Trading Glossary
Complete A-Z Reference of SMC & Order Flow Trading Terms
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Market Structure Terms
BOS (Break of Structure)
A market event where price breaks through a significant swing high (in an uptrend) or swing low (in a downtrend), confirming the continuation of the current trend. BOS signals that the market structure remains intact and the trend is likely to continue.
CHoCH (Change of Character)
A structural shift indicating a potential trend reversal. In an uptrend, CHoCH occurs when price breaks below a significant swing low. In a downtrend, it occurs when price breaks above a significant swing high. This is the first signal that the current trend may be ending.
Higher High (HH)
A swing high that exceeds the previous swing high, indicating bullish momentum and an intact uptrend. The formation of consecutive higher highs confirms buyer control of the market.
Higher Low (HL)
A swing low that forms above the previous swing low, confirming bullish market structure. Higher lows indicate that buyers are stepping in at progressively higher prices, showing demand strength.
Lower High (LH)
A swing high that fails to exceed the previous swing high, indicating bearish pressure. Lower highs suggest sellers are becoming more aggressive, pushing price down before it can reach previous highs.
Lower Low (LL)
A swing low that breaks below the previous swing low, confirming bearish market structure. Consecutive lower lows indicate seller control and a sustained downtrend.
Market Structure Shift (MSS)
A significant change in the pattern of highs and lows that signals a potential trend reversal. MSS is often used interchangeably with CHoCH but may refer to a more confirmed structural change involving multiple swing points.
Swing Point
A significant price pivot where the market changes direction. Swing highs are local price peaks, while swing lows are local price troughs. These points form the basis for analyzing market structure.
Internal Structure
The smaller-scale market structure that forms within larger structural moves. While external structure shows the main trend, internal structure reveals the micro-movements and potential entry opportunities within that trend.
External Structure
The larger, more significant market structure visible on higher timeframes. External structure defines the overall trend direction and major swing points that institutional traders focus on.
Premium Zone
The upper portion of a price range, typically above the 50% equilibrium level. In a bearish context, premium zones are areas where smart money looks to sell, as price is considered expensive relative to fair value.
Discount Zone
The lower portion of a price range, typically below the 50% equilibrium level. In a bullish context, discount zones are areas where smart money looks to buy, as price is considered cheap relative to fair value.
Equilibrium (EQ)
The 50% level of any price range, representing fair value. Price often gravitates toward equilibrium before continuing in the trend direction. Many SMC traders avoid entries at equilibrium, preferring premium or discount zones.
Order Block Terms
Order Block (OB)
A consolidation zone or candle where institutional traders accumulated or distributed positions before a significant price move. Order blocks often act as future support or resistance when price returns to them, as unfilled institutional orders may still exist at these levels.
Bullish Order Block
The last bearish (down) candle before a significant bullish move. This zone represents where institutional buyers accumulated long positions. When price returns to a bullish order block, it often finds support as remaining buy orders are filled.
Bearish Order Block
The last bullish (up) candle before a significant bearish move. This zone represents where institutional sellers distributed or initiated short positions. When price returns to a bearish order block, it often finds resistance.
Mitigation Block
A failed order block that has been “mitigated” or invalidated by price trading through it. Once an order block is mitigated, it loses its significance as a support/resistance zone. The former order block may then act as an inverse zone.
Breaker Block
A mitigated order block that now acts as support/resistance in the opposite direction. When a bullish order block fails and is broken, it can become a bearish breaker block that acts as resistance on retests.
Rejection Block
A zone characterized by long wicks or shadows, indicating strong rejection of price from certain levels. Rejection blocks show where aggressive buying or selling occurred to push price away from a level.
Propulsion Block
A strong momentum candle that “propels” price away from a zone. Propulsion blocks often occur after order blocks are tested, showing the presence of significant institutional interest at that level.
Order Block Refinement
The process of narrowing down an order block to its most significant zone by dropping to lower timeframes. Refinement helps identify optimal entry points within larger order blocks.
Demand Zone
An area where buying pressure exceeded selling pressure, causing price to rise. Demand zones are similar to bullish order blocks and represent areas where buyers are likely to step in again.
Supply Zone
An area where selling pressure exceeded buying pressure, causing price to fall. Supply zones are similar to bearish order blocks and represent areas where sellers are likely to enter again.
Liquidity Terms
Liquidity
In SMC context, liquidity refers to clusters of stop-loss orders that rest above swing highs (buy-side liquidity) or below swing lows (sell-side liquidity). Institutional traders “hunt” this liquidity to fill their large orders with minimal slippage.
Buy-Side Liquidity (BSL)
Stop-loss orders resting above swing highs, equal highs, or resistance levels. These stops become buy orders when triggered, providing liquidity for institutions wanting to sell. BSL is often referred to as “buy stops.”
Sell-Side Liquidity (SSL)
Stop-loss orders resting below swing lows, equal lows, or support levels. These stops become sell orders when triggered, providing liquidity for institutions wanting to buy. SSL is often referred to as “sell stops.”
Liquidity Sweep
A price movement designed to trigger stop-loss orders at a specific level before reversing. Sweeps are often engineered by institutions to access liquidity for their large orders. Price typically reverses quickly after a sweep.
Liquidity Grab
Similar to a liquidity sweep, this is a quick price movement that takes out stops before reversing. The term emphasizes the “grabbing” of stop orders to fill institutional positions.
Equal Highs (EQH)
Two or more swing highs at approximately the same price level, creating a horizontal resistance. Equal highs represent obvious liquidity targets, as retail traders often place stops just above these levels.
Equal Lows (EQL)
Two or more swing lows at approximately the same price level, creating a horizontal support. Equal lows are prime targets for liquidity hunts, as retail traders cluster their stops below these obvious levels.
Stop Hunt
A deliberate price movement designed to trigger stop-loss orders before the market moves in the opposite direction. Understanding stop hunts helps traders avoid being stopped out prematurely and can provide entry opportunities.
Inducement
A price structure designed to lure retail traders into positions before the market reverses. Inducements often appear as false breakouts, bull/bear traps, or patterns that seem to confirm a direction before failing.
Liquidity Void
An area on the chart where very little trading occurred, similar to a fair value gap. Liquidity voids represent inefficient price movement that the market often returns to fill.
Resting Liquidity
Pending orders (stop losses, limit orders) that sit at specific price levels waiting to be triggered. Smart money targets resting liquidity to fill their large positions without excessive slippage.
Order Flow Terms
Order Flow
The study of how buy and sell orders interact to move price. Order flow analysis examines the actual transactions occurring in the market, revealing the real-time battle between buyers and sellers.
Footprint Chart
A specialized chart that displays volume and order flow data at each price level within a candle. Footprint charts show bid/ask volume, delta, and other metrics, providing insight into the buying and selling pressure at specific prices.
Delta
The difference between buying volume (trades at the ask) and selling volume (trades at the bid). Positive delta indicates more aggressive buying, while negative delta indicates more aggressive selling. Delta is a key metric in order flow analysis.
Cumulative Delta
The running total of delta over time. Cumulative delta shows whether buyers or sellers have been more aggressive over a period, helping identify shifts in market sentiment and potential reversals.
Bid
The highest price a buyer is willing to pay for an asset. Bids represent passive buy orders waiting to be filled. The bid forms one side of the bid-ask spread.
Ask (Offer)
The lowest price a seller is willing to accept for an asset. Asks represent passive sell orders waiting to be filled. The ask forms the other side of the bid-ask spread.
Bid-Ask Spread
The difference between the best bid and best ask prices. Tight spreads indicate high liquidity, while wide spreads suggest lower liquidity or increased volatility.
Absorption
When large resting orders “absorb” aggressive market orders without price moving significantly. Absorption indicates strong buying or selling interest at a level and often precedes reversals.
Imbalance
In footprint analysis, a significant disparity between bid and ask volume at a price level. Common threshold ratios are 3:1 or higher. Imbalances indicate aggressive directional pressure.
Stacked Imbalances
Multiple consecutive price levels showing imbalances in the same direction. Stacked imbalances indicate very aggressive directional activity and often mark significant levels.
Market Order
An order to buy or sell immediately at the best available price. Market orders are “aggressive” because they cross the spread and take liquidity from the order book.
Limit Order
An order to buy or sell at a specific price or better. Limit orders are “passive” because they add liquidity to the order book and wait to be filled.
Iceberg Order
A large order that is split into smaller visible portions to hide the total size. As each visible portion is filled, another appears. Detecting icebergs can reveal institutional activity.
Tape Reading
The practice of watching the time and sales (the “tape”) to analyze real-time order flow. Tape readers look for large trades, trade velocity, and patterns in order execution.
Exhaustion
A condition where aggressive buying or selling pressure is diminishing, often visible through decreasing delta or declining trade size despite price continuation. Exhaustion often precedes reversals.
Volume Analysis Terms
Volume Profile
A horizontal histogram showing volume traded at each price level over a period. Volume profile reveals where most trading occurred, identifying high-volume nodes (acceptance) and low-volume nodes (rejection).
Point of Control (POC)
The price level with the highest traded volume in a volume profile. POC represents the “fairest” price where most agreement between buyers and sellers occurred. Price often gravitates back to POC.
Value Area (VA)
The price range containing approximately 70% of the volume traded in a session or period. The value area represents where most participants found acceptable prices, essentially defining “fair value.”
Value Area High (VAH)
The upper boundary of the value area. VAH often acts as resistance when price approaches from below and support when price is above it.
Value Area Low (VAL)
The lower boundary of the value area. VAL often acts as support when price approaches from above and resistance when price is below it.
High Volume Node (HVN)
A price level with significantly more volume than surrounding levels in a volume profile. HVNs represent areas of price acceptance where the market spent considerable time and often act as support/resistance.
Low Volume Node (LVN)
A price level with significantly less volume than surrounding levels. LVNs represent areas of price rejection where the market moved quickly. Price tends to move rapidly through LVNs.
VWAP (Volume Weighted Average Price)
The average price weighted by volume throughout the day. VWAP is used by institutions as a benchmark for trade execution and often acts as dynamic support/resistance. Price above VWAP suggests bullish sentiment.
Anchored VWAP
VWAP calculated from a specific starting point (like a swing high, swing low, or significant event) rather than the session open. Anchored VWAP helps identify average entry prices of participants from specific events.
Volume Climax
An extreme spike in volume, often occurring at market turning points. Volume climaxes can signal exhaustion and potential reversals, especially when combined with price rejection patterns.
Price Action & Imbalance Terms
Fair Value Gap (FVG)
A three-candle pattern where the wicks of the first and third candles don’t overlap, creating a gap or imbalance. FVGs represent inefficient price action where buyers and sellers didn’t interact, and price often returns to “fill” these gaps.
BISI (Buyside Imbalance Sellside Inefficiency)
A bullish fair value gap where aggressive buying created an imbalance with insufficient sell orders. BISI gaps act as potential support zones when price returns to fill them.
SIBI (Sellside Imbalance Buyside Inefficiency)
A bearish fair value gap where aggressive selling created an imbalance with insufficient buy orders. SIBI gaps act as potential resistance zones when price returns to fill them.
Consequent Encroachment (CE)
The 50% level (midpoint) of a fair value gap. CE is often used as a more precise entry point within an FVG, as price frequently reacts at this equilibrium level.
Displacement
A strong, impulsive price movement characterized by large-bodied candles with minimal wicks. Displacement indicates conviction and often creates fair value gaps that price later returns to fill.
Imbalance
Any area where price moved too quickly, leaving behind inefficient price action. Imbalances include FVGs, liquidity voids, and areas with minimal two-way trading. Price tends to return to these areas.
Inversion Fair Value Gap (IFVG)
A fair value gap that has been “inverted” after price traded through it. A bullish FVG that is violated becomes a bearish IFVG that may act as resistance, and vice versa.
Opening Gap
A price gap created when the market opens at a different price than the previous close. Opening gaps often get filled and can provide trading opportunities.
Wick
The thin line extending from a candlestick body, showing price rejection. Upper wicks indicate selling pressure; lower wicks indicate buying pressure. Long wicks suggest strong rejection.
Engulfing Pattern
A two-candle reversal pattern where the second candle’s body completely engulfs the first candle’s body. Bullish engulfing (down then up) and bearish engulfing (up then down) signal potential reversals.
Risk Management Terms
Risk-Reward Ratio (R:R)
The ratio between potential loss (risk) and potential profit (reward) on a trade. A 1:3 R:R means risking $1 to potentially make $3. Professional traders typically seek minimum 1:2 or better R:R.
Position Sizing
The process of determining how much capital to allocate to a specific trade based on account size and risk tolerance. Proper position sizing ensures no single trade can significantly damage the account.
Stop Loss
An order to exit a position at a predetermined price to limit losses. Stop losses should be placed at logical invalidation points based on market structure, not arbitrary distances.
Take Profit
An order to exit a position at a predetermined price to secure profits. Take profits should be set at logical targets like liquidity levels, order blocks, or key structure points.
Drawdown
The peak-to-trough decline in account equity, usually expressed as a percentage. Maximum drawdown measures the largest such decline. Managing drawdown is crucial for account longevity.
Risk Per Trade
The percentage of account equity risked on a single trade. Most professional traders risk 1-2% per trade to ensure survivability through losing streaks.
Break Even (BE)
Moving a stop loss to the entry price once a trade is in profit, eliminating risk. While protecting capital, premature break-even stops can reduce win rates.
Trailing Stop
A stop loss that moves with price to lock in profits while allowing the trade to run. Trailing stops can be based on structure, ATR, or fixed distances.
R-Multiple
The profit or loss on a trade expressed as a multiple of the initial risk (R). A 3R winner means the profit was 3 times the initial risk. Tracking R-multiples helps normalize performance.
Expectancy
The average amount expected to win or lose per trade over time. Calculated as (Win Rate × Average Win) – (Loss Rate × Average Loss). Positive expectancy is required for long-term profitability.
General Trading Terms
Smart Money
Institutional traders, banks, and large hedge funds with significant capital and market influence. Smart money concepts (SMC) study how these entities accumulate and distribute positions.
Retail Traders
Individual traders with smaller accounts trading for personal gain. Retail traders often fall into predictable patterns that smart money exploits.
Confluence
When multiple trading signals or factors align at the same level or time, strengthening the case for a trade. High confluence setups have better probability of success.
Killzone
Specific time windows when institutional activity and volatility are highest. Major killzones include the London Open (2-5 AM EST), New York Open (7-10 AM EST), and London Close (10 AM-12 PM EST).
ICT (Inner Circle Trader)
A trading methodology and educational resource created by Michael Huddleston, focusing on institutional order flow and market manipulation concepts. Many SMC terms originate from ICT teachings.
Power of Three (PO3)
A market cycle consisting of accumulation, manipulation, and distribution. Understanding PO3 helps traders identify where smart money is in their trading cycle.
Accumulation
The phase where smart money builds positions over time, typically appearing as a trading range or consolidation. Accumulation precedes bullish moves.
Distribution
The phase where smart money sells or reduces positions, typically appearing as a trading range at highs. Distribution precedes bearish moves.
Multi-Timeframe Analysis (MTF)
Analyzing multiple timeframes to gain a complete market picture. Higher timeframes provide direction and key levels; lower timeframes provide entry precision.
HTF (Higher Timeframe)
Charts with longer periods (daily, weekly, monthly) used for identifying overall trend, key levels, and major structure. HTF analysis provides context for trades.
LTF (Lower Timeframe)
Charts with shorter periods (1-minute, 5-minute, 15-minute) used for entry timing and refinement. LTF provides precision within HTF context.
Backtesting
Testing a trading strategy on historical data to evaluate its performance. Proper backtesting helps validate strategies before risking real capital.
Trading Journal
A record of all trades including entry/exit, reasoning, emotions, and outcomes. Journaling is essential for identifying patterns, mistakes, and areas for improvement.
Trading Plan
A written document outlining trading strategy, rules, risk management, and goals. Following a trading plan removes emotion from decision-making.