Trading Glossary
Decode the language of the markets. A comprehensive index of trading concepts, metrics, and market mechanics.
Accumulation
A phase in the market cycle where institutional investors build long positions over time, often characterized by sideways price action before a markup phase.
Backtesting
The process of simulating a trading strategy using historical data to determine its viability and profitability before risking real capital.
Break of Structure (BOS)
A technical event where price closes beyond a significant swing high or low, signaling a potential continuation of the current trend.
Drawdown
The peak-to-trough decline during a specific period for an investment, trading account, or fund. Usually quoted as the percentage between the peak and the subsequent trough.
Fair Value Gap (FVG)
A three-candle pattern where the first and third candles do not overlap, leaving a gap. Price often returns to this area to rebalance efficiency.
Liquidity
The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. Institutional algorithms target liquidity pools (stops).
Order Block
A specific price range where institutions have placed large buy or sell orders. These areas often act as strong support or resistance upon retest.
Profit Factor
A key performance metric calculated by dividing gross profit by gross loss. A profit factor greater than 1.0 indicates a profitable system.
Prop Firm
A company that provides capital to traders. Traders must usually pass a challenge (evaluation) to prove their skills before managing funded capital.
Win Rate
The percentage of trades that are profitable. While important, it must be balanced with Risk:Reward ratio for a complete performance picture.