Reference

Glossary

106 terms, in plain English, each with the reason it matters rather than a dictionary definition. Type to filter.

0DTE: A contract expiring the same day. Enormous gamma, brutal decay, and no room to be early. Not a beginner instrument regardless of how it is marketed.
1–2% rule: Risk no more than 1–2% of total account equity on any single trade. Not a preference — the math of recovering from losses makes anything larger compound against you.
Accumulation: Buying into weakness by larger holders, often visible as declines stalling on rising volume.
ADR %: Average daily range as a percentage. A measure of whether a stock moves enough to be worth the risk.
Ascending triangle: Rising swing lows meeting a flat horizontal resistance line. Bullish continuation; breaks up more often than not.
Ask: What a seller wants. The price you buy at.
Assignment: What happens to the writer when a buyer exercises: they are obliged to deliver or take the shares.
At the money (ATM): Strike sitting at roughly the current stock price. Carries the most time value of any strike, and the deepest liquidity.
Average daily range (ADR): How far a stock typically travels between its high and low in a session, as a percentage. Divide the distance to your target by it and you get roughly how many sessions of favourable movement the trade needs.
Bear flag: A sharp vertical drop (the pole) followed by a tight, upward-sloping consolidation channel (the flag). Bearish continuation.
Bid: What a buyer will pay you. The price you sell at.
Body: The thick part of a candle — the distance between the open and the close. Green means the close was higher; red means it was lower.
Breakeven: For a bought call, the strike plus the premium paid. The stock reaching your strike is not enough; it has to clear the strike by what you paid.
Breakeven win rate: The percentage of trades you must win just to break even at a given risk-to-reward ratio: 100 ÷ (1 + ratio).
Breakout: Price clearing a defined level on expanding volume. The retest afterwards is often the higher-quality entry.
Bull flag: A sharp vertical pole followed by a tight, downward-sloping consolidation channel. Bullish continuation.
Buyer: Pays the premium and receives the right. Maximum loss is the premium paid.
Call: The right to buy 100 shares at the strike price. Bought when you expect the stock to rise.
CANSLIM: William J. O'Neil's seven-part framework combining earnings growth, new highs, volume, relative strength, institutional sponsorship and market direction.
Catalyst: A reason the move should happen inside your window rather than eventually. The difference between a thesis and a hope.
Consolidation: A sideways range following a directional move, where the market digests it. Volume contracting through a consolidation is the constructive version.
Continuation pattern: A pause inside an existing trend — a flag, a tight base — that offers a defined trigger and a defined invalidation. What you hunt for inside a screen's output.
Contract: One option, covering 100 shares. Always 100. Every price on a chain is per share and multiplies by 100 at purchase.
Cup & handle: A rounded U-shaped base followed by a brief, shallow pullback on lighter volume before the breakout.
Delta: How much the option moves per $1 move in the stock — and, read as a percentage, a rough estimate of the odds of finishing in the money. A 0.28 delta gains about 28 cents per dollar, with roughly a 28% chance.
Demand zone: The basing area price built immediately before a sharp rally — where unfilled buy orders are likely to remain. Long on the return and the bounce.
Descending triangle: Falling swing highs meeting a flat horizontal support line. Bearish continuation; breaks down more often than not.
Distribution: Selling into strength by larger holders, often visible as rallies failing on rising volume.
Doji: A candle that closes almost exactly where it opened. Signals indecision — neither side could take control, and a change in direction often follows.
Double bottom (W): A low, a rally, then a retest of that same low before reversing higher. Bullish reversal.
Double top (M): A high, a pullback, then a retest of that same high before reversing lower. Bearish reversal.
Drawdown: The fall from an equity peak to the following trough. The number that decides whether a strategy is survivable, not the annual return.
DTE: Days to expiration. The single number that most changes how a contract behaves.
EMA: Exponential Moving Average — an average that weights recent price more heavily than older data, so it turns faster than a simple moving average. TQE runs the 8, 21 and 50.
EMA stack: The order of the 8, 21 and 50 EMAs relative to price. Stacked bullish (price > 8 > 21 > 50) is the strongest trend condition; below all three is where you de-risk longs.
Engulfing candle: A candle whose body completely swallows the prior candle’s body. Bullish when a green candle engulfs a red one; bearish in reverse.
Exercise: Acting on the right — actually buying or selling the 100 shares. Rare in practice, and it throws away any remaining extrinsic value.
Expectancy: The average result per trade over a large sample, combining win rate with average win and loss. Positive expectancy is the whole objective.
Expected move: The range the options market implies for a stock by a given expiration, roughly stock price × IV × √(days ÷ 365). A one-standard-deviation estimate — price finishes outside it about a third of the time.
Expiration: The date the contract ceases to exist. The element with no equivalent in share trading, and the source of most beginner losses.
Extrinsic value: Everything else in the premium — time and volatility. Decays every day, faster near expiration, and at expiration it is always zero.
Fakeout: A break of a level that fails to hold — price wicks through and closes back inside. The next-candle close rule exists to filter these out.
Falling wedge: Swing highs and swing lows both sloping down but converging — selling pressure losing steam. Bullish reversal on a break of the upper line.
FOMO: Entering a stock already up big without a setup, purely from fear of missing the move. The fix: if you did not have a plan for it yesterday, you do not have a trade for it today.
Gamma: How fast delta itself changes. If delta is speed, gamma is acceleration. Highest at the money and rising sharply into expiration.
Gap: A price opening away from the previous close, leaving no trading in between. Earnings and overnight news are the usual causes.
Hammer: After a downtrend: a small body near the top of the range with a long lower wick. Sellers pushed price down; buyers reclaimed it by the close.
Head & shoulders: Three peaks — shoulder, taller head, second shoulder — with a neckline connecting the troughs. Bearish reversal on a close below the neckline.
Higher high / higher low: A swing peak above the previous peak, and a swing trough above the previous trough. Together they confirm an uptrend is intact.
Ignition candle: An outsized, high-volume candle moving aggressively in one direction relative to recent average range — the first sign larger players are involved. Do not chase it; wait for the base.
Implied volatility (IV): The market's expectation of how much the stock will move, priced into every contract. A forecast of magnitude, not direction.
In the money (ITM): A call below the stock price, or a put above it. Has real exercisable value already.
Intraday margin deficit: Not holding enough equity to cover your positions at some point during the session. Expected to be satisfied promptly; repeated failures can restrict the account for up to 90 days.
Intraday margin requirement: What replaced the PDT rule in June 2026. Rather than counting trades, your broker checks that your equity covers your open positions throughout the session rather than only at the close. A shortfall is an intraday margin deficit, and repeatedly failing to satisfy one can restrict the account for up to 90 days.
Intrinsic value: How much the option is in the money right now. A $95 call with the stock at $100 has $5 of it. Cannot decay — it is a fact about the current price.
Invalidation: The price at which the thesis is wrong. Set on the stock, not on the option's price — a contract can swing on a wide spread that says nothing about your analysis.
IV crush: The collapse in implied volatility when an event resolves. Why a call can lose 25% on a day the stock rises 3% after earnings — you bought uncertainty, and the uncertainty disappeared.
Last: The most recent trade price, which may be hours old. History, not an offer. Never assume you can transact there.
LEAPS: Long-dated options, typically a year or more out. Behave much more like owning stock: minimal daily decay, large capital outlay.
Leveraged ETF: A fund targeting two or three times the daily move of an index or sector. It delivers that multiple over a single session, not over weeks — daily rebalancing means a 3x fund can lose value while the index it tracks finishes flat.
Liquidity: Whether you can get in and out near the quoted price. A risk control rather than a preference — every stop assumes an exit exists.
Lower high / lower low: A swing peak below the previous peak, and a swing trough below the previous trough. Together they confirm a downtrend is intact.
Margin: Borrowing from the broker to hold more than your cash supports. Behaves like shares — no decay, no expiry — but losses amplify identically to gains, interest accrues, and a margin call closes the position at the broker's timing rather than at your stop.
Market regime: What the broad market is doing, read off the EMA stack on the indices, before you scan a single individual name.
Maximum loss: For a bought option, the full premium. Known in advance — and, for out-of-the-money contracts, the single most likely outcome rather than a tail risk.
Moneyness: Where the strike sits relative to price: in the money, at the money, or out of the money. Governs cost, sensitivity, and probability all at once.
Neckline: The line connecting the troughs (or peaks) inside a head & shoulders or double top/bottom. Its break is the confirmation trigger.
Notional exposure: Contracts × 100 × stock price. Five contracts on a $100 stock is $50,000 of exposure that may have cost $575 — which is why options feel cheap and behave expensive.
Open interest: Contracts currently outstanding, accumulated across all sessions. Low open interest is how you end up unable to sell what you bought.
Option: A contract giving the right to buy or sell 100 shares at a fixed price until a fixed date. Not ownership of the stock — an agreement about it, with a deadline.
Option chain: Every contract available on a stock, laid out by strike and expiration, with current pricing. Calls left, puts right, strikes down the middle.
Out of the money (OTM): A call above the stock price, or a put below it. No intrinsic value — the contract is made entirely of time and hope.
Pattern Day Trader (PDT): A retired US designation. Until June 2026 it flagged anyone making four or more day trades in five business days and required a $25,000 minimum equity balance. FINRA eliminated it — no designation, no trade counting, no $25,000 floor. Some brokers may run the old rule until their phase-in completes in October 2027.
Position sizing: Deciding how much to buy so that a loss is survivable. For a bought option, size on the assumption the entire premium goes to zero.
Position sizing tiers: Four conviction tiers: high conviction (3–5%), scale-in (1–2%), reduced conviction (0.5–1%), and lotto (0.1–0.5%). Size scales with conviction, not with how badly you want to be right.
Power Earnings Gap: A large premarket gap out of a long base on extreme volume after a strong earnings report. The base that forms afterwards is the setup; the gap candle is not.
Premium: What you pay for the contract, quoted per share. A premium of $2.00 costs $200, because one contract covers 100 shares.
Process over prediction: Judging yourself on whether you ran the same process — setup, defined risk, correct size, execution — rather than on whether any single trade won.
Put: The right to sell 100 shares at the strike price. Bought when you expect the stock to fall. Unlike shorting, the loss is capped at the premium.
R (unit of risk): One R is whatever you decided to lose if the trade went against you. Reading results in R rather than dollars lets you compare a $200 trade to a $2,000 one.
R multiple: A trade's result expressed in units of the risk taken. Risking $200 and making $600 is +3R. Makes trades of different sizes comparable.
Relative strength: A name outperforming its sector or the broad market. Screened for simply as price holding above its 20-period moving average.
Relative volume (RVOL): Today's volume against the stock's own recent average. Above 1 means more active than usual — a low bar that roughly half the market clears on any day.
Resistance: A level where selling has previously stopped an advance. Broken resistance frequently becomes support.
Retest: Price returning to the level it just broke. Old resistance holding as new support confirms the break and often offers a better-priced, lower-risk entry than the initial move.
Revenge trading: Re-entering immediately after a loss — often bigger — to win it back. A loss is a closed decision, not an open debt.
Risk-to-reward: Distance to the target divided by distance to the stop. A 3:1 ratio breaks even at a 25% win rate, before costs.
Screener: A filter that reduces thousands of tickers to a working list. It finds candidates, never trades — the qualification happens afterwards, on the chart.
Shooting star: After an uptrend: a small body near the bottom of the range with a long upper wick. Buyers pushed price up; sellers took it back by the close.
Skew: The pattern of implied volatility differing across strikes rather than sitting flat. On equities, downside puts usually carry higher IV than upside calls.
Spread (bid/ask): The gap between bid and ask — a cost you pay on entry and again on exit. On a thin strike it can exceed the move you are trading for.
Straddle: A call and a put at the same strike. The at-the-money straddle's combined price is the market's own estimate of how far the stock travels.
Strike: The fixed price written into the contract. A $105 call lets you buy at $105 regardless of what the stock actually costs.
Supply zone: The basing area price built immediately before a sharp drop — where unfilled sell orders are likely to remain. Short on the return and the rejection.
Support: A level where buying has previously stopped a decline. Broken support frequently becomes resistance.
Theta: The daily cost of holding. A theta of −0.06 means about $6 lost per day if nothing else changes. It is charged whether or not the stock moves.
Time decay: Theta, described in plain English. Not linear — an at-the-money contract keeps roughly 70% of its value through the first half of its life and loses the rest in the second.
Time stop: Exiting because the move has not happened inside the window, not because a price level broke. As legitimate as a price stop, and the one people leave blank.
Vega: How much the price changes per one-point move in implied volatility. The Greek that can hand you a loss on a correct call.
Vehicle: How you express a thesis — shares, options, margin, a leveraged fund. If the contract does not fit your risk budget, change the vehicle rather than downgrading to a worse contract.
Volume: Contracts traded today. Resets every morning. Tells you whether a strike has a live market right now.
Volume profile: A horizontal histogram of how much volume traded at each price level rather than over time. A map of where the crowd already has skin in the game.
Volume shelf: A tall bar on the volume profile — a price level where a large amount of business was transacted. Acts as support from above, resistance from below, and a launchpad when price consolidates on top of it.
Weeklies: Contracts expiring within the week. Cheap and fast-decaying — only sensible with a specific catalyst on a specific day.
Wick: The thin line above or below a candle body showing the full range price traveled. A long wick means price went there and got rejected.
Writer (seller): Receives the premium and takes on the obligation to deliver if exercised. A naked short call carries theoretically unlimited loss.