Trading glossary

Plain-English definitions of the algorithmic-trading, Smart-Money / ICT, order-flow and technical-analysis terms you'll meet building strategies in Algovex.

Trading basics

Algorithmic trading

Algorithmic trading is the use of pre-programmed rules to automatically decide when to enter and exit trades, without manual discretion.

Bear market

A bear market is a sustained period of falling prices and pessimistic sentiment, often defined as a decline of 20% or more.

Bull market

A bull market is a sustained period of rising prices and optimistic sentiment.

Day trading

Day trading is opening and closing positions within the same trading day, holding nothing overnight.

Leverage

Leverage is the use of borrowed capital to control a position larger than your own deposit, amplifying both gains and losses.

Limit order

A limit order is an instruction to buy or sell only at a specified price or better.

Market order

A market order is an instruction to buy or sell immediately at the best available price.

No-code (trading)

No-code trading means building and automating trading strategies through a visual interface instead of writing programming code.

Pip

A pip is the smallest standard price increment in forex, usually the fourth decimal place (0.0001) for most currency pairs.

Scalping

Scalping is a short-term trading style that takes many small profits from tiny price moves, holding positions for seconds to minutes.

Short selling

Short selling is profiting from a falling price by selling a borrowed asset and buying it back later at a lower price.

Spread

The spread is the difference between the bid (sell) price and the ask (buy) price of an instrument.

Swing trading

Swing trading aims to capture multi-day to multi-week moves, holding positions through several sessions.

Trading strategy

A trading strategy is a defined set of rules for entries, exits and risk that aims to produce a positive expectancy over many trades.

Technical analysis

ATR (Average True Range)

ATR (Average True Range) measures volatility as the average size of each bar's true range, without indicating direction.

Bollinger Bands

Bollinger Bands are a volatility envelope of standard deviations plotted above and below a moving average.

Breakout

A breakout is price moving decisively beyond a defined level, a range, trendline or chart pattern, often signalling the start of a new move.

Candlestick

A candlestick is a price bar showing the open, high, low and close for a period, with a body between open and close and wicks to the extremes.

Divergence

Divergence occurs when price and an oscillator (like RSI or MACD) move in opposite directions, signalling weakening momentum.

Fibonacci retracement

Fibonacci retracement uses horizontal levels at key ratios (notably 38.2%, 50% and 61.8%) of a prior move to anticipate where a pullback may end.

Gap

A gap is a discontinuity on a chart where price opens significantly above or below the previous close, leaving an empty area.

MACD

MACD is a trend-following momentum indicator built from the difference between two moving averages, plotted with a signal line and a histogram.

Momentum

Momentum is the rate of change of price, how strongly and quickly it is moving in a direction.

Moving average

A moving average smooths price by continuously averaging it over a chosen number of bars, revealing trend direction.

RSI (Relative Strength Index)

The RSI is a momentum oscillator, scaled 0–100, that measures the speed and size of recent price moves to flag overbought and oversold conditions.

Stochastic oscillator

The stochastic oscillator measures where the current close sits within the recent high-low range, on a 0–100 scale, to flag momentum extremes.

Trend

A trend is the general direction of price: an uptrend makes higher highs and higher lows, a downtrend lower highs and lower lows.

Market structure & SMC/ICT

Break of structure (BOS)

A break of structure is price breaking a prior swing high or low, confirming trend continuation; a break against the trend is a change of character (CHoCH) that warns of a reversal.

Fair value gap (FVG)

A fair value gap is a three-candle price imbalance left by a fast move, where the first and third candles do not overlap, that markets often return to fill.

ICT (Inner Circle Trader)

ICT refers to the Inner Circle Trader methodology, a set of concepts for trading institutional order flow, liquidity and market structure.

Liquidity

In trading, liquidity refers to the resting orders (often stop-losses) clustered at obvious price levels that large players can target to fill their positions.

Liquidity sweep

A liquidity sweep is a quick spike through an obvious high or low that triggers resting stop orders before price reverses.

Order block

An order block is the last opposing candle before a strong, structure-breaking move, treated as a zone where institutional orders entered the market.

Smart Money Concepts (SMC)

Smart Money Concepts (SMC) is a trading approach that reads market structure, liquidity and order flow to follow the footprints of large institutional participants.

Support and resistance

Support is a price level where buying tends to halt declines; resistance is a level where selling tends to halt advances.

Swing high / swing low

A swing high is a peak with lower highs on both sides; a swing low is a trough with higher lows on both sides.

Order flow & volume

Depth of market (DOM)

Depth of market (DOM) is the order book showing the resting buy and sell limit orders at each price level around the current market.

Footprint chart

A footprint chart shows the volume traded at each price within every bar, split into buying and selling, revealing order-flow detail inside the candle.

Order flow

Order flow analysis studies the actual buy and sell orders hitting the market, volume, the order book and trade aggressiveness, to gauge real-time supply and demand.

Point of Control (POC)

The Point of Control is the price level with the highest traded volume in a volume profile.

Value area

The value area is the price range containing roughly 70% of a session's traded volume, bounded by the Value Area High (VAH) and Value Area Low (VAL).

Volume profile

A volume profile is a histogram of how much volume traded at each price level over a period, rather than over time.

VWAP

VWAP (Volume Weighted Average Price) is the average price of an instrument over a period, weighted by volume.

Risk & performance

Drawdown

Drawdown is the decline from an equity peak to a subsequent trough, usually expressed as a percentage.

Expectancy

Expectancy is the average amount you can expect to win or lose per trade over many trades, given your win rate and risk-reward.

Hedging

Hedging is taking an offsetting position to reduce the risk of an existing one.

Liquidation

Liquidation is the forced closing of a leveraged position when losses erode the margin below the required maintenance level.

Position sizing

Position sizing is deciding how much capital to risk on each trade, typically as a fixed percentage of the account.

Risk-reward ratio

The risk-reward ratio compares how much you stand to lose if a trade hits its stop versus how much you stand to gain at its target.

Sharpe ratio

The Sharpe ratio measures risk-adjusted return: average excess return divided by the standard deviation of returns.

Sortino ratio

The Sortino ratio is a risk-adjusted return measure like the Sharpe ratio, but it only penalises downside (harmful) volatility.

Stop-loss

A stop-loss is a predefined order that closes a position once price reaches a level, capping the loss on the trade.

Take-profit

A take-profit is a predefined order that closes a position once price reaches a profit target.

Volatility

Volatility is the degree to which a price fluctuates over time, how large and how fast its moves are.

Win rate

Win rate is the percentage of trades that close with a profit.

Algo & backtesting

Backtesting

Backtesting is the process of running a trading strategy against historical price data to estimate how it would have performed.

Look-ahead bias

Look-ahead bias is a backtesting error where a strategy uses information that would not have been available at the time of the trade, inflating results.

Overfitting (curve fitting)

Overfitting is tuning a strategy so closely to historical data that it captures noise rather than a real edge, and fails on new data.

Paper trading

Paper trading is practising a strategy with simulated money in real-time market conditions, without risking real capital.

Slippage

Slippage is the difference between the price a trade was expected to fill at and the price it actually filled at.

Walk-forward analysis

Walk-forward analysis optimises a strategy on one window of data and tests it on the following unseen window, repeatedly rolling forward.