Glossary
Tools created by traders for traders!
Terms Covered
Welcome to our glossary of terms! This glossary contains many of the trading and non-trading terms you will see on this website, along with simple, practical explanations of what they mean. Click on a term (listed on the left) to go to the definition.
Candle
A representation of price action over a fixed interval. The most common intervals are time-based (5 min, 15 min, 60 min, daily, etc.), but an interval can be defined in other terms as well, such as a fixed number of ticks or a fixed number of shares changing hands. If we define the interval to be 1000 shares, then a candle would represent the price action which took place over the course of 1000 shares being bought and/or sold.
A candle has several parts:
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High – the highest price reached during the interval.
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Low – the lowest price reached during the interval.
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Open – the value of the price at the beginning of the interval.
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Close – the value of the price at the end of the interval.
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Body – the part of the candle between the open and the close of the candle. If the close is greater than the open, then the body of the candle is usually colored green. If the close is below the open, then the body of the candle is usually colored red.
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Wick – A candle may or may not have a wick(s). A wick occurs when the high and/or the low of the candle lie outside of the candle body. In this case, a line is drawn from the candle body to the high and/or the low outside the candle body, and these lines are known as wicks.
Basing Candle
A candle where one or more immediately following candles close between its high and low. A basing candle must have an area of supply above it and an area of demand below it. The candles which follow it are "trapped" between those areas of supply and demand and are relatively in balance. This is known as "basing". A basing candle is considered “active” or “unbroken” until a candle closes above the high of the basing candle or below the low of the basing candle.
Follow Through Candles
Follow Through Candles follow the leg-out of a valid pattern (DBR, RBR, RBD, DBD) and, depending on the pattern, make higher highs or lower lows. For a demand pattern (DBR, RBR), follow through candles will make higher highs. For supply patterns (RBD, DBD), follow through candles will make lower lows.
Basing Candle in Control (BCIC)
Basing candles may be nested. A basing candle is nested when it appears in the base of another active/unbroken basing candle. When basing candles are nested, the one that is said to be in control is the outermost basing candle of the nest, which is the basing candle which started the nest and the one basing candle in the nest which is not a nested basing candle.
Rally-Base-Rally (RBR)
The RBR candle pattern is one of the patterns that the Chart Tool searches for. This pattern is marked by a leg-in which is a rally candle, a base, and then a leg-out which is also a rally candle. Under certain conditions, the basing candle which starts the base may be used as the leg-in candle. This pattern is classified as a continuation pattern and is normally associated with demand in the Supply & Demand Trading Methodology.
Rally-Base-Drop (RBD)
The RBD candle pattern is one of the patterns that the Chart Tool searches for. This pattern is marked by a leg-in which is a rally candle, a base, and then a leg-out which is a drop candle. Under certain conditions, the basing candle which starts the base may be used as the leg-in candle. This pattern is classified as a reversal pattern and is normally associated with supply in the Supply & Demand Trading Methodology.
Drop-Base-Drop (DBD)
The DBD candle pattern is one of the patterns that the Chart Tool searches for. This pattern is marked by a leg-in which is a drop candle, a base, and then a leg-out which is also a drop candle. Under certain conditions, the basing candle which starts the base may be used as the leg-in candle. This pattern is classified as a continuation pattern and is normally associated with supply in the Supply & Demand Trading Methodology.
Drop-Base-Rally (DBR)
The DBR candle pattern is one of the patterns that the Chart Tool searches for. This pattern is marked by a leg-in which is a drop candle, a base, and then a leg-out which is a rally candle. Under certain conditions, the basing candle which starts the base may be used as the leg-in candle. This pattern is classified as a reversal pattern and is normally associated with demand in the Supply & Demand Trading Methodology.
Supply Band
This is an area on the chart where supply and demand are out of balance (supply exceeds demand) and likely to remain so. These areas are normally associated with the bases of RBD and DBD patterns and the Chart Tool draws these bands on the chart using those bases. A supply band is considered “fresh” if price has not returned to the band since it was created. A supply band is considered active until a candle closes above the band, in which case the band is considered broken. Broken supply bands have no more supply left in them and should not be used.
Demand Band
This is an area on the chart where supply and demand are out of balance (demand exceeds supply) and likely to remain so. These areas are normally associated with the bases of DBR and RBR patterns and the Chart Tool draws these bands on the chart using those bases. A demand band is considered “fresh” if price has not returned to the band since it was created. A demand band is considered active until a candle closes below the band, in which case the band is considered broken. Broken demand bands have no more demand left in them and should not be used.
Swing Low
A candle whose low is less than the lows of the candles which surround it. A swing low must have at least 2 candles on either side of it which have both higher lows and higher highs than the swing low. These 2 candles do not need to be adjacent to the swing low, but must appear before a candle with a lower low than the swing low.
Swing High
A candle whose high is greater than the highs of the candles which surround it. A swing high must have at least 2 candles on either side of it which have both lower highs and lower lows than the swing high. These 2 candles do not need to be adjacent to the swing high, but must appear before a candle with a higher high than the swing high.
CIC High
The Candle in Control High is the most recent swing high where the swing highs immediately preceding it are lower, and all of the swing highs after it are lower. Furthermore, at some point after the CIC High, price will drop below the swing low immediately prior to the CIC High. Thus, the CIC High represents a significant turning point in the direction of price movement.
CIC Low
The Candle in Control Low is the most recent swing low where the swing lows immediately preceding it are higher, and all of the swing lows after it are higher. Furthermore, at some point after the CIC Low, price will exceed the swing high immediately prior to the CIC Low. Thus, the CIC Low represents a significant turning point in the direction of price movement.
Trend
The tendency of price to move in a certain direction. Trend can be up, down, or sideways. A trend consists of a series of price moves. The price moves in an uptrend will produce higher swing highs and higher swing lows. The price moves in a downtrend will produce lower swing highs and lower swing lows. An upward price move starts with a swing low which is surrounded by 2 or more higher swing lows. It ends on a swing high which is surrounded by 2 or more lower swing highs. A downward price move starts with a swing high which is surrounded by 2 or more lower swing highs. It ends on a swing low which is surrounded by 2 or more higher swing lows.
Segment
A short term move in the market. An upward segment begins with a swing low and ends with the first swing high which is followed by a swing low. A downward segment begins with a swing high and ends with the first swing low which is followed by a swing high. Segments are often represented using lines or bull & bear boxes. In the example above, the segments are represented using lines, while swing highs are marked with red dots above them and swing lows are marked with green dots below them.
Impulse and Corrective Moves
The price moves in a trend can be categorized as either Impulse moves or Corrective moves. An Impulse move is a price move in the direction of the trend. A Corrective move is a price move in the opposite direction of the trend. These moves are normally comprised of multiple segments.
Tick
There are two aspects to a tick: size and value. For any given market, the size of a tick is the minimum allowed change in price. All prices are a whole multiple of this minimum allowed price change. For most stocks, the size of a tick is normally $0.01. For futures markets, the size of a tick will depend upon the market. For example, the size of a tick for ES (the e-mini S&P 500 contract) is $0.25. For RTY (the e-mini Russell 2000 contract) the size of a tick is $0.10.
Point
There are two aspects to a point: size and value. A point is a whole multiple of a tick, and, for any given market, is usually equal to a $1 price change in the market. So the size of a point is usually $1, and the number of ticks per point is , for ES (the e-mini S&P 500 contract), the size of a tick is $0.25 and the size of a point is $1. This means there are 4 ticks per point for this market. For RTY (the e-mini Russell 2000 contract), the size of a tick is $0.10 and the size of a point is $1, so there are 10 ticks per point when trading the RTY.
Value of a Tick and a Point
The value of a tick also depends upon the market. For most stocks, the value of a tick is equal to the size of a tick. For futures markets, though, the value of a tick may be completely different than the size of a tick. For example, the value of a tick for ES is $12.50 while the size is only $0.25. For RTY, the value of a tick is $5 while the size of a tick is only $0.10.
The value of a point also depends upon the market. For most stocks, the value of a point is equal to the size of a point. For futures markets, the value of a point may be completely different than the size of a point. For example, the value of a point on the ES is $50 while the size of a point is $1. For the NQ (e-mini NASDAQ 100 contract), the value of a point is $20, the size of a point is $1, and the size of a tick is $0.25, so there are 4 ticks per point.
Calculating Profits and Losses
To calculate the profits or losses for a trade, you can take the difference between the starting and ending price for the position you held, convert that to points by dividing by the size of a point, multiply by the value of a point, and then multiply by the size of your position. For example, if you had a position consisting of 10 ES contracts in the futures market and the price of ES went up by $5, then your profit would be ($5 / $1) * $50 * 10 = $2500. If you had a position consisting of 1000 shares of SPY (S&P 500 ETF traded on the stock market) and the price of SPY went up by $1.50, then your profits would be ($1.50 / $1) * $1 * 1000 = $1500.
Drive Letter and Directory Path
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Drive Letter: Each mass storage device directly attached to your computer (often called “drives”) is normally assigned a letter. Letters can also be assigned to specific portions of a storage device. Drive C, for instance, normally refers to the storage device (or part of a storage device) where the operating system for the computer is located. In operations involving the file system of the computer, the drive letter is used to designate which storage device the operation should be performed on.
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Directory Path: A list of directories (aka folders) separated by backslashes. Each directory in the list must be contained in the directory that precedes it in the list. The first backslash in the list is a reference to the root directory of the drive. If the directory path starts without a backslash, then the directory path is considered to start in the current directory of the drive.
Filename Prefix and Path Name
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Filename Prefix: A string of characters given to a program for the purpose of generating a filename. The program will append additional items to the string of characters provided to generate the filename. The Chart Tool will typically add the market symbol, interval, and a date/time stamp to the filename prefix, depending upon what it is generating a filename for.
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Path Name: A text string comprised of a Drive Letter, a colon, and a Directory Path. It designates a specific directory on a specific storage device in the computer’s file system.