Glossary
Plain-English definitions for the terms traders and investors actually use. Sourced from the same internal style guide Drogo uses across the product.
Indicators
- RSI — Relative Strength Index — momentum oscillator on a 0–100 scale.
- MACD — Moving Average Convergence Divergence — trend and momentum indicator.
- VWAP — Volume-weighted average price — intraday volume-weighted price benchmark.
- ATR — Average True Range — Wilder-smoothed measure of realized bar volatility.
- Bollinger bands — Moving average bracketed by two standard-deviation bands.
- Stochastic oscillator — Momentum oscillator comparing close to the high-low range.
- %R (Williams) — Momentum oscillator inverse of stochastic, scaled −100 to 0.
- CCI — Commodity Channel Index — momentum oscillator typically scaled around ±100.
- ADX — Average Directional Index — measures trend strength regardless of direction.
- OBV — On-Balance Volume — cumulative volume tally, adding on up days and subtracting on down days.
- MFI — Money Flow Index — volume-weighted RSI variant.
- Ichimoku Cloud — Multi-component trend system showing support, resistance, momentum and trend.
- Pivot points — Daily support/resistance levels derived from previous high, low and close.
- Parabolic SAR — Trailing-stop indicator that flips with trend changes.
- Keltner channels — EMA bracketed by two ATR-based bands.
- Donchian channels — Highest high and lowest low over N periods, used in turtle-style breakout systems.
- Chaikin Money Flow — Volume-weighted accumulation/distribution oscillator.
- Fibonacci retracement — Pullback levels derived from Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%).
- Moving average — Smoothed price series over N periods. Common types: SMA, EMA, WMA, Wilder RMA.
- EMA — Exponential moving average — weights recent prices more heavily than the simple average.
- SMA — Simple moving average — equal-weighted average of the last N prices.
- Volume profile — Histogram of traded volume by price level over a chosen period.
- Pivot high / pivot low — A bar whose high (or low) exceeds the surrounding N bars on both sides.
Price action
- Support — Price area where demand has historically appeared and reversed declines.
- Resistance — Price area where supply has historically appeared and capped rallies.
- Breakout — Price closing decisively beyond a known support/resistance level.
- Breakdown — Bearish breakout — close below an established support level.
- Gap — Non-trading distance between prior close and next open.
- Gap fill — Subsequent price action that retraces back through a prior gap.
- Higher high — A swing high that exceeds the prior swing high — a structural marker of an uptrend.
- Lower low — A swing low below the prior swing low — a structural marker of a downtrend.
- Pullback — Counter-trend retracement within a primary trend.
- Consolidation — Tight horizontal price action following a directional move.
- Trend line — A line connecting two or more pivot points to characterise direction.
- Order block — In ICT/SMC frameworks, a candle representing significant institutional positioning prior to a directional move.
- Fair value gap — A three-bar imbalance where price moved without trading through a price area.
- Liquidity grab — Price briefly extending past a known stop cluster before reversing.
- Inside bar — A bar whose range is fully contained within the prior bar's range.
- Outside bar — A bar whose range fully engulfs the prior bar's range.
Fundamentals
- Market capitalization — Share price × shares outstanding — total equity value of a company.
- P/E ratio — Price divided by earnings per share — common multiple for equity valuation.
- Forward P/E — P/E using forecast (not trailing) earnings, typically next-twelve-months consensus.
- PEG ratio — P/E divided by expected earnings growth — values near 1 are conventionally fair.
- P/B ratio — Price-to-book — share price divided by book value per share.
- EPS — Earnings per share — net income divided by diluted shares outstanding.
- EBITDA — Earnings before interest, taxes, depreciation and amortisation.
- Free cash flow — Operating cash flow minus capital expenditure — cash a business generates after maintenance investment.
- ROE — Return on equity — net income divided by shareholders' equity.
- ROIC — Return on invested capital — operating profit / (debt + equity).
- Gross margin — Revenue minus cost of goods sold, divided by revenue.
- Operating margin — Operating income divided by revenue.
- Dividend yield — Annual dividend divided by share price.
- Payout ratio — Dividends paid divided by earnings (or free cash flow).
- Float — Shares available for public trading, excluding insider/restricted holdings.
- Short interest — Number of shares shorted, often expressed as % of float.
- Insider ownership — Percentage of shares held by company executives and directors.
- Beta — Sensitivity of an asset's returns to a benchmark — typically vs S&P 500.
- Enterprise value — Market cap + debt − cash — the total value to acquire a business.
- Book value — Total assets minus total liabilities — accounting net worth.
Options
- Call option — Right (not obligation) to buy 100 shares at a fixed strike before expiration.
- Put option — Right (not obligation) to sell 100 shares at a fixed strike before expiration.
- Strike price — Price at which the option holder may exercise.
- Premium — Price paid for an option — sum of intrinsic value and time value.
- In the money — Call strike below spot, or put strike above spot — option has intrinsic value.
- Out of the money — Call strike above spot, or put strike below spot — option has only time value.
- Delta — Option Greek — sensitivity of option price to a $1 change in the underlying.
- Gamma — Second-derivative Greek — rate of change of delta per $1 move in underlying.
- Theta — Greek measuring time decay — option value lost per day, all else equal.
- Vega — Greek measuring sensitivity to a 1-percentage-point change in implied volatility.
- Rho — Greek measuring sensitivity to interest rates.
- Implied volatility — Volatility implied by the option price under Black-Scholes.
- IV rank — Where current IV sits within the past year's IV range, scaled 0–100.
- Open interest — Total number of open option contracts at a strike/expiration.
- Covered call — Selling a call against 100 long shares — caps upside, collects premium.
- Iron condor — Short out-of-the-money call spread + short out-of-the-money put spread — bets on range.
- Vertical spread — Long and short options of the same type and expiration but different strikes.
- Calendar spread — Long and short options at the same strike, different expirations.
- Expiration — Date at which an option contract terminates.
Risk
- Drawdown — Percentage decline from a portfolio's peak equity to a subsequent trough.
- Max drawdown — Worst peak-to-trough decline over a backtest or live period.
- Sharpe ratio — Excess return divided by standard deviation of returns — risk-adjusted return measure.
- Sortino ratio — Sharpe variant penalising only downside volatility.
- Calmar ratio — Annualised return divided by max drawdown.
- Value at risk — Statistical estimate of the maximum loss over a horizon at a given confidence.
- Volatility — Standard deviation of returns — annualised by multiplying by √252 for daily data.
- Realized volatility — Standard deviation of historical returns over a window.
- Kelly criterion — Bet-sizing formula maximising long-run logarithmic wealth growth.
- Position size — Number of shares (or contracts) committed to a single trade.
- Risk:reward — Ratio of potential profit (target − entry) to potential loss (entry − stop).
- Expectancy — Win-rate × avg-win − loss-rate × avg-loss — average profit per trade in R units.
- R-multiple — Trade outcome expressed as multiples of initial dollar risk.
- Correlation — Statistical measure of co-movement between two return series, scaled −1 to +1.
Macro
- CPI — Consumer Price Index — primary measure of consumer inflation.
- PPI — Producer Price Index — wholesale-level inflation gauge.
- Fed funds rate — Overnight interbank lending rate set by the US Federal Reserve.
- Yield curve — Plot of bond yields against maturities. Inversion (short > long) historically precedes recession.
- Non-farm payrolls — Monthly US jobs report — major macro and FX driver.
- PCE — Personal Consumption Expenditures price index — Fed's preferred inflation measure.
- ISM PMI — Manufacturing/services purchasing managers' index — expansion above 50, contraction below.
- GDP — Gross Domestic Product — total economic output.
- Recession — NBER definition: significant decline in economic activity, persistent over months.
- Real interest rates — Nominal rate minus inflation — central to gold and equity-multiple regimes.
Crypto
- Bitcoin — First and largest decentralised cryptocurrency, launched 2009.
- Ethereum — Smart-contract blockchain with native token ETH.
- Stablecoin — Cryptocurrency pegged to a reference asset, typically USD.
- DeFi — Decentralised finance — on-chain lending, trading and derivatives without intermediaries.
- Gas fee — Network fee paid to validators for executing on-chain transactions.
- Halving — Bitcoin issuance schedule event halving block rewards roughly every 4 years.
- Funding rate — Periodic payment between perpetual-futures longs and shorts to keep contract aligned with spot.
- Staking — Locking tokens in a proof-of-stake network to earn issuance rewards.
Markets
- S&P 500 — Capitalisation-weighted index of 500 large US companies.
- Nasdaq 100 — 100 largest non-financial Nasdaq-listed companies.
- Dow Jones Industrial Average — Price-weighted index of 30 large US companies.
- Russell 2000 — Index of 2000 small-cap US companies.
- VIX — CBOE Volatility Index — 30-day expected S&P 500 volatility implied by options.
- Pre-market — Trading session before regular hours (typically 4:00–9:30 ET).
- After-hours — Trading session after regular hours (typically 16:00–20:00 ET).
- Circuit breaker — Mechanism that halts trading during sharp index moves to allow price discovery.
- Opex — Options expiration day — third Friday of each month.
- FOMC — Federal Open Market Committee — sets US monetary policy.
Strategy
- Long position — Holding an asset expecting price appreciation.
- Short position — Borrowing and selling an asset expecting decline.
- Hedging — Adding a position whose payoff offsets risk in another holding.
- Pairs trade — Long one asset and short a closely correlated asset to bet on relative value.
- Mean reversion — Strategy assuming extreme prices return toward an average.
- Trend following — Strategy buying strength and selling weakness to ride persistent moves.
- Momentum — The empirical tendency of recent winners to keep winning over the medium term.
- Arbitrage — Risk-free or near-risk-free profit from price differences across markets or instruments.
- Backtest — Simulating a strategy on historical data to estimate performance.
- Walk-forward — Robust backtesting that re-fits parameters in rolling out-of-sample windows.
- Overfitting — A strategy that fits historical noise rather than genuine edge — typically signalled by too-good in-sample stats.
- Survivorship bias — Drawing conclusions from a dataset that excludes failures, biasing results upward.
Microstructure
- Liquidity — Ease of transacting size without large price impact.
- Bid-ask spread — Difference between best buy and sell quotes — primary cost for liquidity takers.
- Slippage — Difference between expected and realised execution price.
- Market order — Order to transact immediately at the best available price.
- Limit order — Order to transact only at a specified price or better.
- Stop order — Order that converts to a market order once a trigger price is breached.
- Iceberg order — Large order split so only a small portion is visible on the book at any time.
- Dark pool — Off-exchange venue allowing institutional traders to transact size without quote display.
- Level 2 — Order book showing depth beyond the best bid/ask.
- Tape reading — Discretionary skill of inferring intent from real-time order flow.