The trading glossary, explained simply.
Clear definitions of the chart patterns, candlesticks, indicators and concepts behind every setup.
Chart Patterns
Ascending Triangle
A bullish continuation pattern where price makes higher lows under a flat horizontal resistance line, coiling toward an upside breakout.
Bear Flag
A short upward-drifting consolidation after a sharp drop, usually resolving with a continuation lower.
Bull Flag
A short consolidation that slopes gently against a sharp prior advance, typically resolving with a continuation higher.
Cup and Handle
A bullish base shaped like a rounded 'cup' followed by a smaller pullback 'handle', signaling a potential breakout to new highs.
Descending Triangle
A bearish pattern of lower highs pressing down on a flat horizontal support line, coiling toward a downside breakdown.
Double Bottom
A bullish reversal pattern shaped like a 'W', where price tests a support level twice and fails to break lower before turning up.
Double Top
A bearish reversal shaped like an 'M', where price tests a resistance level twice and fails to break higher before turning down.
Falling Wedge
A bullish pattern where price contracts between two down-sloping lines, with the move usually resolving to the upside.
Flat Base
A tight, sideways consolidation in a narrow price range after an advance — a quiet base from which a stock can launch its next leg up.
Head and Shoulders
A reversal pattern with three peaks — a higher middle peak (head) between two lower peaks (shoulders) — that warns of a possible top.
High Tight Flag
A rare, powerful continuation pattern: a near-vertical 100%+ advance, then a shallow, tight flag that often launches another sharp leg up.
Inverse Head and Shoulders
A bullish bottoming pattern — three troughs with a deeper middle one — that breaks out above the neckline to signal a reversal up.
Pennant
A small symmetrical-triangle consolidation after a sharp move, resolving as a continuation in the same direction.
Rectangle (Trading Range)
A sideways range between roughly parallel horizontal support and resistance, where price oscillates until it breaks out.
Rising Wedge
A bearish pattern where price grinds higher between two up-sloping lines that converge — usually resolving to the downside.
Rounding Bottom
A slow, U-shaped reversal where a downtrend gradually curves into an uptrend — a 'saucer' base that signals a shift in control.
Symmetrical Triangle
A consolidation of lower highs and higher lows converging to a point, where a breakout in either direction resolves the squeeze.
Triple Bottom (and Top)
A reversal pattern where price tests the same support level three times and holds, signaling sellers are exhausted before a breakout.
Volatility Contraction Pattern (VCP)
A base of progressively tighter pullbacks on shrinking volume that coils a stock before a breakout — Mark Minervini's signature setup.
Candlestick Patterns
Bearish Engulfing
A two-candle reversal where a large down candle completely engulfs the prior up candle's body — momentum has flipped to sellers.
Bullish Engulfing
A two-candle reversal where a large up candle completely engulfs the prior down candle's body — a sign momentum flipped to buyers.
Dark Cloud Cover
A two-candle bearish reversal where a red candle opens above the prior high then closes below the midpoint of the prior green candle.
Doji
A candle that opens and closes at nearly the same price, forming a cross — a sign of indecision and a possible turning point.
Evening Star
A three-candle bearish reversal: a big up candle, a small indecision candle, then a big down candle that closes back into the first.
Hammer
A single candle with a small body and a long lower wick, signaling that buyers rejected lower prices — a potential bullish reversal.
Hanging Man
A small-body candle with a long lower wick after a rally — a bearish warning that sellers are starting to test the uptrend.
Harami (Inside Bar)
A two-candle pattern where a small candle's body sits entirely inside the prior large candle's body — a sign the trend is losing steam.
Inverted Hammer
A single candle with a small body and a long upper wick after a decline — a potential bullish reversal that needs next-day confirmation.
Marubozu
A candle with a full body and little or no wick — one side controlled the entire session, a sign of strong conviction.
Morning Star
A three-candle bullish reversal: a big down candle, a small indecision candle, then a big up candle that closes back into the first.
Piercing Line
A two-candle bullish reversal where a green candle gaps down then closes back above the midpoint of the prior red candle.
Shooting Star
A single candle with a small body and long upper wick after a rally — a bearish signal that buyers were rejected at higher prices.
Spinning Top
A small-bodied candle with long upper and lower wicks — a balanced tug-of-war that signals indecision.
Three Black Crows
Three consecutive strong down candles, each opening within the prior body and closing near its low — a powerful bearish reversal.
Three Inside Up (and Down)
A three-candle confirmation of a harami: a bullish harami followed by a third up candle that closes above the pattern, confirming the reversal.
Three White Soldiers
Three consecutive strong up candles, each opening within the prior body and closing near its high — a powerful bullish reversal.
Tweezer Bottom (and Top)
Two candles that bottom at nearly the same low on consecutive sessions — a short-term bullish reversal as support holds twice.
Indicators
ADX (Average Directional Index)
A 0–100 gauge of trend strength — not direction — where readings above ~25 suggest a trend worth trading and below ~20 a choppy range.
Aroon Indicator
A pair of 0–100 lines measuring how recently price hit its highest high and lowest low — together they gauge trend strength and direction.
ATR (Average True Range)
A volatility measure of how much a stock typically moves per period — used to size positions and set stops proportional to the stock's normal range.
Average Daily Range (ADR)
The average percent a stock moves from high to low in a day — a quick read on how much room a name gives intraday.
Bollinger Bands
A moving average wrapped in bands set a number of standard deviations away — they widen in volatile markets and squeeze tight in quiet ones.
CCI (Commodity Channel Index)
An unbounded oscillator measuring price's distance from its average — readings above +100 flag strength, below −100 weakness.
Donchian Channels
Bands plotting the highest high and lowest low over a lookback — a breakout above the upper channel is the classic trend-following entry.
Fibonacci Retracement
Horizontal levels (38.2%, 50%, 61.8%) marking where a pullback within a trend often finds support or resistance.
MACD
A trend-and-momentum indicator built from two moving averages, with a signal line and histogram that highlight shifts in momentum.
Money Flow Index (MFI)
A 0–100 oscillator like RSI but weighted by volume — it gauges buying vs selling pressure, with above 80 overbought and below 20 oversold.
Moving Average
A line that smooths price over a chosen lookback (e.g. 50 or 200 days) to reveal the underlying trend and act as dynamic support or resistance.
On-Balance Volume (OBV)
A cumulative volume line that adds volume on up days and subtracts it on down days — a running tally of buying vs selling pressure.
Relative Strength (RS)
How a stock is performing versus a benchmark like the S&P 500 — leaders outperform the index, laggards trail it.
RSI (Relative Strength Index)
A momentum oscillator from 0–100 that measures the speed of recent gains vs losses — above 70 is often 'overbought', below 30 'oversold'.
Stochastic Oscillator
A momentum oscillator (0–100) comparing the close to the recent high-low range — above 80 is overbought, below 20 oversold.
Supertrend
An ATR-based trailing line that sits below price in an uptrend and above it in a downtrend, flipping to flag trend changes.
VWAP (Volume-Weighted Average Price)
The average price weighted by volume over a session — a benchmark big traders use to judge whether they're buying or selling at a good price.
Williams %R
A momentum oscillator from −100 to 0 measuring the close versus the recent high-low range — above −20 is overbought, below −80 oversold.
Concepts
Beta
A measure of how much a stock moves relative to the overall market — a beta of 1.5 tends to swing 50% more than the index.
Breakout
When price pushes decisively through a defined level of resistance (or support), often on rising volume, signaling a potential new move.
Consolidation
A pause where price trades sideways in a tight range, digesting a prior move before the next one.
Divergence
When price and a momentum indicator disagree — price makes a new high but the indicator doesn't — warning the move is losing steam.
Drawdown
The peak-to-trough decline of an account or a stock — how far it has fallen from its high, a core measure of risk.
Float
The number of a company's shares actually available to trade — a low float can fuel sharp, fast moves because supply is scarce.
Gap
An empty space on the chart where price opens sharply higher or lower than the prior close, usually driven by news or a catalyst.
Liquidity
How easily a stock can be bought or sold without moving its price — high-volume, tight-spread names are the most liquid.
Market Capitalization
A company's total share value — share price times shares outstanding — used to group stocks from micro-cap to mega-cap.
Momentum
The rate and strength of a price move — momentum trading rides stocks already moving powerfully in one direction.
Overbought and Oversold
Conditions where an oscillator says price has risen (overbought) or fallen (oversold) very fast — a stretched move that may pause or reverse.
Pullback
A temporary move against the prevailing trend — a dip within an uptrend — that often offers a lower-risk entry.
Relative Volume (RVOL)
Today's trading volume compared to the stock's normal volume — a 3x RVOL means three times the usual activity, flagging unusual interest.
Risk/Reward Ratio
The potential reward of a trade divided by the risk taken — how much you stand to make against how much you'd lose if wrong.
Short Interest
The share of a stock's float sold short — when a heavily shorted stock rises, short sellers buying to cover can fuel a 'short squeeze'.
Stop-Loss
A predefined price where you'll exit a losing trade to cap the loss — the single most important risk-control tool.
Support and Resistance
Price levels where buying (support) or selling (resistance) has repeatedly emerged — the structural floors and ceilings of a chart.
Trend
The general direction price is moving — an uptrend makes higher highs and higher lows; a downtrend makes lower highs and lower lows.
Volatility
How much and how fast a stock's price swings — higher volatility means bigger moves, more opportunity, and more risk.
Volume
The number of shares traded in a period — the fuel behind price moves and the clearest read on conviction.
Trading Styles
Breakout Trading
Entering as price clears a defined resistance level on volume, aiming to ride the new move that follows the break.
CAN SLIM
William O'Neil's growth-stock strategy — an acronym for seven traits that have marked big winners before their biggest advances.
Day Trading
Opening and closing positions within the same session to capture intraday moves, holding nothing overnight.
Mean Reversion
A strategy that bets stretched prices snap back toward their average — buying oversold dips and selling overbought rips.
Position Trading
Holding for weeks to months to ride a larger trend — the longest-term active style short of buy-and-hold investing.
Scalping
An ultra-short-term style taking many small profits from tiny price moves, often holding seconds to minutes.
Swing Trading
Holding positions for several days to a few weeks to capture a single 'swing' in price — between day trading and long-term investing.
Trend Following
A strategy that buys strength and rides established trends, holding as long as the trend persists rather than predicting tops and bottoms.
Fundamentals
Altman Z-Score
A formula combining five financial ratios into a single score that estimates a company's risk of bankruptcy.
Dividend Yield
A stock's annual dividend as a percent of its price — the income a shareholder earns from dividends alone.
Earnings Report
A company's quarterly results release — often the single biggest scheduled catalyst, capable of gapping a stock sharply up or down.
EPS (Earnings Per Share)
A company's net profit divided by its shares outstanding — the per-share slice of earnings, and the 'E' in the P/E ratio.
EV/EBITDA
Enterprise value divided by EBITDA — a capital-structure-neutral valuation multiple for comparing companies with different debt loads.
Free Cash Flow (FCF)
The cash a business generates after capital spending — the money truly available to pay down debt, buy back stock or reinvest.
P/E Ratio (Price-to-Earnings)
Share price divided by earnings per share — how many dollars investors pay for each dollar of annual profit.
PEG Ratio
The P/E ratio divided by the earnings growth rate — it judges valuation relative to growth, so a fast grower's high P/E may still be cheap.
Piotroski F-Score
A 0–9 checklist of nine fundamental tests that gauges the financial strength and improvement of a company.
Price-to-Book (P/B)
Share price divided by book value per share — how the market values a company versus its net assets on the balance sheet.
Price-to-Sales (P/S)
Market value divided by revenue — a valuation gauge that works even for companies with no earnings yet.
Profit Margin
The share of revenue a company keeps as profit — gross, operating and net margins show how much survives each layer of costs.
Return on Equity (ROE)
Net income as a percent of shareholders' equity — how efficiently a company turns invested capital into profit.
Revenue Growth
How fast a company's sales are rising year over year — the top-line fuel behind durable earnings growth and big stock moves.
Orders & Execution
Bid-Ask Spread
The gap between the highest price buyers will pay (bid) and the lowest sellers will accept (ask) — a direct cost of trading and a read on liquidity.
Limit Order
An order to buy or sell only at a specified price or better — it guarantees price but not that the order fills.
Market Order
An order to buy or sell immediately at the best available price — it prioritizes speed of execution over price certainty.
Pre-Market & After-Hours Trading
Trading sessions before the open and after the close — thinner, more volatile windows where reactions to news and earnings first play out.
Short Selling
Borrowing shares to sell now and buy back later, profiting if the price falls — the opposite of a long trade, with open-ended risk.
Slippage
The difference between the price you expected and the price you actually got — the cost of moving in fast, thin or wide-spread markets.
Stop Order
An order that stays dormant until price hits a trigger, then becomes a market or limit order — used for protective stops and breakout entries.
Trailing Stop
A stop that automatically follows price by a set distance or percent, locking in gains as a trade moves in your favor.
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