Trading Glossary
The words you'll meet across price action, options and smart money concepts — defined in plain English, the way we'd explain them to a student. Search it, or browse by topic.
Risk & the basics
- Risk-to-reward ratio
- How much you stand to gain compared with what you're risking on a trade. Risking $1 to make $2 is a 1:2 ratio. Trading with a positive ratio is what lets you be profitable even when you're wrong more often than right. Size a trade →
- Position sizing
- Deciding how many shares, contracts or units to trade so a single loss only costs a set, small slice of your account. It's the first decision a disciplined trader makes — before entry, not after. Position size tool →
- Stop-loss
- A predefined price where you'll exit a losing trade to cap the damage. Setting it before you enter turns an emotional decision into a mechanical one.
- Drawdown
- The drop from an account's peak to its low point before it recovers. Understanding your likely drawdown keeps you from over-betting and blowing up in a rough patch.
- Expectancy
- The average amount you can expect to win or lose per trade over many trades, given your win rate and your average win versus average loss. Positive expectancy is the whole game. Expectancy tool →
- Leverage
- Using borrowed capital to control a larger position than your cash alone would allow. It magnifies gains and losses equally — which is exactly why it has to be respected.
- Volatility
- How much and how fast a market's price moves. Higher volatility means bigger swings — more opportunity, but also more risk per trade.
- Bid–ask spread
- The gap between the highest price buyers will pay (bid) and the lowest price sellers will accept (ask). A wider spread is a real cost you pay on every entry and exit.
- Compounding
- Earning returns on your previous returns, not just your starting capital. Small, consistent gains snowball over time — which is why protecting capital matters more than any single big win. Compound tool →
Price action
- Price action
- Making trading decisions from the raw movement of price itself — structure, levels and candles — rather than from lagging indicators. The idea is that everything eventually shows up in price. Price Action course →
- Support and resistance
- Price areas where a market has repeatedly stopped and turned — support below, resistance above. They mark where buyers or sellers have shown up before, and may again.
- Market structure
- The pattern of highs and lows that shows whether a market is trending or ranging. Reading structure is the foundation under both price action and smart money concepts.
- Trend
- The general direction price is moving — up (higher highs and higher lows), down (lower highs and lower lows), or sideways. “Trade with the trend” exists because it stacks the odds in your favour.
- Breakout
- When price pushes decisively through a support or resistance level. Real breakouts continue; false ones snap back — telling them apart is a core price-action skill.
- Pullback (retracement)
- A temporary move against the trend before it resumes. Waiting for a pullback to a level, rather than chasing, is how patient traders get a better entry and a tighter stop.
- Candlestick
- A single bar showing the open, high, low and close for a period. The shape and location of candles — not just their colour — hint at who's winning the fight between buyers and sellers.
- Confluence
- When several independent signals line up at the same spot — a level, a trend, a candle pattern. More confluence means a higher-quality setup, though never a certainty.
Options
- Call option
- A contract giving the right (not the obligation) to buy 100 shares at a set price before it expires. Buyers profit if the stock rises; sellers collect premium betting it won't rise past their strike. Options course →
- Put option
- A contract giving the right to sell 100 shares at a set price before expiry. Buyers profit if the stock falls; put sellers get paid to potentially buy a stock they'd want anyway, lower.
- Strike price
- The fixed price at which an option can be exercised. It's the line that decides whether an option finishes worthless or in profit. Breakeven tool →
- Expiration
- The date an option contract ends. As expiry approaches, an option's time value decays — which sellers use to their advantage and buyers race against.
- Implied volatility (IV)
- The market's expectation of how much a stock will move, baked into an option's price. High IV means richer premiums to sell — and more expensive options to buy.
- The Greeks
- A set of measures of an option's risk. Delta tracks how much the option moves with the stock; theta measures time decay. They tell you what's actually driving your position's P/L.
- Covered call
- Selling a call against 100 shares you already own to collect premium. It's a common income strategy — you get paid to cap your upside at the strike. Covered call tool →
- Cash-secured put
- Selling a put while holding enough cash to buy the shares if assigned. You collect premium, and your worst case is owning a stock you wanted at a discount. Cash-secured put tool →
- Credit spread
- Selling one option and buying a further-out one as protection, so your maximum loss is capped and known before you enter. It's how smaller accounts sell premium with defined risk. Credit spread tool →
- Assignment
- When an option seller is required to fulfil the contract — buying or selling the shares at the strike. For put sellers it means being handed the stock; it's a feature of the strategy, not a failure.
Smart money concepts
- Smart money concepts (SMC)
- A way of reading charts through the lens of how large institutions are thought to move price — hunting liquidity and leaving footprints retail traders can learn to spot. Smart Money course →
- Liquidity
- Clusters of resting orders — typically stop-losses — sitting above highs or below lows. Price is often drawn to these pools before it makes its real move.
- Liquidity grab
- A quick push beyond an obvious high or low that triggers those stops, then reverses. It traps breakout traders and fuels the move in the opposite direction.
- Order block
- The last candle before a strong, structure-breaking move — read as an area where large orders were placed. SMC traders watch for price to return to it before continuing.
- Fair value gap (FVG)
- An imbalance left when price moves so fast it skips a range, leaving a gap between candles. Price often revisits the gap to “rebalance” before continuing.
- Break of structure (BOS)
- When price breaks a prior high or low in the direction of the trend, confirming the trend is continuing. It's one of the two signals at the heart of SMC. BOS vs CHoCH →
- Change of character (CHoCH)
- The first break of structure against the current trend — an early hint that momentum may be shifting. Confusing it with a BOS is a classic beginner mistake. BOS vs CHoCH →
- Inducement
- A tempting-looking setup placed to lure retail traders in before price does the opposite. Recognising inducement is about not taking the obvious bait.
Educational definitions only — not financial advice. Trading involves substantial risk of loss.