Reference

Trading Glossary

Every term used across the academy, defined in a paragraph and linked to the lesson that teaches it in depth. Skim for terms you've seen, or hit ⌘K to search.

131 terms22 letters7 tracks

1

1 term

1% ruleRisk & Psychology: Standard risk policy: never risk more than 1% of account equity on a single trade. The single most protective rule in trading.

A

6 terms

AbsorptionOrder Flow: Aggressive market orders being absorbed by resting limit orders, resulting in volume without price movement. Signals potential reversal.
Anchor biasAnchoringRisk & Psychology: Over-weighting an arbitrary reference point (entry price, recent high, the round number you remember) when evaluating new information. Why traders hold losers waiting for 'breakeven' even when the original thesis is broken. The market doesn't care what you paid.
AskOfferIntro to Trading: The lowest price a seller is currently willing to accept. When you buy with a market order, you buy at the ask.
AssignmentOptions Trading: The process by which a short option holder is required to fulfill the contract - delivering shares (short call) or buying them (short put). Auto-triggered by the OCC for ITM options at expiration.
ATRAverage True RangeTechnical Analysis: Average volatility over N bars. Used for volatility-adjusted stop placement and position sizing.
Auction Market TheoryAMTOrder Flow: The framework that markets are two-sided auctions searching for fair value through balance, imbalance, discovery, and acceptance.

B

6 terms

BackwardationIntro to Trading: Futures curve condition where later-dated contracts trade at lower prices than near-dated. Signals near-term supply stress.
BidIntro to Trading: The highest price a buyer is currently willing to pay. When you sell with a market order, you sell at the bid.
Block tradeOrder Flow: A single large transaction (typically 10,000+ shares for stocks, or $1M+ in notional value) negotiated off-exchange and reported afterward. Block prints on the tape signal institutional positioning - watch where they print relative to current price.
Bollinger BandsTechnical Analysis: Moving average ± N standard deviations. Expanding bands = rising volatility; contracting = squeeze before a move.
BreakoutTechnical Analysis: Price closing decisively through a resistance level on expanding volume. Often followed by retest and continuation.
Butterfly spreadButterflyOptions Trading: A three-strike structure (1-2-1 ratio) with a tent-shaped payoff peaking at the center strike. Pinpoint bet on price at expiration; high reward to risk if you're right.

C

10 terms

Calendar spreadTime spread · Horizontal spreadOptions Trading: Same strike, same type, different expirations. Sell the front, buy the back. Positive theta and positive vega - a defined-risk way to be long volatility.
CallCall optionOptions Trading: An options contract giving the buyer the right but not the obligation to buy 100 shares of the underlying at the strike price on or before expiration.
Call optionIntro to Trading: A contract giving the buyer the right (not obligation) to buy the underlying at a strike price before expiration.
Calmar ratioRisk & Psychology: Annualized return divided by maximum drawdown. The ratio that prop firms and allocators actually care about because it directly answers 'how much do I make per unit of pain?' A Calmar above 1.0 is solid; above 2.0 is exceptional.
CandlestickTechnical Analysis: A chart bar showing open, high, low, close. Body = resolution (open vs close). Wicks = rejected price extremes.
Confirmation biasRisk & Psychology: Seeking out information that supports your existing position and ignoring information that contradicts it. The reason traders read 10 bullish articles after going long and dismiss the one bearish one. Mitigated by writing the invalidation thesis BEFORE the trade.
ContangoIntro to Trading: Futures curve condition where later-dated contracts trade at higher prices than near-dated. Typical for storable commodities.
CPIConsumer Price IndexIntro to Trading: The Consumer Price Index - monthly inflation reading. The single most market-moving non-Fed economic release. Released around the 10th-15th of each month at 8:30 a.m. ET; bonds, stocks, and rate futures often gap on the print.
Credit spreadOptions Trading: A vertical spread entered for a net credit (you collect to open). Bull put and bear call. Best in high-IV environments where mean reversion works for you.
Cumulative DeltaCVDOrder Flow: The running sum of bar deltas across a session. Reveals whether aggression is building or fading.

D

11 terms

Day tradingIntro to Trading: Trades opened and closed within the same session. No overnight exposure.
Debit spreadOptions Trading: A vertical spread entered for a net debit (you pay to open). Bull call and bear put. Best in low-IV environments.
DeltaOrder Flow: Aggressive buy volume minus aggressive sell volume per bar. Positive = buyers lifted offers; negative = sellers hit bids.
DeltaOptions Trading: How much an option's price changes per $1 move in the underlying. Also a working approximation of the probability the option finishes ITM at expiration.
Delta divergenceOrder Flow: Price makes a new extreme but cumulative delta does not. Signals weakening aggression; often precedes reversal.
Diagonal spreadOptions Trading: A calendar spread with different strikes - combines a time-spread with directional bias. Includes the 'poor man's covered call' (long LEAPS + short monthly call).
DojiTechnical Analysis: A candlestick where open and close are virtually equal. Signals indecision; meaningful at structural levels.
DOMDepth of Market · LadderOrder Flow: A vertical display of resting limit orders at every price. Shows passive liquidity; updates in real time.
Double top / bottomTechnical Analysis: A reversal pattern where price fails to break a level on the second test. Confirms on the neckline break opposite the peaks/troughs.
DrawdownRisk & Psychology: Peak-to-trough decline in account equity. Resets only at new equity peaks. Recovery math is asymmetric.
DXYUS Dollar Index · Dollar indexIntro to Trading: Trade-weighted index measuring the US dollar against a basket of major currencies (EUR, JPY, GBP, CAD, SEK, CHF). Stocks, commodities, and emerging markets often move inversely to DXY in risk-on / risk-off regimes.

E

5 terms

EngulfingTechnical Analysis: A two-bar pattern where the second candle's body fully engulfs the first. Reversal signal at levels.
ExerciseOptions Trading: Converting an option into the underlying stock position at the strike price. Long calls exercise into stock; long puts exercise into a short stock position (or sell existing shares).
ExhaustionOrder Flow: The aggressive side of a move running out of fuel. New extremes print on lower volume and lower delta.
ExpectancyRisk & Psychology: Expected R-multiple per trade: (WinRate × AvgWinR) − (LossRate × AvgLossR). Positive = edge. Negative = bleed.
Extrinsic valueTime valueOptions Trading: The portion of an option's premium beyond intrinsic value. Driven by time remaining and implied volatility; decays toward zero by expiration.

F

6 terms

Failed breakoutFalse break · Liquidity grabTechnical Analysis: A breakout that reverses back inside the prior range within a few bars. Traps breakout buyers; fuels moves in the opposite direction.
Finished auctionUnfinished auctionOrder Flow: Finished: at the bar extreme, one side has zero volume. Unfinished: both sides still active. Unfinished extremes act as magnets.
FlagTechnical Analysis: A brief consolidation (the flag) after a sharp move (the flagpole). Classic continuation pattern.
FOMCFederal Open Market CommitteeIntro to Trading: The Federal Reserve committee that sets US interest rate policy. Meets eight times a year; the rate decision and the chair's press conference routinely produce the largest intraday moves of the month in stocks, bonds, and the dollar.
FOMOFear of Missing OutRisk & Psychology: Chasing a move after watching it rip without you. Always late, always bad R/R, always priced into the extreme.
Footprint chartOrder Flow: A candle chart that shows aggressive buy/sell volume at each price inside every bar. The X-ray of a candle.

G

4 terms

Gambler's fallacyRisk & Psychology: The belief that recent outcomes change the probability of independent future outcomes. ('I've had 5 losses, I'm due for a win.') Each trade in a properly-tested system is independent of the last. Streaks are mathematically normal and don't predict the next outcome.
GammaOptions Trading: The rate of change of delta. Highest for ATM options and explodes near expiration - the source of violent moves in 0DTE contracts.
GapTechnical Analysis: A discontinuity on the chart - the open of one bar is meaningfully above or below the close of the prior bar.
GDPGross Domestic ProductIntro to Trading: Gross Domestic Product - the total value of goods and services produced. Released quarterly with two revisions. Less reactive than monthly data because it's lagging, but headline-grabbing when it surprises.

H

4 terms

Hard-to-borrowHTBIntro to Trading: A stock with limited share supply available for short-selling. Borrowing it incurs a locate fee that can dwarf any directional gain. Common for low-float names, recent IPOs, or short-squeeze candidates. Always check HTB status BEFORE shorting - the fee can turn a winning trade into a loser.
Head and shouldersTechnical Analysis: A three-peak reversal pattern. Middle peak (head) is highest; flanked by two lower peaks (shoulders). Confirms on neckline break.
HeatmapOrder Flow: Visualization of resting liquidity over time, with color intensity = size. Bookmap-style view of the book's evolution.
Higher high / higher lowHH · HLTechnical Analysis: The defining structure of an uptrend: each swing high is higher than the prior, each swing low is higher than the prior.

I

9 terms

Iceberg orderOrder Flow: A large institutional order shown only in small slices at a time. Refills after each fill. Real flow, not fakeable.
Implied volatilityIVOptions Trading: The level of volatility that, plugged into a pricing model, reproduces an option's market price. The market's annualized forecast of magnitude (not direction) of future moves.
Intrinsic valueOptions Trading: The portion of an option's premium that would be realized if exercised immediately. Call: max(stock − strike, 0). Put: max(strike − stock, 0).
Iron condorOptions Trading: A four-leg, defined-risk neutral structure: short OTM put spread plus short OTM call spread. The workhorse of premium-selling income strategies.
ISM PMIISM Manufacturing · Purchasing Managers IndexIntro to Trading: Institute for Supply Management's Purchasing Managers Index. Above 50 means manufacturing is expanding; below 50, contracting. A leading indicator for the broader economy and a frequent regime-change signal for traders.
ITM / ATM / OTMIn the money · At the money · Out of the moneyIntro to Trading: Moneyness of an option. ITM: has intrinsic value. ATM: strike ≈ stock. OTM: no intrinsic value, premium is all time + volatility.
IV crushOptions Trading: The sharp post-event drop in implied volatility - typical after earnings announcements. Long options can lose value even when the directional move is correct.
IV percentileOptions Trading: The fraction of trading days in the past year on which IV was below the current level. More robust than IV rank to outlier high readings.
IV rankOptions Trading: Where current implied volatility sits within the past 52-week range, scaled 0 - 100. The single most useful gauge for whether premium is cheap or expensive.

K

1 term

Kelly CriterionRisk & Psychology: The mathematically optimal bet fraction for long-run growth: f* = (bp − q) / b. Real traders use quarter-Kelly or less.

L

5 terms

LeverageIntro to Trading: Controlling a larger position than your capital alone would allow. 2× leverage means a 1% move produces 2% P&L.
Limit orderIntro to Trading: An order to buy or sell only at a specified price or better. Guaranteed price, not guaranteed execution.
Locate feeIntro to Trading: A fee charged by your broker when you short a hard-to-borrow stock. The broker has to find shares to lend you, and that cost gets passed through. Can range from a fraction of a cent up to 100%+ annualized for very-hard-to-borrow names. Often quoted as a daily rate.
Losing streakRisk & Psychology: Consecutive losing trades. Statistically normal, not a strategy failure. A 40% WR strategy sees 7-loss streaks routinely.
LotIntro to Trading: A standardized unit of currency in forex. Standard lot = 100,000 units, mini = 10,000, micro = 1,000.

M

5 terms

MACDTechnical Analysis: Momentum indicator based on the difference between two EMAs plus a signal line. Signals on crosses and histogram divergence.
MarginIntro to Trading: Borrowed capital used to increase position size. Amplifies both gains and losses proportionally.
Market orderIntro to Trading: An order to buy or sell immediately at whatever price is available. Guaranteed execution, not guaranteed price.
MoneynessOptions Trading: An option's position relative to the current stock price. ITM (in-the-money) has intrinsic value; ATM (at-the-money) has strike near spot; OTM (out-of-the-money) is pure extrinsic.
Moving averageMA · EMA · SMATechnical Analysis: The average price over the last N bars. Used as dynamic support/resistance and trend filter. EMA weights recent data heavier.

N

1 term

NFPNon-farm payrolls · Jobs reportIntro to Trading: Non-farm payrolls - the headline US employment report released first Friday of each month at 8:30 a.m. ET. Reports new jobs added, unemployment rate, and average hourly earnings. One of the highest-volatility scheduled events in markets.

O

3 terms

Order flowOrder Flow: The live stream of market orders hitting the book. Reveals who is aggressive (buying at ask, selling at bid) in real time.
Order imbalanceOrder Flow: At a given price, one side's volume (ask or bid) is disproportionately larger than the other. Typically flagged at ≥3× ratio.
OvertradingRisk & Psychology: Taking trades beyond your strategy's natural setup count. Death by thousand cuts: fees + slippage + mental exhaustion.

P

14 terms

PCEPersonal Consumption ExpendituresIntro to Trading: Personal Consumption Expenditures price index - the inflation gauge the Fed officially targets (2%). Less market-reactive than CPI in real time but more important for longer-term rate path expectations.
PDT rulePattern Day TraderIntro to Trading: US regulation requiring $25,000 minimum equity to place more than 3 day trades per 5 business days in a margin account.
Pin barHammer · Shooting starTechnical Analysis: A candle with a small body and one long wick at least 2× the body. Signals rejection of the wick direction.
Pin riskOptions Trading: The overnight gap risk when an option closes very near its strike at expiration. Auto-exercise creates an unhedged stock position that can move sharply by Monday.
PipIntro to Trading: In forex, the smallest standard price move. Typically 0.0001 for most pairs; 0.01 for JPY pairs.
POCPoint of ControlOrder Flow: The single price with the highest traded volume over a session or period. Acts as a magnet and key support/resistance.
Polarity flipRole reversalTechnical Analysis: When a broken resistance becomes new support (or vice versa) on the retest. The single most useful S/R pattern.
Portfolio deltaOptions Trading: Sum of all position deltas across the book, expressed in shares-equivalent. The single number that summarizes a portfolio's directional exposure.
Position sizingRisk & Psychology: The formula that turns risk dollars and stop distance into shares/contracts/lots. Size = Risk $ ÷ Stop distance.
PPIProducer Price IndexIntro to Trading: Producer Price Index - measures inflation at the wholesale level (what producers pay for inputs). A leading indicator for CPI, released a day before or after CPI each month.
Pre-trade checklistRisk & Psychology: The 5-item template (setup, invalidation, size, target, psych check) filled out before every entry. Kills most C-grade trades.
PremiumOptions Trading: The price paid (or collected) to enter an options contract. Equal to intrinsic value plus extrinsic (time + volatility) value.
PutPut optionOptions Trading: An options contract giving the buyer the right but not the obligation to sell 100 shares of the underlying at the strike price on or before expiration.
Put optionIntro to Trading: A contract giving the buyer the right (not obligation) to sell the underlying at a strike price before expiration.

R

6 terms

R-multipleRRisk & Psychology: The dollar amount risked on a trade. Every outcome is measured in R: a 2R winner made twice the risked amount.
ResistanceTechnical Analysis: A price level where sellers have historically stepped in with size. Acts as a ceiling until it breaks.
Revenge tradingRisk & Psychology: Taking impulsive trades immediately after a loss to 'get it back'. The single most destructive pattern in retail trading.
Reward-to-riskR/R · RR · R:RRisk & Psychology: Distance to target ÷ distance to stop. Minimum workable setups are typically 2:1 or better.
Risk of RuinRisk & Psychology: The probability of blowing up an account given sizing, edge, and number of trades. Nonlinear in per-trade size.
RSIRelative Strength IndexTechnical Analysis: Momentum oscillator ranging 0 - 100. Above 70 = potentially overbought; below 30 = potentially oversold. Best used for divergence.

S

15 terms

ScalpingIntro to Trading: Ultra-short-term trading style: trades last seconds to minutes, dozens to hundreds per day.
Sharpe ratioRisk & Psychology: Average excess return (over the risk-free rate) divided by standard deviation of returns. The classic risk-adjusted return metric. Above 1.0 = good; 1.5+ = strong; 2.0+ = exceptional and rare in real strategies. Penalizes both upside and downside volatility equally - a flaw if your strategy has positive skew.
Short sellingShortingIntro to Trading: Borrowing shares to sell, with the intent to buy them back lower. Profits when price falls. Losses theoretically unlimited as price rises.
Sortino ratioRisk & Psychology: Like Sharpe but only penalizes downside volatility (returns below a target). More relevant for asymmetric strategies because upside volatility isn't a problem - only drawdowns are. A strategy with a great Sortino but mediocre Sharpe usually has positive skew (lots of small losses, occasional big wins).
SpoofingLayeringOrder Flow: Placing a large order with no intent to fill, then canceling as price approaches. Illegal but common in futures DOMs.
SpreadIntro to Trading: The difference between the best ask and best bid. Effectively the round-trip cost paid to market makers on every trade.
Stacked imbalanceOrder Flow: Three or more consecutive same-side imbalances across adjacent prices. Marks strong directional aggression.
Stop runLiquidity grabOrder Flow: A short-lived price move beyond an obvious level that triggers clustered stops, then reverses. Common at swing highs/lows.
Stop-lossStop orderIntro to Trading: An order that triggers a market order once a specified price is reached. Used to cap losses on an open position.
StraddleOptions Trading: Long (or short) a call and put at the same strike and expiration. Trades magnitude, not direction - profits on big moves (long) or chop (short).
StrangleOptions Trading: Long (or short) an OTM call and OTM put at the same expiration. The OTM cousin of the straddle - cheaper to buy, smaller credit to sell, wider profit zone.
Strike priceStrikeOptions Trading: The price at which an option can be exercised. For a call, it's the buy price; for a put, the sell price.
SupportTechnical Analysis: A price level where buyers have historically stepped in with size. Acts as a floor until it breaks.
SweepOrder Flow: An aggressive market order that takes liquidity from multiple price levels in rapid succession - a buyer 'sweeping the offer' or seller 'sweeping the bid'. Visible on the tape as a fast cascade of fills. A signature of urgent institutional activity; often precedes continuation moves.
Swing tradingIntro to Trading: Holding positions from days to weeks to capture medium-term moves.

T

8 terms

T+2 settlementIntro to Trading: US equity trades settle 2 business days after the trade date. Proceeds from a sale aren't officially cash until T+2.
ThetaIntro to Trading: The dollar amount of option premium lost per day as expiration approaches. Always negative for long option holders.
ThetaOptions Trading: The daily decay of an option's extrinsic value. Negative for long options (buyer's tax), positive for short options (seller's carry). Accelerates inside the last 30 - 45 days.
TickIntro to Trading: The minimum price increment of a tradable instrument. For ES futures: 0.25 points = $12.50 per contract.
TiltRisk & Psychology: Trading from emotional reactivity rather than your rules - usually after a loss, a missed move, or a surprising win. Recognized by sudden size increases, breaking your stop, or revenge entries. Industry-wide accepted that the only fix is to stop trading until calm returns.
Trailing stopRisk & Psychology: A stop that moves in favor of the trade as price advances, locking in profit. Common variants: ATR trail, structural trail, chandelier.
Trapped tradersOrder Flow: Traders entered in one direction that immediately fails. Their eventual exits become fuel for the opposite move.
TriangleTechnical Analysis: Converging trendlines forming a symmetrical, ascending, or descending shape. Usually resolves in direction of prior trend.

V

9 terms

Value AreaVA · VAH · VALOrder Flow: The contiguous price range containing 70% of a session's volume. VAH = upper edge, VAL = lower edge.
Value at RiskVaRRisk & Psychology: The maximum expected loss at a given confidence level over a given time horizon. e.g., '1-day 95% VaR of $10,000' means there's a 5% chance of losing more than $10,000 tomorrow. Used heavily by institutions for risk budgeting; less useful for retail because tail events routinely exceed historical VaR.
VegaOptions Trading: Sensitivity to a 1-percentage-point change in implied volatility. Long options are positive vega; short options are negative vega.
Vertical spreadOptions Trading: Two options of the same type, same expiration, different strikes. Defines risk and caps reward. Comes in four flavors: bull call, bear put, bull put, bear call.
VIXVolatility Index · Fear gaugeIntro to Trading: The Cboe Volatility Index - 30-day implied volatility of S&P 500 options. Often called the 'fear gauge'. Below 15 = complacent; 20-30 = nervous; 40+ = panic. VIX spikes are usually short and mean-revert; sustained high VIX marks regime-change.
Volatility skewSkewOptions Trading: The pattern that OTM puts trade at higher implied volatility than OTM calls equidistant from spot. Reflects asymmetric crash-risk pricing in equity markets.
Volatility smileSmileOptions Trading: An IV-vs-strike pattern in which both deep OTM puts and deep OTM calls trade at higher IVs than ATM. Common in FX and ahead of binary single-name events.
VWAPVolume-Weighted Average PriceTechnical Analysis: The average price for the session weighted by volume. Institutional reference level for intraday mean reversion.
VXXIntro to Trading: An ETF that tracks short-term VIX futures. Used by traders to bet on volatility expansion. Decays over time due to contango in the VIX futures curve - holding it long-term is a structural losing trade. Best treated as a short-duration hedge, not a portfolio holding.

W

1 term

Wash sale ruleIntro to Trading: A US tax rule: if you sell a security at a loss and buy a 'substantially identical' one within 30 days before or after, the loss is disallowed and added to the cost basis of the replacement shares. Active traders trip this constantly. Mitigated by trader-status tax election or careful December-to-January position management.

Y

1 term

Yield curveYield curve inversionIntro to Trading: A plot of US Treasury yields by maturity (3M, 2Y, 5Y, 10Y, 30Y). Normally upward-sloping. When short rates exceed long rates ('inversion' - especially 2Y > 10Y), it has historically preceded recessions. The single most-watched macro signal across asset classes.