Trading Glossary
Every trading term you need to know, explained in plain English. 55 terms from A to Z.
A
Ask
The price at which a seller is willing to sell. Also called the 'offer' price. You buy at the ask.
B
Bid
The price at which a buyer is willing to buy. You sell at the bid. The difference between bid and ask is the spread.
Bear / Bearish
A trader who expects prices to fall. A bear market is one where prices are declining by 20% or more from recent highs.
Bull / Bullish
A trader who expects prices to rise. A bull market is one where prices are rising or expected to rise.
C
Candlestick
A chart element showing the open, high, low, and close price for a given timeframe. Green/white = bullish (close above open). Red/black = bearish (close below open).
CFD
Contract for Difference. A derivative that lets you speculate on price movements without owning the underlying asset. You trade the price difference between entry and exit.
Commission
A fee charged by a broker per trade, usually per lot traded. Some brokers charge zero commission but widen the spread instead.
Correlation
The statistical relationship between two assets. Positive correlation = they move together. Negative correlation = they move inversely. Important for portfolio risk.
D
Day Trading
Opening and closing trades within the same trading day. No overnight positions. Requires discipline and quick decision-making.
Divergence
When price makes a new high/low but an indicator (like RSI) doesn't. Suggests momentum is weakening and a reversal may be coming.
Drawdown
The peak-to-trough decline in your account balance. A 20% drawdown means your account dropped from its high by 20%. Key risk metric.
E
Entry
The price at which you open a trade. A good entry reduces risk and improves risk:reward ratio.
Exit
The price at which you close a trade — either at your take profit target or stop loss.
F
Fair Value Gap (FVG)
A three-candle pattern in Smart Money Concepts where the middle candle creates a gap between candles 1 and 3. Represents price imbalance likely to be filled.
FOMO
Fear Of Missing Out. The emotional urge to enter a trade because price is moving and you don't want to miss the move. A dangerous impulse.
Fundamental Analysis
Analysing the intrinsic value of an asset based on economic data, earnings, news, and financial statements rather than chart patterns.
G
Gap
A space on a chart where no trading occurred. Often happens between market close and open. Gaps frequently get 'filled' as price returns to that level.
H
Hedge
A trade taken to offset potential losses from another position. For example, going long gold while short the dollar.
I
Indicator
A mathematical calculation applied to price/volume data. Examples: RSI, MACD, Moving Averages, Bollinger Bands. Lagging by nature.
L
Leverage
Using borrowed capital to increase position size. 10:1 leverage means £1,000 controls £10,000 of the asset. Amplifies both gains AND losses.
Limit Order
An order to buy below the current price or sell above it. Only executes at your specified price or better. More control than market orders.
Liquidity
How easily an asset can be bought/sold without significantly affecting its price. High liquidity = tight spreads, easy fills. Low liquidity = slippage risk.
Long
Buying an asset expecting the price to rise. 'Going long' on GBP/USD means you profit if the price goes up.
Lot
A standardised unit of measurement in forex. 1 standard lot = 100,000 units. Mini lot = 10,000. Micro lot = 1,000.
M
Margin
The deposit required to open a leveraged position. If a broker offers 10:1 leverage, the margin is 10% of the trade's value.
Market Order
An order to buy or sell immediately at the best available price. Fast execution but you may get slight slippage.
Momentum
The rate of change of price movement. Strong momentum = price moving quickly in one direction. Measured by indicators like RSI or MACD.
Moving Average
An indicator that smooths price data over a set period. The 200-day moving average is widely watched by institutions as a key trend indicator.
O
Order Block
In Smart Money Concepts, the last candle before a strong impulsive move. Represents a zone of institutional interest where large orders were placed.
P
Pip
The smallest standard price move in forex. For most pairs, it's the 4th decimal place (0.0001). For JPY pairs, it's the 2nd decimal (0.01).
Portfolio
Your collection of investments and open positions across different assets. Diversification across a portfolio reduces overall risk.
Position
An active trade you have in the market. An 'open position' is one that hasn't been closed yet.
Price Action
The study of raw price movement without indicators. Focuses on candlestick patterns, market structure, support/resistance, and order flow.
Pullback
A temporary move against the overall trend. In an uptrend, a pullback is a brief dip before price continues higher. Often good entry points.
R
Range
A period where price moves sideways between defined support and resistance levels. No clear trend direction.
Resistance
A price level where selling pressure has historically been strong enough to prevent price from rising further. Becomes support if broken.
Reversal
A change in the overall direction of price. An uptrend reversing into a downtrend, or vice versa. Confirmed by break of structure.
Risk:Reward Ratio
The ratio of how much you stand to lose versus how much you stand to gain. A 1:3 R:R means risking £100 to potentially make £300.
RSI
Relative Strength Index. A momentum oscillator ranging from 0-100. Traditionally, above 70 = overbought, below 30 = oversold. Often misused by retail.
S
Scalping
A trading style involving very short-term trades (seconds to minutes) aiming for small, frequent profits. Requires fast execution and low spreads.
Short
Selling an asset expecting the price to fall. You profit if the price goes down. With CFDs, you can short without owning the asset.
Slippage
The difference between your expected trade price and the actual execution price. More common in fast-moving or low-liquidity markets.
Smart Money
Institutional market participants — banks, hedge funds, market makers. They have more capital, information, and technology than retail traders.
Spread
The difference between the bid and ask price. This is one way brokers make money. Tighter spreads = lower trading costs for you.
Stop Loss
An order to automatically close your position at a predetermined loss level. Essential for risk management. Never trade without one.
Support
A price level where buying pressure has historically been strong enough to prevent price from falling further. Becomes resistance if broken.
Swing Trading
A trading style that holds positions for days to weeks, capturing larger price swings. Less screen time than day trading.
T
Technical Analysis
Analysing price charts, patterns, and indicators to predict future price movements. Based on the idea that price history tends to repeat.
Timeframe
The time period each candlestick represents. Common timeframes: 1-minute, 5-minute, 15-minute, 1-hour, 4-hour, daily, weekly.
Trailing Stop
A stop loss that moves with price in your favour. Locks in profits as the trade moves your way but still protects against reversals.
Trend
The overall direction of price movement. Uptrend = higher highs and higher lows. Downtrend = lower highs and lower lows. The trend is your friend.
V
Volume
The number of units (shares, contracts, lots) traded in a given period. High volume = conviction. Low volume = weak move. Confirms price action.
Volatility
How much and how quickly price moves. High volatility = bigger swings, more risk and opportunity. Measured by indicators like ATR.
W
Wick
The thin line above or below a candlestick body showing the high/low reached. Long wicks often signal rejection of a price level.
Wyckoff
Richard Wyckoff's methodology for understanding market structure. Includes accumulation, markup, distribution, and markdown phases. Foundation of SMC.