trading terms, candlestick anatomy, chart pattern vocabulary, and technical analysis concepts.
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Abandoned Baby
A rare three-candle reversal pattern featuring a doji that gaps away from the preceding and following candles. The gap isolation of the doji signals an extreme shift in sentiment.
Accumulation
A phase where institutional investors quietly buy large amounts of an asset without significantly moving the price. Identified by sideways price action with increasing volume on up moves.
Advance Block
A bearish three-candle pattern consisting of three consecutive bullish candles with progressively smaller bodies and longer upper shadows, indicating weakening buying momentum near resistance.
Algorithmic Trading
Using computer programs to execute trades automatically based on predefined rules. Algorithms can scan for chart patterns, manage entries/exits, and adjust position sizes at speeds impossible for humans.
Ascending Triangle
A bullish chart pattern formed by a flat resistance line and a rising support line, indicating buyers are becoming more aggressive with each pullback.
Ask (Offer)
The lowest price at which a seller is willing to sell an asset. The difference between the ask and the bid is the spread. Tighter spreads indicate higher liquidity.
ATR (Average True Range)
A volatility indicator that measures the average range of price movement over a specified period. Used for setting stop losses and gauging market volatility.
Accumulation/Distribution Line
A volume-based indicator that measures the cumulative flow of money into and out of an asset. It uses the relationship between close price and trading range combined with volume to determine if an asset is being accumulated or distributed.
Analysis Paralysis
The inability to make a trading decision due to overthinking, conflicting signals, or examining too many indicators. Results in missed opportunities and delayed entries.
B
Backtesting
Testing a trading strategy on historical data to evaluate how it would have performed in the past. Backtesting chart patterns helps quantify win rate, average gain, and maximum drawdown.
Bearish
Expecting or indicating a decline in price. A bearish pattern suggests selling pressure is dominant and price is likely to fall.
Bearish Divergence
When price makes a higher high but an indicator (like RSI or MACD) makes a lower high, suggesting momentum is weakening despite rising prices. Often precedes a reversal down.
Belt Hold
A single candlestick pattern where the candle opens at its extreme (high or low) and moves strongly in one direction. A bullish belt hold opens at the low; a bearish belt hold opens at the high.
Bid
The highest price a buyer is willing to pay for an asset. Market sell orders are filled at the bid price. The bid-ask spread reflects market liquidity.
Blow-Off Top
A sharp and rapid price increase followed by an equally sharp decline, driven by extreme buying euphoria and subsequent panic selling. Often the climax of a speculative bubble.
Body (Real Body)
The thick part of a candlestick between the open and close prices. A filled/red body means the close was lower than the open (bearish); a hollow/green body means close was higher (bullish).
Bollinger Bands
A volatility indicator consisting of a moving average with upper and lower bands set 2 standard deviations away. Price touching the bands can signal overbought/oversold conditions.
Breakaway Gap
A price gap that occurs at the start of a new trend, breaking through a consolidation or pattern boundary. Breakaway gaps usually have high volume and are rarely filled.
Breakdown
When price falls below a support level or the lower boundary of a pattern with conviction, typically on increased volume. The bearish equivalent of a breakout.
Breakout
When price moves above a resistance level or below a support level with conviction, typically accompanied by increased volume. Signals the start of a new directional move.
Broadening Formation
A chart pattern where price makes higher highs and lower lows, creating an expanding or megaphone shape. Indicates increasing volatility and disagreement between buyers and sellers.
Bull Trap
A false upside breakout that lures buyers in before reversing sharply lower. Price breaks above resistance, triggers buy orders, then falls back below, trapping longs.
Bear Trap
A false downside breakdown that lures sellers in before reversing sharply higher. Price breaks below support, triggers sell orders, then rebounds back above, trapping shorts.
Bullish
Expecting or indicating a rise in price. A bullish pattern suggests buying pressure is dominant and price is likely to rise.
Bullish Divergence
When price makes a lower low but an indicator (like RSI or MACD) makes a higher low, suggesting selling momentum is weakening. Often precedes a reversal to the upside.
Buy the Dip
A strategy of purchasing an asset after a price decline within an overall uptrend, anticipating the pullback is temporary and price will resume higher.
Break of Structure (BOS)
In Smart Money Concepts, when price breaks a previous swing high (in an uptrend) or swing low (in a downtrend), confirming the continuation of the current trend.
Bear Market
A sustained decline of 20% or more from recent highs, typically lasting months to years. Bear markets feature persistent lower highs and lower lows with periodic relief rallies that fail.
Bull Market
A sustained rise of 20% or more from recent lows, typically lasting months to years. Bull markets feature persistent higher highs and higher lows and are the best environment for bullish patterns.
C
Candlestick
A type of price chart that displays the open, high, low, and close for a given time period. Originated in 18th century Japan for rice trading. Each candle shows the price range and direction of movement.
Channel
Two parallel trendlines containing price action — an ascending channel trends up, a descending channel trends down, and a horizontal channel is a range. Breaks from channels signal potential trend changes.
Chop (Choppy Market)
A market condition with erratic, sideways price movement and no clear trend. Choppy markets frustrate trend-following strategies and often lead to false signals from patterns.
Climax Volume
An extreme spike in trading volume that typically marks the end of a trend move. Climax buying volume signals a potential top; climax selling volume signals a potential bottom.
Close
The last price at which an asset traded during a given time period. In a bullish candle, the close is above the open; in a bearish candle, below.
Confirmation
A subsequent price action signal that validates a pattern. For example, a bullish candle following a hammer confirms the reversal. Trading without confirmation increases risk.
Confluence
When multiple technical signals align at the same price level or time, increasing the probability of a successful trade. For example, a bullish engulfing at a key support level with RSI oversold.
Consolidation
A period of sideways price movement after a directional move, where the market pauses to digest gains or losses. Often precedes a breakout in the direction of the prior trend.
Continuation Pattern
A chart pattern that suggests the current trend will resume after a brief pause or consolidation. Examples include flags, pennants, and rising/falling three methods.
Counterattack Line
A two-candle pattern where the second candle opens with a gap in the direction of the trend but closes at the same level as the prior candle's close, signaling a potential reversal.
Cup and Handle
A bullish continuation pattern resembling a tea cup: a rounded bottom (cup) followed by a smaller pullback (handle). Breakout above the handle confirms the pattern and targets a measured move.
Closing Marubozu
A candlestick with no shadow on the closing side — no upper shadow on a bullish candle or no lower shadow on a bearish candle. Indicates strong conviction held through the close.
Concealing Baby Swallow
A rare bullish four-candle reversal pattern at the bottom of a downtrend, consisting of two marubozu bearish candles followed by a gapped-down candle with a high wick into the prior body and another bearish candle that engulfs the third.
Correction
A decline of 10% or more from a recent price peak in a broader uptrend. Corrections are larger than pullbacks but smaller than bear markets, and they reset overextended conditions.
Change of Character (CHoCH)
In Smart Money Concepts, the first sign that the market trend is changing — when price breaks a key swing high in a downtrend or a key swing low in an uptrend for the first time.
Capitulation
The final stage of a sell-off where remaining holders give up and sell in panic, creating extreme volume and price decline. Often marks the absolute bottom before a reversal.
Confirmation Bias
The tendency to seek out and favor information that confirms an existing belief while ignoring contradictory evidence. In trading, this leads to cherry-picking bullish signals while in a long position.
D
Dark Cloud Cover
A bearish two-candle reversal pattern where a large bearish candle opens above the prior bullish candle's high and closes below its midpoint, signaling a shift from buying to selling.
Dead Cat Bounce
A temporary recovery in a declining asset's price, followed by a continuation of the downtrend. The bounce creates a false sense of reversal before sellers regain control.
Deliberation
A bearish three-candle pattern similar to an advance block, where the third bullish candle is a small star or spinning top after two strong bullish candles, signaling indecision at the top.
Descending Triangle
A bearish chart pattern formed by a flat support line and a falling resistance line, indicating sellers are becoming more aggressive. Breakdown below support confirms the pattern.
Diamond Pattern
A rare chart pattern that forms when a broadening formation transitions into a symmetrical triangle, creating a diamond shape. Diamond tops are bearish; diamond bottoms are bullish.
Distribution
A phase where institutional investors quietly sell large positions without crashing the price. Identified by sideways action at highs with increasing volume on down moves.
Divergence
A discrepancy between price action and an indicator's reading. Regular divergence signals potential reversals; hidden divergence signals trend continuation.
Doji
A candlestick where the open and close prices are virtually identical, creating a cross or plus shape. Represents indecision between buyers and sellers. The type of doji depends on shadow lengths.
Double Bottom
A bullish reversal chart pattern where price tests a support level twice, forming a 'W' shape. The pattern is confirmed when price breaks above the peak between the two lows.
Double Top
A bearish reversal chart pattern where price tests a resistance level twice, forming an 'M' shape. Confirmed when price breaks below the trough between the two peaks.
Downtrend
A sustained decline in price characterized by a series of lower highs and lower lows. Bearish patterns are most reliable when they appear within a confirmed downtrend.
Dragonfly Doji
A doji with a long lower shadow and virtually no upper shadow, where the open, close, and high are at or near the same price. A bullish signal when found at support, showing rejection of lower prices.
Drawdown
The peak-to-trough decline in account equity before a new high is reached. Maximum drawdown measures the worst-case capital decline and is a key metric for evaluating trading strategies.
Day Trading
A trading style where all positions are opened and closed within the same trading day. Day traders rely on intraday charts, fast execution, and tight risk management.
Death Cross
A bearish signal that occurs when a shorter-term moving average (typically 50-day) crosses below a longer-term moving average (typically 200-day). The opposite of a golden cross.
Discipline
The ability to follow a trading plan consistently, executing entries and exits as planned regardless of emotions. Discipline is widely considered the single most important trait for trading success.
Demand Zone
A price area where buying pressure (demand) exceeds selling pressure, causing price to rally. In SMC, demand zones are identified around previous strong up-moves and act as support areas.
E
EMA (Exponential Moving Average)
A moving average that gives more weight to recent prices, making it more responsive to new information than a simple moving average. Common periods include 9, 21, 50, and 200.
Engulfing Pattern
A two-candle reversal pattern where the second candle's body completely covers (engulfs) the first candle's body. Bullish engulfing appears at bottoms; bearish engulfing at tops.
Entry
The price or condition at which a trader opens a position. Aggressive entries are taken immediately on pattern completion; conservative entries wait for additional confirmation.
Evening Star
A bearish three-candle reversal pattern: large bullish candle, small-bodied star candle, large bearish candle. The mirror image of the morning star, signaling the end of an uptrend.
Exhaustion Gap
A price gap that occurs near the end of a strong trend, signaling that the move is running out of steam. Unlike breakaway gaps, exhaustion gaps are typically filled quickly.
Elliott Wave Theory
A technical analysis framework proposing that markets move in predictable wave patterns: five impulse waves in the trend direction followed by three corrective waves. Developed by Ralph Nelson Elliott in the 1930s.
Expectancy
A formula that calculates the average amount a trader can expect to win or lose per trade: (Win Rate x Average Win) - (Loss Rate x Average Loss). Positive expectancy is required for long-term profitability.
Equity Curve
A graph plotting cumulative profit/loss over time. A smooth, upward-sloping equity curve indicates consistent profitability. Sharp drawdowns or flat periods signal strategy issues.
F
Fair Value Gap (FVG)
A price imbalance where a candle's body doesn't overlap with the body two candles prior, creating a 'gap' in the price auction. Institutional traders often return to fill these gaps.
False Breakout
When price briefly breaks through a support or resistance level but quickly reverses back, trapping traders who entered on the breakout. Also known as a fakeout or trap.
Fibonacci Retracement
Horizontal lines based on Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) drawn between a swing high and low. These levels often act as support/resistance and are used to identify potential reversal zones.
Fibonacci Extension
Fibonacci ratios projected beyond the initial swing to identify potential profit targets. Common extension levels include 127.2%, 161.8%, and 261.8%.
Flag
A continuation pattern formed by a sharp price move (flagpole) followed by a rectangular consolidation that slopes against the prior trend. Breakout from the flag resumes the original move.
Flagpole
The sharp, nearly vertical price move that precedes a flag or pennant pattern. The length of the flagpole is often used to project the target after the pattern breaks out.
FOMO (Fear of Missing Out)
The anxiety-driven urge to enter a trade after seeing a big move, fearing further gains will be missed. FOMO leads to chasing entries at poor prices and is one of the most destructive trading emotions.
Forward Testing (Paper Trading)
Testing a trading strategy in real-time with simulated money to validate backtesting results. Forward testing reveals execution challenges, slippage, and emotional factors not captured by backtests.
Falling Wedge
A bullish pattern formed by converging downward-sloping trendlines where the resistance line falls faster than the support line. Despite the downward bias, the narrowing range signals weakening selling pressure.
Four Price Doji
An extremely rare doji where the open, high, low, and close are all at the same price, appearing as a horizontal line. Represents absolute market inactivity and extreme indecision.
Falling Three Methods
A five-candle bearish continuation pattern: a large bearish candle, three small bullish candles staying within its range, then another large bearish candle closing below the first.
Fear and Greed
The two primary emotions driving market cycles. Fear causes panic selling at bottoms; greed causes euphoric buying at tops. Successful traders learn to act against the crowd at emotional extremes.
G
Gap Fill
When price returns to the area of a prior gap, closing the unfilled space. Many traders anticipate gap fills, particularly for common gaps and exhaustion gaps.
Gap
A price area where no trading occurred, visible as a space between two candles on a chart. Gaps can signal strong sentiment, news events, or institutional activity.
Golden Cross
A bullish signal that occurs when a shorter-term moving average (typically 50-day) crosses above a longer-term moving average (typically 200-day). Widely watched by institutional and retail traders alike.
Gravestone Doji
A doji with a long upper shadow and virtually no lower shadow, where the open, close, and low are at or near the same price. A bearish signal at resistance, showing rejection of higher prices.
Gap and Go
A momentum trading strategy that enters long on stocks that gap up at the open on high volume and continue moving higher. The gap shows strong demand, and the continuation confirms follow-through.
Gap Down Reversal
A bullish pattern where price gaps down at the open but reverses and closes higher, filling the gap. The rejection of lower prices shows strong buying interest despite the initial bearish gap.
H
Hammer
A bullish single-candle reversal pattern with a small body at the top and a long lower shadow (at least 2x the body). Appears at the bottom of downtrends and signals rejection of lower prices.
Hanging Man
A bearish single-candle pattern identical in shape to a hammer but appears at the top of an uptrend. The long lower shadow shows that sellers briefly took control, warning of potential reversal.
Harami
A two-candle pattern where the second candle's body is completely contained within the first candle's body. Japanese for 'pregnant'. Signals potential reversal as momentum weakens.
Head and Shoulders
A bearish reversal pattern with three peaks: two lower 'shoulders' flanking a higher 'head'. The pattern confirms when price breaks below the neckline connecting the troughs.
High
The highest price reached during a given time period, represented by the top of the upper shadow (wick) on a candlestick.
Higher High
A swing high that exceeds the previous swing high, confirming an uptrend. A series of higher highs combined with higher lows defines a bullish market structure.
Higher Low
A swing low that is above the previous swing low, confirming buyers are stepping in at progressively higher prices. The hallmark of bullish market structure.
Hikkake
A pattern based on a failed inside bar breakout. Price breaks one side of the inside bar, reverses, and breaks the opposite side, trapping traders who acted on the initial breakout.
Harami Cross
A two-candle pattern where the second candle is a doji completely contained within the first candle's body. The doji adds stronger indecision than a regular harami, making it a more potent reversal signal.
High Tight Flag
A rare and powerful bullish continuation pattern where price doubles (100%+ gain) in a short time, then consolidates in a tight range (pullback less than 20-25%). The breakout often leads to another explosive move.
Hedging
Opening a position to offset potential losses in another position. Hedging reduces risk but also limits profit potential. Common hedging tools include options, inverse ETFs, and correlated assets.
Head Fake
A deceptive price move that appears to start a new trend or breakout but quickly reverses. Similar to a false breakout but can also refer to misleading moves within established ranges.
I
Ichimoku Cloud (Ichimoku Kinko Hyo)
A comprehensive indicator system featuring five lines and a 'cloud' that shows support/resistance, trend direction, and momentum at a glance. Developed by Japanese journalist Goichi Hosoda.
Implied Volatility (IV)
The market's forecast of future price volatility derived from option prices. High IV means options are expensive and big moves are expected; low IV suggests calm markets ahead.
Impulse Wave
A strong, directional price move in the direction of the larger trend, typically with expanding volume. In Elliott Wave theory, impulse waves consist of five sub-waves.
Indecision
A market state where neither buyers nor sellers have clear control, often shown by doji candles, spinning tops, or tight-range bars. Indecision often precedes breakouts.
Inside Bar
A candle whose entire range (high to low) is contained within the range of the previous candle. Signals consolidation and a potential breakout in either direction.
Inverse Head and Shoulders
A bullish reversal pattern with three troughs: two higher 'shoulders' flanking a lower 'head'. The mirror image of head and shoulders. Confirms when price breaks above the neckline.
Inverted Hammer
A bullish single-candle reversal pattern with a small body at the bottom and a long upper shadow. Appears at the bottom of downtrends, suggesting buyers are starting to test higher prices.
Island Reversal
A reversal pattern where a cluster of candles is isolated by gaps on both sides, forming an 'island' of price action. The gap isolation signals a dramatic shift in sentiment.
In Neck Pattern
A bearish two-candle continuation pattern where a bullish candle closes at or just above the low of the prior bearish candle. The weak bounce suggests selling pressure remains dominant.
Inverted Cup and Handle
A bearish continuation pattern that mirrors the cup and handle — a rounded top (inverted cup) followed by a small upward consolidation (handle). Breakdown below the handle confirms further decline.
K
Keltner Channels
A volatility-based indicator using an EMA center line with upper and lower bands based on ATR. Similar to Bollinger Bands but uses ATR instead of standard deviation, producing smoother bands.
Key Reversal
A single-bar pattern where price makes a new high (or low) in the direction of the trend, then reverses and closes beyond the prior bar's range. Signals a dramatic intraday shift in control.
Kicker Pattern
A powerful two-candle reversal pattern where the second candle opens with a gap in the opposite direction and moves strongly away. One of the most reliable candlestick reversal signals.
L
Ladder Pattern
A multi-candle pattern (ladder bottom or ladder top) where a series of sequential candles with overlapping bodies stair-step in one direction before a reversal candle signals exhaustion.
Limit Order
An order to buy or sell at a specified price or better. Buy limits are placed below the current price; sell limits above. Unlike market orders, limit orders guarantee price but not execution.
Liquidity
In Smart Money Concepts, refers to clusters of stop losses sitting above swing highs or below swing lows. Institutions seek liquidity to fill large orders, often driving price to these levels before reversing.
Liquidity Grab
A rapid price move that sweeps through an area of clustered stop losses or pending orders before reversing. Institutions use liquidity grabs to accumulate or distribute positions at favorable prices.
Long (Long Position)
Buying an asset with the expectation that its price will rise. Going long means you profit when price increases and lose when it decreases.
Low
The lowest price reached during a given time period, represented by the bottom of the lower shadow (wick) on a candlestick.
Lower High
A swing high that is below the previous swing high, indicating sellers are gaining control at progressively lower levels. A key characteristic of downtrends.
Lower Low
A swing low that is below the previous swing low, confirming a downtrend. Combined with lower highs, lower lows define bearish market structure.
Leverage
Using borrowed capital to increase the potential return of an investment. While leverage amplifies gains, it equally amplifies losses and can lead to margin calls or account liquidation.
Long-Legged Doji
A doji with exceptionally long upper and lower shadows, indicating extreme indecision as both buyers and sellers tested far from the open/close before being rejected.
M
MACD (Moving Average Convergence Divergence)
A trend-following momentum indicator showing the relationship between two EMAs (typically 12 and 26 period). The MACD line, signal line, and histogram help identify trend changes and momentum shifts.
Margin
Borrowed capital from a broker used to increase trading position size. Margin amplifies both gains and losses. A margin call occurs when account equity falls below the broker's required minimum.
Market Maker
A firm or individual that provides liquidity by continuously quoting bid and ask prices, profiting from the spread. Market makers facilitate smooth trading but can also influence short-term price action.
Market Order
An order to buy or sell immediately at the best available price. Market orders guarantee execution but not price, and can experience slippage in fast-moving or illiquid markets.
Market Structure
The framework of swing highs and swing lows that defines the current trend. Higher highs and higher lows = bullish structure; lower highs and lower lows = bearish structure. A break of structure signals a potential trend change.
Marubozu
A candlestick with no shadows (wicks), meaning the open equals the high or low, and the close equals the other extreme. Represents maximum conviction — buyers or sellers controlled the entire session.
Mean Reversion
The theory that price tends to return to its average over time. Extreme deviations from moving averages or Bollinger Bands are expected to revert. Contrarian strategies exploit mean reversion.
Measured Move
A price target calculated by measuring the height of a pattern and projecting it from the breakout point. Used to set take-profit levels for flags, triangles, head and shoulders, and other patterns.
Momentum
The rate of change in price over a given period. Strong momentum indicates conviction behind a move; fading momentum warns of potential exhaustion. Measured by indicators like RSI, MACD, and Rate of Change.
Morning Star
A bullish three-candle reversal pattern: large bearish candle → small-bodied star candle → large bullish candle. Named after the planet Venus appearing before sunrise, heralding a new day.
Moving Average
A smoothed line calculated by averaging price over a specified number of periods. Moving averages reduce noise, identify trends, and provide dynamic support/resistance. Common types are SMA and EMA.
Multiple Time Frame Analysis
Analyzing the same asset across different time frames (e.g., daily, 4-hour, 1-hour) to get a comprehensive view. Higher time frames define the trend; lower time frames refine entries.
Mat Hold
A five-candle bullish continuation pattern: a large bullish candle followed by three small bearish/neutral candles that stay within the first candle's range, then another large bullish candle.
Matching High
A bearish two-candle pattern where two consecutive candles close at the same or nearly the same high, suggesting a double resistance test and potential reversal downward.
Matching Low
A bullish two-candle pattern where two consecutive candles close at the same or nearly the same low, suggesting a double support test and potential reversal upward.
N
Neckline
The support or resistance line connecting the troughs (in head and shoulders) or peaks (in inverse H&S). A break of the neckline confirms the pattern.
Neutral
A market bias that is neither bullish nor bearish, indicating indecision or balance between buyers and sellers. Neutral patterns can break in either direction.
O
OBV (On-Balance Volume)
A cumulative volume indicator that adds volume on up days and subtracts it on down days. Rising OBV confirms bullish price action; divergence between OBV and price can signal reversals.
Open
The first price at which an asset traded during a given time period. In candlestick charts, the open is one edge of the candle body.
Opening Marubozu
A candlestick with no shadow on the opening side — no lower shadow on a bullish candle or no upper shadow on a bearish candle. Shows strong conviction from the open but some profit-taking by the close.
Order Block
In Smart Money Concepts, the last opposing candle before a strong impulsive move. This area represents where institutional orders were placed and often acts as a zone for price to return to.
Outside Bar
A candle whose range (high to low) completely engulfs the range of the previous candle. Signals a volatility expansion and potential trend change, especially at key support/resistance levels.
Overbought
A condition where an asset's price has risen too far too fast, making it vulnerable to a pullback. Often identified by RSI above 70 or price extended beyond Bollinger Bands.
Oversold
A condition where an asset's price has fallen too far too fast, making it ripe for a bounce. Often identified by RSI below 30 or price below lower Bollinger Band.
On Neck Pattern
A bearish two-candle continuation pattern where a bullish candle closes right at the low of the prior bearish candle. The bounce is completely absorbed by the prior bearish momentum.
Overtrading
Taking too many trades, often due to boredom, FOMO, or the desire to recover losses. Overtrading increases transaction costs, reduces selectivity, and typically degrades performance.
Options
Financial derivatives giving the right (but not obligation) to buy (call) or sell (put) an asset at a specified price before expiration. Options can be used for directional bets, hedging, or income generation.
Order Flow
The stream of buy and sell orders entering the market. Order flow analysis examines the depth and imbalances of orders to anticipate short-term price direction.
P
Pennant
A continuation pattern similar to a flag but with converging trendlines, forming a small symmetrical triangle after a sharp move (flagpole). Breakout resumes the prior trend direction.
Piercing Line
A bullish two-candle reversal pattern where a bearish candle is followed by a bullish candle that opens below the prior low but closes above the midpoint of the first candle's body.
Pin Bar
A candle with a very small body and a long shadow (wick) extending in one direction. A bullish pin bar has a long lower wick (similar to hammer); a bearish pin bar has a long upper wick (similar to shooting star).
Pivot Point
A calculated price level based on the previous period's high, low, and close, used to determine potential support and resistance levels. Day traders use pivot points for intraday directional bias.
Position Sizing
Determining how many shares, lots, or contracts to trade based on account size, risk tolerance, and stop loss distance. Critical for surviving losing streaks and compounding gains.
Power of Three (PO3)
An ICT/SMC concept describing the three phases of institutional price delivery: accumulation, manipulation (stop hunt), and distribution (expansion). Each session or candle often follows this cycle.
Price Action
A trading methodology that analyzes raw price movement on charts without relying on lagging indicators. Price action traders read candles, patterns, support/resistance, and market structure directly.
Pullback
A temporary price movement against the prevailing trend. Pullbacks in uptrends are buying opportunities; pullbacks in downtrends are shorting opportunities. Distinguished from reversals by their smaller size and shorter duration.
Paper Umbrella
A generic term for candlesticks with a small body at the top and a long lower shadow, encompassing both hammers (bullish, at bottoms) and hanging men (bearish, at tops).
Position Trading
A long-term trading style that holds positions for weeks to months, capturing major trend moves. Position traders use weekly/monthly charts and wider stops than swing or day traders.
Pipe Pattern
A two-candle reversal pattern consisting of two long-shadowed candles (like hammers or hanging men) side by side. Pipe bottoms are bullish; pipe tops are bearish.
R
Range
A horizontal trading zone bounded by defined support and resistance levels where price oscillates without establishing a trend. Range-bound strategies buy at support and sell at resistance.
Rectangle Pattern
A chart pattern where price bounces between parallel horizontal support and resistance levels. Can be a continuation or reversal pattern depending on the breakout direction.
Rejection
When price tests a level but fails to hold and reverses away from it, often shown by long shadows (wicks). Rejection candles at support or resistance are important reversal signals.
Resistance
A price level where selling pressure historically prevents further upward movement. Resistance acts as a ceiling that price struggles to break above.
Retest
When price returns to a recently broken support or resistance level to test it from the other side. Successful retests (where the old resistance holds as new support, or vice versa) confirm breakouts.
Retracement
A temporary reversal in price direction within a larger trend. Retracements are typically measured using Fibonacci ratios. A shallow retracement (23.6-38.2%) indicates a strong trend; a deep retracement (61.8-78.6%) may signal a reversal.
Revenge Trading
The destructive habit of immediately entering new trades to recover losses from a losing trade, often with larger size and less planning. One of the fastest ways to blow up a trading account.
Reversal Pattern
A chart pattern that signals the current trend is about to change direction. Bullish reversals appear at the end of downtrends; bearish reversals at the end of uptrends.
Risk Management
The process of identifying, assessing, and controlling trading risks through stop losses, position sizing, diversification, and maximum drawdown rules. Without risk management, even the best patterns will eventually lead to ruin.
Risk-Reward Ratio (R:R)
The ratio of potential loss to potential gain on a trade. A 1:2 R:R means risking $1 to potentially make $2. Most pattern traders target a minimum of 1:1.5 or 1:2.
Rising Wedge
A bearish pattern formed by converging upward-sloping trendlines where the support line rises faster than the resistance line. Despite the upward bias, the narrowing range signals weakening buying pressure.
Rounding Bottom
A bullish reversal pattern that forms a gradual, U-shaped curve as selling pressure slowly gives way to buying pressure over an extended period. Also called a saucer bottom.
Rounding Top
A bearish reversal pattern that forms a gradual, inverted-U shape as buying pressure slowly fades and selling pressure increases. The opposite of a rounding bottom.
RSI (Relative Strength Index)
A momentum oscillator measuring the speed and magnitude of recent price changes on a scale of 0-100. RSI above 70 suggests overbought; below 30 suggests oversold.
Runaway Gap (Measuring Gap)
A gap that occurs in the middle of a strong trend, indicating continued momentum. Also called a measuring gap because it often marks the halfway point of the move.
Rising Three Methods
A five-candle bullish continuation pattern: a large bullish candle, three small bearish candles staying within its range, then another large bullish candle closing above the first. Shows the trend is just pausing.
Relative Volume (RVOL)
Current volume compared to the average volume for the same time of day. RVOL above 2x indicates unusual activity and strengthens chart pattern signals. Used to filter high-conviction setups.
S
See EMA
See EMA (Exponential Moving Average).
Scalping
A fast-paced trading style that aims to profit from very small price movements, holding positions for seconds to minutes. Scalpers rely on tight spreads, fast execution, and high volume of trades.
Selling Climax
An extreme downward price move on very high volume that marks a potential bottom. Sellers exhaust themselves in a panic, creating conditions for a reversal as buyers step in at deeply discounted prices.
Shadow (Wick)
The thin lines above and below the candlestick body, representing the high-to-close/open and low-to-close/open price ranges. Long shadows indicate rejection of a price level.
Shooting Star
A bearish single-candle reversal pattern with a small body at the bottom and a long upper shadow (at least 2x the body). Appears at the top of uptrends, signaling rejection of higher prices.
Short (Short Selling)
Selling a borrowed asset with the expectation of buying it back at a lower price. Short sellers profit when prices decline and lose when prices rise. Bearish patterns provide short entry signals.
Short Squeeze
A rapid price increase caused by short sellers being forced to buy back shares to cover their losing positions, which creates additional buying pressure and drives the price even higher.
Slippage
The difference between the expected price of a trade and the actual execution price. Slippage is more common in fast markets, low-liquidity conditions, and with market orders.
SMA (Simple Moving Average)
A moving average calculated by taking the arithmetic mean of closing prices over a specified number of periods. Each period receives equal weight. The 50 and 200 SMA are widely watched levels.
Smart Money
Institutional traders, hedge funds, and market makers who have the capital and information to influence market direction. Smart Money Concepts (SMC) is a methodology for tracking their footprints in price action.
Spinning Top
A candlestick with a small body in the middle and long shadows on both sides, indicating equal indecision between buyers and sellers. Similar to a doji but with a slightly wider body.
Spread
The difference between the bid (buy) and ask (sell) price. Tighter spreads indicate higher liquidity and lower trading costs. Spreads widen during volatile periods or in illiquid markets.
Spring (Wyckoff Spring)
In Wyckoff analysis, a sharp price drop below support that quickly reverses back into the range, shaking out weak holders. The spring tests supply and often marks the start of the markup phase.
Squeeze
A period of abnormally low volatility where Bollinger Bands narrow inside Keltner Channels. Squeezes often precede explosive breakout moves. Also used to describe short squeezes.
Stochastic Oscillator
A momentum indicator comparing the closing price to the price range over a given period on a 0-100 scale. The %K and %D lines generate crossover signals. Above 80 is overbought; below 20 is oversold.
Stop Hunt
A deliberate price move designed to trigger clusters of stop-loss orders before reversing. Institutions and market makers may push price through obvious stop levels to accumulate liquidity.
Stop-Limit Order
A combination order that triggers a limit order once a specified stop price is reached. Offers more price control than a stop order but risks non-execution if price gaps past the limit.
Stop Loss
A predetermined price level at which a trader exits a losing position to limit losses. Proper stop placement is critical — too tight gets stopped out on noise, too wide risks too much capital.
Stop Order (Stop-Market Order)
An order that becomes a market order once a specified stop price is reached. Buy stops are placed above the current price; sell stops below. Used for breakout entries and stop losses.
Support
A price level where buying pressure historically prevents further downward movement. Support acts as a floor that price bounces from.
Swing High
A price peak flanked by lower highs on both sides. Swing highs define resistance levels, mark potential short entries, and are used to determine market structure and trend direction.
Swing Low
A price trough flanked by higher lows on both sides. Swing lows define support levels, mark potential long entries, and are used to determine market structure and trend direction.
Swing Trading
A trading style that holds positions for several days to weeks, aiming to capture 'swings' within larger trends. Chart patterns are particularly suited to swing trading time frames.
Symmetrical Triangle
A neutral chart pattern formed by converging trendlines where both resistance falls and support rises, creating a contracting range. Can break in either direction, often continuing the prior trend.
Separating Lines
A two-candle continuation pattern where the second candle opens at the same price as the first but moves in the trend direction. Bullish separating lines: bearish candle then bullish open at same level.
Stick Sandwich
A three-candle bullish reversal pattern: bearish candle, bullish candle, bearish candle — where the first and third candles have the same closing price, creating a 'sandwich' support level.
Supply Zone
A price area where selling pressure (supply) exceeds buying pressure, causing price to decline. In SMC, supply zones are identified around previous strong down-moves and act as resistance areas.
T
Take Profit
A predetermined price level at which a trader exits a winning position to lock in gains. Multiple take-profit targets allow scaling out of positions.
Three Black Crows
A bearish three-candle pattern consisting of three consecutive long-bodied bearish candles, each opening within the prior candle's body and closing progressively lower. Signals strong selling conviction.
Three Line Strike
A four-candle pattern where three candles in the same direction are followed by a single large opposite candle that engulfs all three. Can be bullish or bearish depending on context.
Three White Soldiers
A bullish three-candle pattern consisting of three consecutive long-bodied bullish candles, each opening within the prior candle's body and closing progressively higher. Signals strong buying conviction.
Tilt
An emotional state of frustration or anger that impairs trading judgment, typically following a series of losses or a single large loss. Borrowed from poker terminology. Results in impulsive, unplanned trades.
Time Frame
The duration of each candlestick or bar on a chart. Common time frames include 1-minute, 5-minute, 15-minute, 1-hour, 4-hour, daily, weekly, and monthly. Longer time frames produce more reliable signals.
Trailing Stop
A stop loss that automatically adjusts upward (for longs) or downward (for shorts) as price moves in your favor, locking in profits while allowing the trade to continue running.
Trend
The overall direction of price movement. An uptrend makes higher highs and higher lows; a downtrend makes lower highs and lower lows. Most patterns work best when aligned with the trend.
Trendline
A straight line connecting two or more price points (swing lows in uptrends, swing highs in downtrends) that acts as dynamic support or resistance. The more touches, the more significant the trendline.
Triple Bottom
A bullish reversal chart pattern where price tests a support level three times, forming three roughly equal lows. Confirmed when price breaks above the resistance connecting the intervening peaks.
Triple Top
A bearish reversal chart pattern where price tests a resistance level three times, forming three roughly equal highs. Confirmed when price breaks below the support connecting the intervening troughs.
Tweezer Pattern
A two-candle reversal pattern where consecutive candles share the same high (tweezer top) or the same low (tweezer bottom). The matching extremes indicate a strong level where price is being rejected.
Trading Psychology
The emotional and mental aspects of trading that affect decision-making. Key challenges include fear, greed, FOMO, revenge trading, overconfidence, and analysis paralysis.
Thrusting Pattern
A bearish two-candle continuation pattern where a bullish candle closes above the low but below the midpoint of the prior bearish candle. Slightly more bullish than on-neck but still considered bearish continuation.
Tri Star
A rare three-doji reversal pattern where three consecutive doji candles appear, with the middle doji gapping away from the others. Signals extreme indecision and a likely reversal.
Two Crows
A bearish three-candle pattern: a bullish candle, a small bearish candle that gaps up, then a larger bearish candle that opens within the second candle and closes into the first. Signals uptrend weakness.
Trading Plan
A comprehensive document outlining a trader's strategy, including entry/exit rules, risk management, market selection, time frames, and position sizing. Successful traders always trade from a written plan.
U
Upthrust
In Wyckoff analysis, a sharp move above resistance that quickly reverses back into the range, trapping buyers. The upthrust tests demand and often marks the start of the markdown phase.
Uptrend
A sustained increase in price characterized by a series of higher highs and higher lows. Bullish patterns are most reliable when they appear within a confirmed uptrend.
V
VCP (Volatility Contraction Pattern)
A pattern identified by Mark Minervini where price consolidates in a series of tightening contractions (each pullback smaller than the last), indicating supply is being absorbed before a breakout.
Volatility
The degree of price variation over time. High volatility means large price swings; low volatility means small movements. Volatility tends to be mean-reverting — periods of low volatility precede high volatility and vice versa.
Volume
The number of shares, contracts, or lots traded during a given period. Volume confirms the strength of price moves — a breakout on high volume is more reliable than one on low volume.
Volume Profile
A charting tool that displays the volume traded at each price level over a specified period, creating a histogram on the price axis. High-volume nodes act as support/resistance; low-volume gaps are areas of fast price movement.
V-Reversal
A sharp, quick reversal from a downtrend to an uptrend (or vice versa) with almost no consolidation, forming a V-shape on the chart. Difficult to trade as there is little time to enter.
VWAP (Volume Weighted Average Price)
The average price weighted by volume throughout the trading day. Institutional traders often use VWAP as a benchmark — price above VWAP is bullish, below is bearish.
W
Wedge
A chart pattern formed by two converging trendlines that both slope in the same direction. Rising wedges are bearish; falling wedges are bullish. The narrowing price range signals weakening momentum.
Whipsaw
Rapid price reversals that trigger stop losses on both sides before making a sustained move. Whipsaws are common in choppy, low-liquidity markets and around major news events.
Window
The Japanese candlestick term for a gap. A rising window (gap up) is bullish; a falling window (gap down) is bearish. In Japanese charting tradition, windows are expected to be 'closed' (filled).
Win Rate
The percentage of trades that result in a profit. A 50% win rate with a 2:1 risk-reward ratio is profitable. Win rate alone doesn't determine profitability — it must be paired with risk-reward ratio.
Wyckoff Method
A technical analysis approach developed by Richard Wyckoff focusing on the relationship between price and volume to understand supply/demand dynamics and identify institutional activity.