People who are new to the investing world may be overwhelmed by unfamiliar terms and definitions. So bookmark this page as a quick reference for when you read something you’re not familiar with. If you run across a term that is not on this page, please leave a comment and we will add it.
Ask: This is the price at which you could buy something (a stock, futures contract, etc.) right now.
Balance: Another term from trading range. This term seems to be used more by market profile traders.
Bear: A market participant who wants and expects prices to go down.
Bear Bar: A bar whose closing price is below its open.
Bear Market or Trend: A market that is going down on a given time-frame.
Bull: A market participant who wants and expects prices to go up.
Bull Bar: A bar whose closing price is above its open.
Bull Market or Trend: A market that is going up on a given time-frame.
Bid (also called Offer): This is the price at which you could sell something (a stock, futures contract, etc.) right now.
Consolidation: When prices have a move up or down they usually have to pause to ‘consolidate’ their gains. This consolidation is healthy because it means market participants are agreeing that the current level is a fair price. The consolidation period may also be called a ‘pullback’, ‘dip’, ‘flag’, ‘wedge’, or many other terms depending on it’s shape.
Double Bottom/Top:
Flag: Another name for a pullback or a consolidation in price after a move up or down.
Head and Shoulders:
Liquidity: A liquid market as a lot of market participants (volume) and it is easy to trade in and out of the market. Liquid markets should have fairly tight spreads to minimize slippage.
Offer (Also called Bid): This is the price at which you could sell something (a stock, futures contract, etc.) right now.
Pullback: A consolidation in price after a move up or down. Depending on the shape of the pullback it may also be called a ‘wedge’, ‘flag’, ‘pennant’, ‘coil’, ‘triangle’, or many other terms.
Slippage: Slippage is more of a problem when you trade illiquid markets. Slippage is when you have a hard time executing a trade and the price you want. For example, if you have a stop order to get out of a trade at $50 but you are actually filled at $49.5 you experienced slippage of 50 cents.
Spread: The difference between the bid and ask. Generally, you want as small of a spread as possible as a percentage of the price of the financial instrument as this is a sign of high liquidity.
Trading Range: A period of consolidation where a market tends to bounce around between a high and low price. Traders are basically in agreement on what the approximate fair price is, and neither the bulls or the bears are strong enough to push the price out of the range and into a new trend.
Tight Trading Range: This is just a term for a trading range made of only a few bars on a chart. For example, if you see 2-10 dojis that are next to each other this would be a tight trading range. If you looked at a lower time-frame chart it would be a more traditional looking trading range.
Market Profile: This is a type of chart that shows the amount of time the market spent at a given price. This concept has led to it’s own style of trading with it’s own terms and strategies. For more information see the Wikipedia article. Also check out the book Markets in Profile by James Dalton.
Engulfing Bar (or Outside Bar): This is a bar on a chart which completely engulfs the previous bar. i.e. It has a higher high and a lower low than the previous bar.
Inside Bar: This is a bar on a chart which is inside the previous bar. i.e. It has a lower high and a higher low than the previous bar.