Trading Glossary
Key trading terms and Smart Money Concepts explained.
B
Break of Structure (BOS)
When price breaks a previous swing high or low in the direction of the existing trend, confirming continuation. A bullish BOS breaks a swing high; a bearish BOS breaks a swing low.
BOS Trading GuideC
Change of Character (CHoCH)
The first break of structure against the prevailing trend, signaling a potential reversal. Unlike BOS which confirms trend continuation, CHoCH suggests the trend may be shifting direction.
How to Trade CHoCHCandle Range Theory (CRT)
A price action concept that analyzes the range of individual candles to identify institutional activity. Large-range candles with strong closes indicate displacement, while small-range candles suggest consolidation before the next move.
CRT Trading StrategyD
Displacement
A strong, impulsive price move characterized by large-bodied candles with minimal wicks, indicating aggressive institutional buying or selling. Displacement often creates fair value gaps and confirms the validity of nearby order blocks.
Drawdown
The peak-to-trough decline in account equity during a losing period, expressed as a percentage. A key risk management metric that measures the worst-case loss experienced before a new equity high is reached.
Can Your Strategy Survive 10 Losses?F
Fair Value Gap (FVG)
A three-candle pattern where the wicks of the first and third candles don't overlap, creating a gap in price delivery. FVGs represent imbalances where price moved too fast, and often act as magnets for future price returns.
What Is a Fair Value Gap?Fibonacci Retracement
A technical tool that plots horizontal levels at key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%, 78.6%) between a swing high and swing low. Traders use these levels to identify potential support, resistance, and optimal entry zones.
I
Inducement
Liquidity resting at minor structural points that institutions target before reversing to their intended direction. Inducement levels lure retail traders into positions before the real move, and are commonly found at minor swing highs/lows within a larger structure.
K
Kill Zone
Specific time windows during the trading day when institutional volume peaks and high-probability setups are most likely. The main kill zones are the London Open (2:00-5:00 AM EST), New York Open (7:00-10:00 AM EST), and London Close (10:00 AM-12:00 PM EST).
Kill Zones ExplainedL
Leverage
The use of borrowed capital to increase position size beyond what your account balance would normally allow. While leverage amplifies potential profits, it equally amplifies losses and increases the risk of liquidation.
Liquidation
The forced closure of a leveraged position by an exchange when account equity falls below the maintenance margin requirement. Liquidation results in a total loss of the margin allocated to the position.
Liquidity Sweep
A price move that briefly pushes past a key level to trigger stop-loss orders and pending orders, then reverses. Institutions use liquidity sweeps to fill large orders at favorable prices by absorbing the liquidity sitting at obvious levels.
How to Trade Liquidity SweepsM
Market Structure
The pattern of swing highs and swing lows that defines the current trend. An uptrend is a series of higher highs and higher lows; a downtrend is lower lows and lower highs. Market structure shifts signal potential trend changes.
What Is Market Structure?Mitigation
When price returns to an order block and the institutional orders at that level are filled, closing out the position. A mitigated order block has served its purpose and typically won't produce another significant reaction.
Mitigation vs InvalidationO
Order Block
The last opposing candle before a significant impulsive move, representing the price level where institutions placed their orders. Bullish order blocks are the last bearish candle before an up move; bearish order blocks are the last bullish candle before a down move.
What Are Order Blocks?Order Flow
The aggregate of all buy and sell orders entering the market at various price levels. In Smart Money trading, order flow analysis focuses on identifying where institutional orders are likely positioned based on price action patterns and structural context.
P
Premium / Discount
A framework that divides a price range into premium (above the 50% level) and discount (below the 50% level) zones. Smart money buys in discount zones and sells in premium zones, using the equilibrium as a reference point.
Premium & Discount ZonesS
Supply / Demand Zone
Price areas where significant institutional buying (demand) or selling (supply) originated, identified by the base candles before a strong impulsive move. Unlike support/resistance, these zones weaken with each retest as institutional orders get filled.
Supply & Demand Zones GuideSwing High / Swing Low
A swing high is a candle high surrounded by lower highs on both sides; a swing low is a candle low surrounded by higher lows on both sides. These points form the building blocks of market structure and are used to identify trends, draw Fibonacci levels, and locate liquidity.
How to Identify Swing PointsW
Wick
The thin line extending above or below a candle body, representing price levels that were reached but not sustained during that period. Long wicks into a level often indicate rejection and are used to identify liquidity grabs and supply/demand reactions.
See these concepts in action
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