506 terms, each explained in one plain sentence. 81 of them come with an animation (marked ), and every term links to the lessons that teach it.
The price sellers are asking for. When you buy, you trade at the Ask.
Assets under management, the total a fund manages; very small funds often trade thinly with wider spreads and may even close.
A large institution that can create ETF shares with a basket of stocks or redeem ETF shares for that basket.
Your average purchase price per share after several buys; it's also your breakeven price.
The price buyers are willing to pay. When you sell, you trade at the Bid.
Profits or reserves turned into new shares and given free to shareholders in proportion: more shares, a proportionally lower price and the same total value.
What you pay the lender for borrowed shares when shorting, based on an annual rate and days borrowed; hard-to-borrow stocks can be very expensive.
Before shorting, you borrow shares from your broker, and you must eventually buy back the same number to return them.
When a new stock falls below its offer price after listing, leaving investors who bought at the offer price with a loss.
A licensed middleman that opens your account, sends your orders to the exchange and holds your cash and shares.
The account you open with a broker to hold your trading cash and the shares you buy.
Pay cash to get an asset. You become the owner, so you make money if its price rises.
Borrowing from your broker to buy stock: your own money plus the loan makes a bigger position, magnifying gains and losses, and you pay interest.
The cash in your account you can use to buy stock right now.
Orders are collected for a while without trading, then all matched at once at a single price, often used at the open and close.
Weights are set by each constituent's market cap: the bigger the company, the more it moves the index.
The fee you pay your broker each time you buy or sell, which comes straight out of your profit.
Interest that earns interest of its own, so your money snowballs.
A stock included in an index's calculation.
Normal trading after the open: each new order is matched against the order book as soon as it arrives, so the price changes with every trade.
How much you spent in total to buy those shares.
The minimum batch an authorized participant can create or redeem, usually tens of thousands of ETF shares; ordinary investors trade on the secondary market.
Your shares are held for you by the broker and the clearing and settlement system, recorded in your name.
Moving money from your bank into your brokerage account; you need to deposit before you can buy stock.
When a company issues new shares, existing shareholders own the same number of shares but a smaller slice of the company.
Part of a company's profit paid out to shareholders according to how many shares they hold.
Tax owed on cash dividends, with rates that depend on the country, account type and how long you've held the stock.
Investing a fixed amount at regular intervals, so you automatically buy more when prices are low and less when they're high.
Every constituent gets the same weight, no matter how big the company is.
Net equity as a share of position value in a margin account; dropping below the broker's maintenance level triggers a margin call.
A fund listed and traded on an exchange that usually holds a basket of assets to track an index.
After a dividend or bonus share issue, the exchange lowers the share price by a set rule so shareholders' total wealth stays the same.
A central marketplace that matches buy and sell orders, such as the NYSE or NASDAQ.
The share of a fund's assets deducted each year to pay for running it.
A buy order and a sell order matching at the same price, so the trade actually happens.
Market cap excluding shares that don't trade, such as long-held stakes and locked-up shares; many indices weight by it instead of total market cap.
When price jumps to a new level between sessions without trading at the prices in between.
When the share price climbs back to its pre-dividend level after going ex-dividend; falling further away is the opposite.
A single number that tracks how a basket of assets is doing overall, such as the S&P 500.
An index's regular review that removes companies that no longer qualify, adds new ones and resets the weights.
An ETF's indicative NAV during trading hours, estimated from its holdings' live prices and updated every few seconds.
When a company sells shares to the public for the first time and lists on an exchange, using the money raised to grow.
An ETF that aims for 2× or 3× (or the inverse of) an index's daily return, rebalancing every day.
An order that only fills at your price or better: the price is guaranteed, the fill isn't.
How many orders are waiting near a price; the deeper the book, the harder it is to move the price.
Buy first and sell later, betting the price will rise.
Investing all your money at once, so everything that follows depends on that one purchase price.
The minimum margin your account must keep; fall below it and you'll be asked to top up.
When your account drops below maintenance margin, you must add funds or your positions will be closed.
Share price × total shares: what the market thinks the whole company is worth.
How much is waiting to trade at each price in the order book; the deeper it is, the harder it is for a large order to push the price far.
An order that fills right away at whatever price is available: the fill is guaranteed, the price isn't.
Number of shares × current price: what your stock is worth right now.
Total value of a fund's holdings ÷ number of shares: what each fund share is really worth.
The price new shares are sold to investors at in an IPO, set by the company and its underwriters beforehand.
The first trade price of each trading day, set by an opening auction at many exchanges.
All the buy and sell orders that haven't filled yet, lined up by price.
The smallest standard price unit in forex; for EUR/USD, 1 pip = 0.0001.
How far an ETF's market price sits from its NAV: above NAV is a premium, below is a discount.
Some markets cap how far a stock can move in a day (±10% for most Chinese main-board stocks); hitting the cap is limit-up, hitting the floor is limit-down.
The matching rule: better-priced orders fill first, and orders at the same price queue in the order they arrived.
Where a company issues new shares directly to investors and the money raised goes to the company.
Sale proceeds − purchase cost − fees: the money you actually pocket.
The real profit or loss locked in once you've sold (closed the position).
Only people holding the stock at the close on this day are entitled to the dividend or bonus shares.
How an ETF tracks its index: physical replication buys the constituents; synthetic replication swaps for the index return with derivatives, adding counterparty risk.
Profit ÷ the money you put in, a percentage that shows how much you made.
Money you could lose : money you could make; 1:2 means risking $1 to aim for $2.
Where investors trade listed shares with each other: money moves between buyer and seller, and the company gets none of it.
The step after a trade where cash and shares formally change hands; different markets take different numbers of trading days (US stocks T+1, Hong Kong T+2).
Someone who owns a company's stock and shares in its growth and dividends in proportion to their stake.
Borrow and sell first, then buy back to return it, betting the price will fall.
A rising price forces many short sellers to buy back at once to stop their losses, and the rush of buying pushes the price even higher.
The difference between the price you expected and your actual average fill, which happens when a large market order eats through several price levels.
The gap between the Ask and the Bid, a hidden cost on every trade.
A small slice of a company's ownership; owning stock makes you one of its shareholders.
Automatically closes a position when price moves against you to a preset level, capping your maximum loss.
The balance between people who want to buy (demand) and people who want to sell (supply), which decides where the price goes.
Risk the whole market shares and diversification can't remove, such as recessions or interest rate changes.
Automatically closes a position when price reaches your preset target, locking in the profit.
Cash + the market value of your shares at today's price.
An index that also counts reinvested dividends from its constituents; one that tracks only price changes is a price index.
How much a fund's performance differs from the index it tracks.
A stop-loss that follows price in your favor (on a long it only moves up), protecting your capital while locking in some profit.
The on-paper profit on a position at today's price; you haven't sold, so it can still change.
The on-paper loss on a position at today's price; if the price recovers before you sell, it can disappear.
The on-paper profit or loss at today's price on shares you haven't sold yet; it moves as the price moves.
How leveraged products slowly lose value in choppy markets because of daily rebalancing.
Moving cash from your brokerage account back to your bank; shares must be sold first before you can withdraw.
The currency before the slash in a pair, such as EUR in EUR/USD; the quote shows what one unit of it is worth.
Price decisively moving past support, resistance or a pattern boundary, often on rising volume.
A buy order placed below the current price: you buy once price dips to a cheaper level.
A buy order placed above the current price: you buy into the move when price breaks out upward.
Buying a high-interest currency and selling a low-interest one to earn the rate gap, though an adverse exchange rate move can far outweigh the interest.
A contract with a broker to settle the price difference between opening and closing, without owning the underlying asset.
The risk that the other side or the platform defaults or goes bust, so the deal can't be honored.
A currency pair without the US dollar, such as EUR/JPY or EUR/GBP, whose rate is derived from two dollar pairs.
A third exchange rate worked out from two others, such as EUR/JPY = EUR/USD × USD/JPY.
Such as EUR/USD: how much of the quote currency (USD) one unit of the base currency (EUR) is worth.
Account balance + current floating profit or loss.
How much of one currency you get for one unit of another.
Price briefly moves past a key level, then quickly falls back into its old range.
Exchanging and trading the currencies of different countries.
Equity minus used margin: what's left to absorb losses or open new positions.
A stop-loss that fills at your set price even if the market gaps, usually for an extra fee.
The price of borrowing money, usually shown as an annual percentage.
Controlling a large position with a small amount of margin; 1:100 means $1 controls a $100 position.
The unit of trade size in forex: 1 standard lot = 100,000 units of the base currency; 0.1 is a mini lot and 0.01 a micro lot.
A main currency pair that includes the US dollar, such as EUR/USD or USD/JPY, with the most trading and usually the tightest spreads.
The deposit set aside when you open a position = position value ÷ leverage.
Equity ÷ used margin × 100%; the lower it is, the more danger you're in.
The share of a position's value the broker requires as margin to open it; for example, 10% corresponds to 10:1 leverage.
A guarantee that the most you can lose is your account balance, so you never end up owing the broker.
The total value of the asset a position controls; for example, 1 lot of EUR/USD ≈ $108,500.
When a pending order lapses: good till canceled (GTC), or only valid for the day or until a set time.
A fee charged (or paid) at the financing rate for holding a leveraged position overnight, also called a swap fee.
An instruction set in advance at a price, which fills automatically only when the market gets there.
How much your profit or loss changes when price moves 1 pip, set by your lot size.
A move in the last digit of a quote, equal to 0.1 pip.
Deciding how much to buy on each trade based on how much risk you can take.
Getting filled at a better price than you set, such as a limit order filling at a better price on a gap.
The currency after the slash in a pair, such as USD in EUR/USD, used to price the base currency.
The gain needed to get back to even after a drawdown = drawdown ÷ (1 − drawdown); lose 50% and you need +100%.
The funds set aside to open and hold a position = position value ÷ leverage (or position value × margin requirement).
A price level or zone where rising prices tend to stall because sellers cluster there.
How much you're willing to lose if a trade hits its stop-loss, usually 0.5%–2% of the account.
A sell order placed above the current price: you sell once price rises to a higher level.
A sell order placed below the current price: you sell into the move when price breaks down.
When your margin level falls to the broker's limit (for example 50%), the system closes your positions automatically.
A price level or zone where falling prices tend to stop because buyers cluster there.
Interest charged or paid for holding a forex position overnight, based on the two currencies' rate gap minus the broker's markup.
The business hours of financial centers like Sydney, Tokyo, London and New York; trading is busiest and spreads tighter when sessions overlap.
Most brokers charge (or pay) three days of swap on Wednesday night to cover the weekend.
The total margin tied up by all open positions in your account; it's the denominator of your margin level.
An option that can be exercised on any trading day before expiry; most US single-stock options are American.
When a buyer exercises, the exchange randomly picks a seller to deliver: a call seller must hand over shares, a put seller must buy them.
An option whose strike is about equal to the current stock price.
A market where futures (or later months) trade below spot (or nearer months).
Spot price − futures price; it converges toward zero by expiration.
The risk left after hedging because the asset and the hedging instrument don't move perfectly together.
Buy a higher-strike put and sell a lower-strike put: bearish, with both cost and payoff capped.
The underlying price at expiration where you neither make nor lose money.
Buy a lower-strike call and sell a higher-strike call: bullish, giving up gains above the top strike in exchange for a lower cost.
Sell a higher-strike put and buy a lower-strike put, collecting cash up front; you keep it all if the stock stays above the higher strike, and the maximum loss is the spread width minus that credit.
Selling a near-month option and buying a far-month option at the same strike, profiting from the faster decay of the near month; it pays best when the stock sits near the strike.
The right to buy the underlying at the strike price; the higher the stock goes, the more it's worth.
No goods change hands at expiry; only the difference between the final settlement price and your entry is paid in cash, as with stock index futures that can't be “delivered”.
Selling a put while setting aside strike × 100 in cash; if not assigned you keep the premium, and if assigned you buy the stock at a cost of strike − premium.
An institution that stands between buyer and seller and guarantees the contract is honored.
A market where futures (or later months) trade above spot (or nearer months).
How much of the underlying one futures contract represents; for example, 1 crude oil contract = 1,000 barrels.
The storage, insurance and financing costs of holding a physical commodity.
Selling 1 call against 100 shares you own to collect premium; you earn extra if the stock stays flat, but if it soars your shares are called away at the strike and your gain is capped.
Roughly how much an option's price changes when the underlying rises $1; near 1 deep in the money, near 0 far out of the money.
An option that can only be exercised on its expiration date; many index options are European.
When an option buyer uses their right, buying (call) or selling (put) the underlying at the strike price.
The range the market expects the stock to move by expiry, derived from implied volatility (about stock price × IV × √years left, with roughly a 68% chance of landing inside).
The last day an option is valid; after that, the right is gone.
Standardized exchange-traded contracts to buy or sell an asset on a future date at a price fixed today.
Delta, Gamma, Vega, Theta and friends, which measure how an option's price responds to the stock price, changes in Delta, volatility and time.
An opposite trade that offsets the risk of an existing exposure.
Someone who has (or will have) the physical goods and takes an opposite futures position to lock in a price, aiming to cut risk rather than profit from price moves.
An option with intrinsic value, such as a call whose strike is below the stock price.
The deposit required to open a position, usually only a small fraction of the contract's value.
What you'd get by exercising right now; for a call, max(stock price − strike, 0).
Sell an inner put and call and buy outer ones as protection; you keep the premium if the stock stays in the range, and the maximum loss is capped.
After an event like earnings, uncertainty vanishes, implied volatility drops fast and option values shrink sharply.
The last day a contract can be traded; contracts still open after it go to delivery.
Long-term options (Long-term Equity AnticiPation Securities), usually with more than a year until expiration.
Profit and loss is calculated at the settlement price every trading day and actually moved into or out of your margin account.
How much of the underlying one option contract covers; US stock options usually cover 100 shares.
Premium paid on long legs minus premium received on short legs; paying net is a debit, receiving net is a credit.
The total number of contracts not yet closed or expired; the bigger the number, the more active and easier to trade that strike is.
A contract where you pay a premium for the right to buy or sell an asset at a set price in the future.
A table of every option on one underlying and expiry: strikes in the middle, calls on one side, puts on the other, with a bid and ask in each cell.
The side that sells an option and collects the premium, taking on the obligation if the buyer exercises.
An option with no intrinsic value, such as a call whose strike is above the stock price.
At expiry the short delivers the goods to a designated warehouse and the long pays the final settlement price to take them; most commodity futures work this way.
The amount of an asset you currently hold (or owe).
The price of an option, paid by the buyer to the seller; it's the most the buyer can lose.
The estimated chance a position makes money at expiry based on current implied volatility; it's a model estimate, not a guarantee.
Buying a put while holding the stock, like buying insurance against a price drop.
The right to sell the underlying at the strike price; the lower the stock goes, the more it's worth.
Closing a contract that's about to expire and opening the next month's contract to keep the position going.
Hand over an asset you hold in exchange for cash. Once you sell, your profit or loss is locked in.
The official price an exchange publishes each day, often a volume-weighted average near the close (rules vary); mark-to-market and margin use it, not the last trade.
A trader with no physical goods who takes on price risk to profit from moves, providing the other side and liquidity for hedgers.
A trade delivered and paid for right away (or very soon); its price is the spot price.
Buying (or selling) a call and a put at the same strike; a long straddle bets on a big move, a short straddle bets on no move.
Buying (or selling) an out-of-the-money put and call at two separate strikes; cheaper than a straddle but needs a bigger move.
The price written into an option contract at which you can buy or sell.
How much value an option loses with each passing day; the decay speeds up as expiration nears.
The smallest amount a price can move; the value of 1 tick = tick size × contract size.
The part of an option's price above its intrinsic value, reflecting the chance it gains value before expiry; it melts away over time.
The asset an option contract is based on, such as a particular stock.
How much an option's price changes for each 1-point rise in implied volatility; longer-dated, at-the-money options have more Vega.
Buying one option and selling another of the same type and expiry at a different strike, capping both profit and loss.
How wildly the underlying's price swings; the bigger the swings, the more expensive options get.
Implied volatility is higher on one side of the strikes than the other; for stock options, low strikes (downside protection) usually have higher IV.
Implied volatility plotted across strikes is higher at both ends than in the middle, like a smile, meaning the market sees big moves either way as more likely than theory assumes.
Coupon interest that has built up day by day since the last payment but hasn't been paid yet; buying between payments, the buyer pays this to the seller first.
The smallest common unit for interest rates: 1 basis point = 0.01%, and 100 basis points = 1%.
An IOU: the issuer borrows your money, pays you interest regularly and repays the principal at maturity.
A convertible's value as a plain bond (present value of future coupons and principal), the floor under its price however low the stock goes (as long as the company doesn't default).
A bond's price without accrued interest, the price normally quoted in the market, which doesn't jump on payment dates.
How much a convertible's price exceeds its conversion value, in percent; the lower it is, the more stock-like the convertible, the higher, the more bond-like.
The agreed price per share when converting a convertible bond; shares received = face value ÷ conversion price.
The market value of the shares you'd get by converting right now = shares received × stock price.
A bond that can be converted into the issuer's shares at a set price: it acts like a bond when the stock is weak and like a stock when the stock soars.
How much the price-yield curve bends; convexity makes bonds gain more than duration predicts when rates fall and lose less when rates rise.
The interest paid regularly to bondholders based on the coupon rate.
The coupon as a percentage of face value, set at issue and usually fixed.
A rating agency's grade for how likely a default is, such as AAA, BBB or BB (high yield).
The risk that the issuer can't pay interest or repay principal on time (defaults).
How much more a corporate bond yields than a government bond of the same maturity, as compensation for default risk.
An agreement to swap principal and interest in two currencies, exchanging the principal back at a set rate at the end.
Annual coupon ÷ current price; it only counts yearly interest, not the price difference at maturity, so it differs from yield to maturity.
Clean price + accrued interest: what the buyer actually pays, equal to the present value of the remaining cash flows.
A price below face value, which happens when market rates are above the coupon rate.
How sensitive a bond's price is to interest rates: a 1% rate move changes the price by roughly “duration” percent.
How much a position's value changes when rates move 1 basis point (0.01%), the Dollar Value of 01; the longer the maturity and the larger the principal, the bigger it is.
The principal a bond repays at maturity, commonly $1,000.
The cash flows in a swap that pay interest at a fixed rate.
The cash flows in a swap that pay interest at a floating reference rate such as SOFR.
A forward rate agreement locks in a borrowing rate for a future period and settles only the rate difference.
A broad, ongoing rise in prices, so the same money buys less; the inflation rate is how much prices rise in a year.
Two parties swap fixed interest for floating interest on the same notional, paying only the net difference.
The date the issuer repays the principal.
The amount used to calculate swap interest; it usually never changes hands.
The side of a swap that pays fixed and receives floating, which gains when rates rise.
The benchmark rate set by a central bank, which drives borrowing costs across the economy.
A price above face value, which happens when market rates are below the coupon rate.
What a future amount of money is worth today after discounting at an interest rate.
How much a sum of money can actually buy; if your savings rate trails inflation, the number grows but its purchasing power shrinks.
The side of a swap that receives fixed and pays floating, which gains when rates fall.
The share of face value creditors eventually get back after a default; expected loss ≈ default probability × (1 − recovery rate).
The Secured Overnight Financing Rate, the most common benchmark for US dollar floating-rate loans and interest rate swaps.
The extra yield investors demand for lending money for longer, as compensation for more interest rate risk.
The annual return you'd earn buying a bond at its current price; the lower the price, the higher the yield.
The line joining government bond yields across maturities; it can slope up, go flat or invert.
Short-term yields rising above long-term yields, often seen as a sign of an economic slowdown.
The annual return from buying at today's price and holding to maturity, counting both coupons and the price difference.
A bond that pays no coupons, issued below face value and repaid at face value at maturity; the gap between the two is your entire return.
A widely accepted reference price, such as a crude oil futures front-month price; physical deals are often priced off it plus or minus a premium or discount.
A standardized physical good traded in bulk, such as crude oil, gold, copper or wheat.
The benefit of holding the physical goods, like never running short at the factory; the scarcer the supply, the higher it is, and forward prices can even drop below spot (backwardation).
The cost of shipping goods from where they're produced to the buyer; the farther and tighter the shipping capacity, the higher the freight and the delivered price.
Goods produced but not yet consumed; rising stocks mean oversupply, falling stocks mean strong demand.
How much a physical deal is priced above (premium) or below (discount) the benchmark, reflecting quality, delivery location and local supply and demand; not the same as a futures curve's contango or backwardation.
Nominal interest rate − inflation, the true return after inflation.
An asset that money tends to flow into when markets panic because its value is relatively stable, such as gold.
Supply and demand for some commodities follow the seasons, such as grain supply peaking at harvest or heating gas demand rising in winter; it's a tendency, not a guarantee.
The gap between the released figure and what the market expected; prices react to the surprise, not to whether the data is good or bad.
A public ledger made of blocks linked in time order, each recording the fingerprint of the block before it.
A wallet that stores private keys offline, which makes it more secure.
Each block added after the one containing your transaction is another confirmation; more confirmations make it harder to reverse, and exchanges often require a certain number before crediting you.
A digital asset recorded on a blockchain, such as Bitcoin (BTC) or Ethereum (ETH).
How far an account has fallen from its peak; the deeper the drawdown, the harder it is to recover.
A fee longs and shorts pay each other at regular intervals on perpetual futures; when it's positive, longs pay shorts.
The fee paid to the network for a blockchain transfer; bidding more usually gets you into a block faster.
A fixed-length “fingerprint” of any data; change a single character and the fingerprint is completely different.
When your margin can no longer cover your losses, the system forcibly closes your position.
The side that posts a limit order and waits in the order book, adding liquidity, usually for a lower fee.
The waiting room for transactions that have been broadcast but not yet included in a block; block producers usually pick the highest fees first.
The blockchain a token is sent on (such as Ethereum or Tron); sender and receiver must pick the same network.
A computer that keeps and verifies a copy of the blockchain ledger; the more nodes, the harder it is to tamper with.
How a stablecoin keeps its 1:1 exchange rate with the dollar; drifting clearly away from it is called a depeg.
A derivative contract with no expiration that uses the funding rate to keep its price close to spot.
The one credential that can move the assets in a wallet; whoever holds the private key controls the assets.
A shareable key derived from the private key, used to verify signatures and generate addresses.
A backup of your private key as a list of words; leaking it means handing over all your assets.
Keeping your own private keys (for example in a hardware wallet) instead of relying on an exchange.
A cryptocurrency pegged to a fiat currency (usually $1) and backed by reserve assets.
The side that trades against an existing order in the book (such as with a market order), removing liquidity, usually for a higher fee.
The exchange rate between two assets on an exchange; BTC/USDT means buying and selling Bitcoin priced in USDT.
A receiving account generated from the public key, safe to share with others.
The accumulation/distribution line adds up CLV × volume candle by candle; the closer the close is to the high, the more volume counts as buying, so it reads strength within each candle, not just up or down.
An indicator of trend strength (not direction); readings above 25 usually mean there's a trend.
Daily swings scaled up to a yearly figure; volatility grows with the square root of time, so daily volatility × √252 ≈ annual volatility (about 252 trading days a year).
Average true range: the average size of each candle's move, regardless of direction.
Simulating rule-based trading on historical data to see how a strategy would have done.
A candle that closes below its open (the price went down). Its color depends on the color scheme: red when green means up, green when red means up.
Moving averages stacked from shortest at the bottom to longest on top, showing average costs falling across every timeframe.
How far the close is from a moving average, in percent; a big gap means a move has run too fast and is more likely to return to the average, though it can persist in a strong trend.
The part of a candle between the open and the close; the longer the body, the more one side dominated.
A volatility channel with a 20-day moving average in the middle and bands 2 standard deviations above and below.
In an uptrend, a close below the latest higher low (or in a downtrend, above the latest lower high), a warning that the trend may be ending.
Price gaps out of a range or pattern boundary on heavy volume, often starting a new trend, and usually doesn't fill right away.
A candle that closes above its open (the price went up). Its color depends on the color scheme: green when green means up, red when red means up.
Moving averages stacked from shortest on top to longest at the bottom (such as MA5 > MA10 > MA20 > MA60), showing average costs rising across every timeframe.
In an uptrend, buying when price briefly dips and then turns up again, instead of chasing a fresh high.
A chart shape whose body and wicks show the open, high, low and close for a period of time.
An indicator of how far the typical price strays from its average, with ±100 as common strength thresholds.
Close location value: where the close sits between the candle's high and low, from −1 to +1; closing at the high is +1, at the low −1, in the middle 0.
Chaikin Money Flow: the sum of CLV × volume over the last N candles (often 20) ÷ total volume, from −1 to +1; staying above 0 means buyers are in control.
A small gap inside a trading range on ordinary volume; it usually fills quickly and doesn't mean much.
A range estimated from a sample that very likely contains the true value; the smaller the sample, the wider the range.
Several different kinds of signals pointing the same way at once.
Trying lots of rules or parameters on the same historical data will always turn up a set that looks great by chance, but it's usually just luck.
A short-term moving average (or an indicator's fast line) crossing below a long-term one (the slow line).
Price makes a new high or low but the indicator doesn't, hinting the trend may be weakening.
Made of +DI and −DI, it compares the push from buyers with the push from sellers.
A candle whose open and close are almost the same, showing a standoff between buyers and sellers.
A channel formed by the highest high and lowest low of the last N candles; breaking it means a new N-day high or low.
A W-shaped bottom reversal pattern of two similar lows, confirmed when price breaks above the neckline.
A moving average that gives recent prices more weight, so it reacts faster than an SMA.
A candle whose body completely covers the previous candle's body, signaling a shift in control.
A line showing how account value changes over time.
A high-volume gap at the end of a sharp rally or drop that fills soon after, hinting the trend may be running out of steam.
What you make per trade on average over the long run: win rate × average win − loss rate × average loss; only worth trading if positive.
An indicator gives a signal, but price doesn't move the way it suggested.
Splitting a price move at ratios like 23.6%, 38.2%, 50% and 61.8% to find likely pullback levels.
A small counter-move after a sharp rally (or drop), often a pause before the trend continues.
After a gap, price returns to the other side of it, trading through the prices that were skipped.
A short-term moving average (or an indicator's fast line) crossing above a long-term one (the slow line).
A candle with a small body and a long lower wick; after a decline it hints at a possible bottom.
A top reversal pattern of three peaks (left shoulder, head, right shoulder), confirmed when price breaks the neckline.
How violently price has moved, measured by the standard deviation of past returns and usually shown as an annual percentage; it describes the past and doesn't predict direction.
An all-in-one trend indicator made of the conversion line, base line, leading spans (the cloud) and lagging span.
The stretch of historical data used to tune parameters.
A channel with an EMA in the middle and bands a few ATRs above and below.
Because indicators are built from past prices, their signals always come after the actual turn in price.
Accidentally using data in a backtest that couldn't have been known at the time, which inflates the results.
How many recent candles an indicator uses; shorter is more sensitive but noisier, longer is smoother but slower.
Several moving averages bunched together and crossing back and forth, common in ranges or at trend turning points.
An indicator that measures trend and momentum using the gap between EMA12 and EMA26 (the MACD line) and its signal line.
The gap between the MACD line and its signal line; longer bars mean momentum is building, shorter bars mean it's fading.
The broad market environment, such as trending, ranging, high or low volatility; the same indicator can work in completely opposite ways in different regimes.
Describing a trend by its highs and lows: higher highs and higher lows is an uptrend, lower highs and lower lows a downtrend, and a mix is a range.
The biggest drop from an equity peak to the lowest point that follows.
The average of how far each value is from the mean, ignoring sign; CCI uses it as a ruler for how far price has strayed.
A reference target found by projecting a pattern's height from the breakout point in the breakout direction; it's an estimate, not a guarantee.
A 0–100 indicator combining price and volume; above 80 is overbought, below 20 oversold.
Today's price minus the price N days ago, measuring how fast price is changing.
A three-candle bottom pattern: a long bearish candle, a small body, then a long bullish candle.
The line joining key highs or lows in a head and shoulders or double top/bottom; breaking it completes the pattern.
A running total that adds volume on up days and subtracts it on down days, showing where money is flowing.
Open, High, Low, Close: the four prices of a period.
An indicator that swings within a fixed range (such as 0–100) to flag overbought and oversold conditions.
Data kept out of tuning and used only to test the strategy.
An indicator reading near the top, meaning price has risen a lot recently, though it won't necessarily fall right away.
Tuning parameters so tightly to past data that the strategy does badly on new data.
An indicator reading near the bottom, meaning price has fallen a lot recently, though it won't necessarily bounce right away.
Dots drawn above or below price that tighten as a trend speeds up and flip sides when price crosses them.
Average win ÷ average loss; win rate and payoff ratio often trade off, so you need both to know whether a strategy makes money.
Where the current reading sits within its own history; the 10th percentile means only about 10% of past readings were at or below it.
The point of control: the price with the most volume in a volume profile, often acting as key support or resistance.
The zone between a trendline and a parallel line, where price often travels.
Total profit from winning trades ÷ total loss from losing trades.
In an uptrend, price dips to a rising moving average or support and then holds, often used as a chance to join the trend.
Measuring results in units of planned risk: the amount you'd lose at your stop is 1R, so making twice that is +2R.
After price breaks above or below a line, it comes back to test that line; old support often turns into resistance here, and vice versa.
The percentage change of today's price versus N days ago.
A 0–100 indicator comparing average gains with average losses over a period; above 70 is overbought, below 30 oversold.
In uptrends RSI tends to swing between about 40 and 80, in downtrends between about 20 and 60, so read overbought and oversold in light of the trend rather than sticking to 70/30.
(Close − N-day low) ÷ (N-day high − N-day low) × 100.
A gap in the middle of a trend, showing the trend is still accelerating; also called a continuation gap.
How many data points a statistic is based on, such as the number of trades in a backtest; the fewer the trades, the more luck drives the win rate and returns.
A candle with a small body and a long upper wick; after a rally it hints at a possible top.
The line an indicator must cross to count as a signal, such as RSI's 70/30; the more extreme the threshold, the fewer the signals.
The simple average of the last N closes, drawn as a smooth line.
When a channel narrows sharply and volatility is low, often just before a big move.
A statistic for how far data spreads from its average; the bigger the swings, the bigger the standard deviation.
An indicator showing where the close sits within the high-low range of the last N days (KD / KDJ).
A local high (or low) with several lower (or higher) candles on each side, confirmed only after the candles on its right have formed.
Studying past price and volume data to judge trends and when to buy or sell.
Exiting a position that hasn't done what you expected after a set time, so your money doesn't sit stuck in a trade going nowhere.
How much time each candle covers, such as 5 minutes, 1 hour, a day or a week.
Rules written before you trade: when to enter, where the stop-loss goes, how to take profit or exit, and how much to risk per trade.
A stop that keeps moving up as price rises but never moves down, letting winners run further and exiting only after a set pullback.
Taking signals only when a trend condition is met (such as a rising long moving average or ADX above 25) to cut false signals in choppy markets.
A straight line through a series of highs or lows that shows a trend's direction and slope.
A narrowing pattern of lower highs and higher lows (or one side flat), waiting for a breakout in either direction.
The largest gap among today's high, today's low and yesterday's close.
Famous 1980s trend-following rules: enter on a break of the 20-day high, exit on a break of the 10-day low, and size positions with ATR.
(High + low + close) ÷ 3, a single number for a candle's price level, used by CCI and MFI.
Big moves tend to follow big moves and small moves follow small ones; volatility cycles between high and low but says nothing about direction.
Rising volume on rallies and falling volume on pullbacks means volume backs the move; a new price high on shrinking volume is a volume divergence.
Total volume traded at each price range, showing which prices were most active.
The volume-weighted average trade price: the average cost of all the day's trades.
The thin lines sticking out above and below the body, reaching the high and the low.
An oscillator from 0 to −100; above −20 is overbought, below −80 oversold.
The share of all trades that made money.
Excess return after removing the market's influence, reflecting stock-picking skill.
Simultaneously buying the cheap version and selling the expensive version of the same (or an equivalent) asset to lock in the difference.
How sensitive a portfolio is to the market; β = 1.2 means it rises 1.2% on average when the market rises 1%.
What a convertible is worth as a plain bond (discounted at the yield of similar-credit bonds); however far the stock falls, the convertible usually doesn't drop much below it.
Arbitrage between futures months of the same product: when the far month is too expensive versus the near month, buy near and sell far, take delivery on the near and redeliver on the far.
When futures are too expensive: borrow to buy the spot asset and sell futures at the same time, locking in the gap at delivery.
Two prices each wander freely, but some combination of them (like the spread) keeps returning to its mean; pairs trading really needs cointegration, not just correlation.
Holding stock + buying a lower-strike put + selling a higher-strike call, which locks the outcome in a range at close to zero cost.
The benefit of actually holding the goods (no shortages, ready to use); it makes holders reluctant to sell, so futures can stay below fair value for a long time and reverse arbitrage may not work.
A bet that the gap between two prices will eventually narrow; before it does, the gap may widen first.
When the call is relatively expensive: sell the call, buy the put and buy the stock for a fixed payoff at expiry.
How much more the convertible costs than its conversion value = convertible price ÷ conversion value − 1; when negative, buying the convertible and converting is cheaper than buying the stock, opening a possible arbitrage.
The agreed price per share when converting; a convertible with $100 face value and a $10 conversion price converts into 100 ÷ 10 = 10 shares.
The value of the shares one convertible would get if converted right now = shares received × stock price.
A bond that can be swapped for company shares at an agreed conversion price: bond-like when the stock is low, with principal and interest as a floor, and stock-like when it's high.
How much a bond's price curves against rates; duration is only a straight-line estimate, so the bigger the rate move, the bigger the convexity error and the less accurate a duration hedge.
How much two prices move together, from −1 to 1; the closer to 1, the more in sync.
Borrow one currency, convert it and earn interest on deposit while locking in the rate back with a forward, profiting when the forward strays from interest rate parity.
Hedging with a related but not identical product, such as using heating oil futures to hedge jet fuel.
The gap between the implied rate for dollars obtained through FX swaps and the rate for borrowing dollars directly; since 2008 it has stayed non-zero (swapped dollars cost more), showing interest rate parity breaks down in practice due to funding and balance-sheet limits.
Many institutions hold the same kind of position; once someone is forced out, everyone rushes for the exit at once, widening the spread further and causing a chain of losses.
A portfolio whose total Delta is 0, so small moves in the underlying barely change its value.
Selling instruments like Treasury futures based on rate sensitivity (duration or DV01) rather than 1:1 by market value, so a bond portfolio stops reacting to rate moves.
Roughly how much a position's value changes when yields move 1 basis point (0.01%) ≈ market value × duration × 0.0001.
Continually adjusting the hedge as prices move to keep the portfolio neutral.
The theoretical price implied by “no free money”; for example, futures fair value = spot × (1 + rate × time) + carrying costs.
An agreement to buy or sell on a future date at a price agreed today, often used to lock in an exchange rate.
The most the far month should cost over the near month = near price × interest rate × time between + storage and insurance for that period; beyond it, a calendar cash-and-carry works.
The risk of being forced to close a sound position because you can't raise cash in time (for example for a margin call); futures hedge losses are paid in cash daily, while gains on the hedged asset come later.
How much Delta changes when the underlying moves $1; the higher the Gamma, the more often a Delta hedge needs adjusting.
The most risk (by variance) an optimal hedge can remove = correlation squared; at a correlation of 0.8 it removes at most 64% of the variance.
The size of the hedge relative to the original exposure; 1 means a full hedge, 0.5 means hedging half.
Risk specific to one company (earnings, accidents and so on) that market instruments can't hedge; only diversification helps.
The volatility backed out of an option's market price, reflecting the market's expectation of future swings; the higher the IV, the pricier the option.
The forward exchange rate is set by the interest rate gap between two currencies: the lower-rate currency trades at a higher forward price (a premium).
The same thing in different markets should have the same price once costs are taken out.
The legs of an arbitrage can't all fill at the same moment, and prices moving in the meantime can shrink the profit or turn it into a loss.
A portfolio that isn't sensitive to market moves, earning mainly from alpha.
The tendency of a price or spread to drift back to its average after straying from normal.
The ratio that makes the hedged portfolio swing the least = correlation × spot volatility ÷ futures volatility.
The price range set by trading costs: when a mispricing stays inside it, arbitrage isn't profitable after costs.
Hedging more than your actual exposure, which creates a new risk in the opposite direction.
With two closely correlated stocks, buy the cheap one and short the expensive one when their spread widens, then wait for it to revert.
A call and a put with the same strike and expiry satisfy: call − put = stock price − present value of the strike.
When the put is relatively expensive: buy the call, sell the put and short the stock for a fixed payoff at expiry.
When futures are too cheap: sell the spot asset and buy futures at the same time, taking delivery to restore your position.
An exposure's share of the portfolio's total risk, taking its correlations with the other exposures into account.
A common force that moves the prices of many assets at once, such as the market, exchange rates or oil prices.
An arbitrage whose result is locked in when you open it, so it can't lose no matter where prices go.
The gain or loss from the price gap between months each time you roll a front-month futures position; longs keep paying a roll cost in contango and earn roll yield in backwardation.
Trading on historical statistical patterns (such as spreads reverting); it has an edge, but it isn't risk-free.
Buying a call + selling a put (same strike, same expiry), with exactly the same P&L as owning the stock.
When quotes for three currencies don't line up, converting around the triangle back to your starting currency for a profit.
How many standard deviations a value is from its average; z = +2 means 2 standard deviations above normal.
Goods sold but not yet paid for; growing too fast can mean trouble collecting cash.
Revenue ÷ total assets: how much revenue each $1 of assets brings in a year, showing how hard the assets are working.
Resources a company owns that bring economic benefit, such as cash, receivables, inventory and plant and equipment.
At a moment in time, what a company owns (assets), what it owes (liabilities) and what belongs to shareholders (equity).
Shareholders' equity ÷ total shares: how much book value backs each share.
Spending on long-term assets like plants and equipment to maintain and grow the business.
How much cash actually came in and went out over a period, split into operating, investing and financing.
The consumer price index, the most widely used measure of inflation; a bigger-than-expected rise usually means pressure to hike rates.
Current assets ÷ current liabilities, a measure of the ability to pay debts due within a year; above 1 is usually safer.
Discounting each future year's free cash flow back to today and adding them up to estimate a company's intrinsic value.
Spreading the cost of a long-term asset like equipment over its useful life; it's recorded as an expense but needs no further cash.
The annual rate used to convert future money into today's value, reflecting the cost of capital and risk; the higher it is, the lower the present value.
Annual dividend per share ÷ share price: how much you'd get back in cash each year buying at today's price.
Breaking ROE into net margin × asset turnover × equity multiplier to see whether a company earns through margins, speed of turnover or debt.
Net income ÷ total shares: how much profit each share earns.
Total assets ÷ shareholders' equity, a measure of how much debt is used; a multiplier of 5 means each $1 of shareholder money supports $5 of assets.
Operating cash flow minus capital expenditure: money the company can use for dividends, buybacks or paying down debt.
(Revenue − cost of goods sold) ÷ revenue, showing how profitable the product itself is.
Revenue, costs, expenses and profit over a period, answering “how much did the company make?”
What a company “should” be worth based on the cash it can generate in the future, which may be above or below its share price.
Money a company owes others, such as loans and accounts payable.
The gap between estimated intrinsic value and the price you pay; buying only well below your estimate leaves room for error.
The profit left after all costs, expenses, interest and taxes.
Net income ÷ revenue: how much of each $1 of revenue ends up as profit.
The monthly count of new US non-farm jobs, showing how hot or cold the economy and job market are.
The cash the core business actually brings in, harder to dress up with accounting tricks than net income.
Gross profit minus selling, admin and R&D expenses, showing how profitable the core business is.
The higher the share of fixed costs, the more revenue changes swing profit: profit grows faster when revenue rises and falls harder when it drops.
Share price ÷ book value per share: what you pay for each $1 of book value; P/B = P/E × ROE.
Share price ÷ earnings per share: what you pay for each $1 of annual profit; a high P/E means the market expects faster growth.
Dividends ÷ net income: how much of the profit goes to shareholders; staying above 100% means paying out more than it earns, which can't last.
P/E ÷ earnings growth rate (in percent), which factors growth into valuation; around 1 is often seen as fair.
Total income from selling products and services, the top line of the income statement.
Return on assets: net income ÷ total assets, or how much each $1 of assets earns in a year, whether funded by debt or shareholders.
Return on equity: net income ÷ shareholders' equity, or how much each $1 shareholders put in earns in a year.
What's left after subtracting liabilities from assets, which belongs to shareholders; also called net assets.
The total value of all cash flows beyond the forecast period, usually estimated with a perpetual growth formula and often the bulk of the valuation.
A stock that looks cheap on valuation (low P/E, low P/B, high dividend yield) because the business is getting worse, so it may stay cheap.
Holding several assets that don't move in perfect sync to lower the portfolio's overall swings.
The curve joining the portfolios with the highest return for each level of risk.
A trait used to score stocks and explain differences in returns, such as value, momentum, quality or size.
The correlation between factor-score rankings and next-period return rankings, measuring a factor's predictive power; above 0.05 is already useful.
The portfolio with the lowest volatility of all.
When the market reverses sharply, past losers soar and winners lag, so a momentum long-short portfolio loses heavily in a short time.
The tendency of stocks that have done well recently to keep outperforming in the near term.
The tendency of companies with steady profits, low debt and strong cash flow to do better on average over the long run.
Splitting stocks into five equal groups from lowest to highest score to see how a factor relates to returns.
Allocating by risk instead of money so each asset class contributes equally to portfolio swings; low-volatility assets like bonds get more money.
(Return − risk-free rate) ÷ volatility: how much excess return you earn per unit of risk.
Stocks that rose most over about the past month tend to slip the next month and the biggest losers tend to bounce, often blamed on overreaction and liquidity shocks.
Commissions, stamp duty, spreads and slippage: the costs you pay on every trade.
How many times the portfolio's value is traded in a year; the higher the turnover, the higher the trading costs.
The tendency of stocks that are cheap relative to profits or book value to do better on average over the long run.
Repeatedly picking parameters on one stretch of past data, testing them on the stretch right after, then rolling forward, to mimic real trading.
Ranking stocks by recent gains, buying the top group and shorting the bottom group to earn the return gap between them.
A stop-loss placed a few ATRs below your entry (above it when short), which widens automatically in volatile markets and tightens in quiet ones; pair it with position sizing to keep each trade's risk constant.
Selling winners too early and clinging to losers, the exact opposite of “cut your losses and let your profits run”.
How many uncorrelated bets a set of positions is really worth after accounting for correlation; n equal positions with pairwise correlation ρ are about n ÷ [1 + (n − 1) × ρ] bets.
The bet size that grows wealth fastest over time: win rate − loss rate ÷ payoff ratio; traders often use half of it to reduce swings.
Losing a sum hurts about twice as much as winning the same sum feels good.
Using random numbers to replay the same strategy hundreds or thousands of times, revealing the spread of possible outcomes instead of a single historical curve.
Overrating how accurate your judgment is, so after a few wins you size up and loosen your stops.
The total loss, as a share of the account, if every position hit its stop-loss at once; for example, 6 positions risking 1% each is 6% heat.
Giving too much weight to what just happened and assuming the latest trend will keep going.
The chance your account falls too low to keep trading (or below a set floor); it climbs quickly as risk per trade grows.
A stop-loss placed just beyond the latest swing low (swing high when short), with a small buffer; if price breaks it, the original structure has failed.
Refusing to let go because you've already put in (or lost) a lot; decisions should depend only on the odds from here.
A record of each trade's reasons, plan, emotions and result, used to review and find your real edge and repeated mistakes.
Entry, exit and stop-loss conditions fixed in advance that can be checked candle by candle, so they can be tested on historical data.