Stock Trading Glossary

Every term below is defined in one or two sentences, in plain English, without using three other undefined terms to do it. Where a definition has a practical consequence, the consequence is part of the definition — that is usually the part that matters.

Updated August 2026

Orders and execution

Bid

The highest price a buyer is currently willing to pay for a share.

Ask

The lowest price a seller is currently willing to accept for a share.

Spread

The gap between bid and ask. You cross it on the way in and again on the way out, which makes it a cost rather than a quote.

Market order

An instruction to trade immediately at whatever price is available. Certain to fill, uncertain what it fills at.

Limit order

An instruction to trade only at your stated price or better. Certain about price, uncertain whether it fills at all.

Stop-loss order

A resting order that turns into a market order once price reaches a chosen level. It caps the reason you are in the trade, not the exact loss.

Slippage

The difference between the price you expected and the price you actually got. It grows with size, with volatility and with thin markets.

Liquidity

How much can be bought or sold without moving the price much. It determines the largest position you can take and still exit at a sane price.

Price and charts

Candlestick

One period's open, high, low and close drawn as a body with wicks. The body shows where the period started and ended; the wicks show what was rejected.

Timeframe

The length of time one bar or candle covers — five minutes, a day, a week. It decides how often you must make decisions.

Support

A price area where buying has repeatedly been enough to stop a decline. It is an area, not a line, and it holds until it does not.

Resistance

A price area where selling has repeatedly been enough to stop an advance.

Trend

A sequence of higher highs and higher lows, or of lower highs and lower lows. Defined by structure rather than by slope or feeling.

Consolidation

Price moving sideways inside roughly horizontal boundaries, with neither side able to force a resolution yet.

Breakout

Price moving decisively beyond a boundary that had been containing it. Most of the information is in what happens next, not in the move itself.

Gap

An opening price away from the previous close, leaving a price area where nothing traded.

Volume

The number of shares traded in a period. It measures participation, not direction — it tells you how many people were involved, not who was right.

Indicators

Moving average

The average closing price over a set number of periods, drawn as a line. It smooths price at the cost of lagging it.

Exponential moving average (EMA)

A moving average weighted toward recent prices, so it turns sooner than a simple average of the same length.

Average true range (ATR)

The average size of a period's range over a lookback window. A volatility measure, commonly used to set stop distance in a way that adapts to the stock.

Relative strength index (RSI)

A momentum oscillator comparing the size of recent gains with the size of recent losses on a 0–100 scale. High readings mean a strong recent move, not an imminent reversal.

MACD

The difference between two exponential moving averages, plotted with a signal line. A restatement of trend and momentum, not an independent source of information.

Bollinger Bands

A moving average with bands drawn a number of standard deviations above and below it, so the bands widen and narrow with volatility.

Relative strength

A stock's performance measured against an index or its peer group rather than against its own past price.

Divergence

Price and an indicator pointing in opposite directions. Worth noticing, and far too common to trade on its own.

Risk and performance

Risk per trade

The share of the account you accept losing if the stop is hit — one fixed percentage, decided before the trade and applied to every trade.

Position sizing

Computing how many shares to buy from account risk and stop distance: shares = (account × risk per trade) ÷ (entry − stop). Size is an output, not a choice.

R multiple

Results expressed in units of the amount risked. A trade that made twice what it risked is +2R, whatever the account size.

Risk/reward ratio

Planned profit distance divided by planned loss distance. A plan, not a result: it only means something if the target is reached as often as you assumed.

Win rate

The share of trades that end in profit. On its own it says nothing about whether a method makes money.

Expectancy

The average result of one trade: (win rate × average win) − (loss rate × average loss). The number that decides whether a method is worth trading.

Drawdown

The decline from an equity peak to the trough that follows, measured in percent.

Maximum drawdown

The largest peak-to-trough decline over a period. Recovery is asymmetric: a 50% drawdown needs a 100% gain to undo.

Risk of ruin

The probability of losing enough capital that you can no longer continue, given your edge, your risk per trade and enough trades.

Leverage

Controlling a position larger than your capital by borrowing. It scales gains and losses equally, and adds the possibility of being closed out at the worst moment.

Correlation

The degree to which two positions move together. Six highly correlated positions are one position with six commission charges.

Systems and testing

Trading system

A written set of rules covering what you watch, what makes a candidate, what triggers entry, where the stop goes, how large the position is, and how you exit.

Setup

The conditions that make a stock a candidate. The setup puts it on the list; it does not put an order in.

Trigger

The specific, observable event that turns a candidate into an order.

Backtest

Applying a set of rules to historical data to estimate how it behaved. Useful for finding out that an idea is bad; weak evidence that one is good.

Curve fitting

Tuning rules and parameters until they fit past data closely. The fit improves and the future performance gets worse, because you have described history rather than a mechanism.

Survivorship bias

Testing on a list of companies that still exist, which quietly deletes every failure from the sample and flatters the result.

Look-ahead bias

A test that uses information which was not available at the moment of the decision — a closing price to trigger an entry during the same session, for instance.

Forward test

Running the rules on live data without money at stake, to see whether they survive contact with a market that has not been optimised against.

Market structure

Ticker

The short symbol that identifies a listed security on an exchange.

Index

A measured basket of stocks used as a benchmark for a market or a sector.

ETF

A fund that holds a basket of assets and trades on an exchange like a single stock.

Sector

A group of companies in the same line of business, which tends to make their price moves related.

Market capitalisation

Share price multiplied by shares outstanding — the market's price for the whole company.

Float

The number of shares actually available to trade, which can be far smaller than the shares issued.

Short selling

Selling borrowed shares in order to profit from a decline. The loss is not capped, because there is no upper limit on a price.

Earnings report

A scheduled release of company results: a known date with an unknown outcome, which is why many systems avoid holding through one.

These definitions are educational material about how markets and trading methods work. They are not financial advice and not a recommendation to buy or sell any security. Trading involves the risk of losing money, including more than you intended if you use leverage or sell short.