Every specialist term used in this manual, defined in plain words. When one of these terms appears on another page, hover or tap it to see the short definition without leaving the page.
Account risk
Also: risk per trade
The share of your account you would lose if a trade hits its stop. It is set before entry and decides the position size. This manual's house constraint is 1-2% per trade, a choice and not a recommended allocation; a lower figure is allowed.
Fix the figure in cash before you look at the chart, so the trade idea cannot talk you into a bigger number. See risk limits.
ATR
Also: Average True Range
A measure of how far price usually moves in one bar, built by averaging each bar's true range. It shows the size of moves, not their direction, and each coin has its own scale.
ATR rises when a market gets jumpy, in sell-offs as well as rallies. The usual length is 14 bars. See ATR.
Breakout
Price moving out past a support or resistance level, or through a trendline. A candle close beyond the level counts for more than a wick that pokes through and comes back.
Waiting for the close costs a slightly worse price and rules out wicks that come back inside the same candle. See breakouts and retests.
Bull trap
A push above resistance that fails and falls back below it, leaving the buyers who chased the move holding losses. On a chart it often shows as a long upper wick.
Wicks that poke over the top line of a rising wedge are a common example.
Candlestick
Also: candle, candle body
A chart bar that shows the open, high, low and close for one period. The thick body spans the open and close; thin wicks show the extremes price reached.
The body shows where price settled. This manual draws trendlines through bodies and marks levels as bands from the bodies to the wick tips.
Chandelier Exit
A trailing stop placed a multiple of ATR away from the highest high of recent bars for a long, or the lowest low for a short. The published default is 22 bars and a multiplier of 3.
It manages a trade that is already open and does not decide entries. See Chandelier Exit.
Corrective wave
Also: correction, A-B-C correction
In Elliott Wave terms, a move against the larger trend. The most common form has three parts, labelled A, B and C.
A common type, the zigzag, splits into five, three and five smaller waves. Corrections are often choppy and harder to count than impulses.
Divergence
Also: bearish divergence, bullish divergence, hidden divergence
Price and a momentum indicator such as RSI disagree. Bearish divergence is a higher high in price with a lower high in the indicator, conventionally read as a sign that the push is weakening.
Bullish divergence is the mirror image at lows. Hidden divergence is conventionally read as the trend continuing instead. Treat any divergence as one reason, never a trigger. See RSI divergence.
Double top
Two peaks at roughly the same price with a dip between them. The second failed attempt at the high suggests buyers are running out.
In the ending diagonal setup, a second failed push to the peak of wave 3 gives an early way into the short.
Elliott Wave
Also: wave count, Elliott Wave theory
A way of reading charts as repeating patterns: five waves with the trend, then three against it. A wave count is a trader's current guess at which wave price is in.
Counts are subjective and change as new bars print, so always keep a second count in mind. See Elliott Wave.
EMA
Also: exponential moving average
A moving average that gives more weight to recent prices, so it responds sooner to a sudden move than a simple average of the same length; in a steady trend both lag by about the same number of candles.
This manual uses the 20 and 55 as short and medium reference lines and the 200 for wider context. See moving averages.
Ending diagonal
A rising or falling wedge that forms in the last wave of a move, wave 5 or wave C. Its legs overlap, shrink as the lines converge, and each one breaks into three smaller swings.
It never forms as a third wave. See ending diagonal breakdown.
Fibonacci extension
Also: trend-based extension, Fib extension
Levels projected past the end of a move, such as 1.0, 1.618 and 2.618, to estimate where the next swing might finish. They are drawn from three points.
Traders use them for stretch targets and to project the length of later waves.
Fibonacci retracement
Also: Fib retracement, retracement
Horizontal levels drawn between the start and end of a move to mark where a pullback might pause. The usual levels are 0.236, 0.382, 0.5, 0.618 and 0.786.
Choose the span, the whole move or its last leg, and write it down before the pullback ends. A level that lines up with real support or resistance has a second reason behind it. See Fibonacci retracement.
Funding rate
Also: funding
A regular payment between long and short holders of a perpetual future that keeps its price close to spot. When it is positive, longs pay shorts; when negative, shorts pay longs.
Price can behave oddly around payment times on coins with extreme rates, so check a coin's funding history before you trade it. See funding rates.
Golden ratio
Also: golden pocket
A number of about 1.618, the limit of the ratio between neighbouring Fibonacci numbers. Most Fibonacci levels are powers or roots of its inverse, 0.618, which traders also call the golden ratio; the 0.5 level is not from it. The golden pocket is a name for the zone from 0.618 to 0.65. It is a label, and this manual cites no evidence that price behaves differently there.
Like any Fibonacci level, it has a second reason behind it only when it lines up with real support or resistance.
Impulse wave
Also: impulse
In Elliott Wave terms, a five-wave move with the trend. Waves 1, 3 and 5 go with it, and waves 2 and 4 go against it.
Three rules apply: wave 2 never falls past the start of wave 1, wave 3 is never the shortest of waves 1, 3 and 5, and in a normal impulse wave 4 stays clear of wave 1's price range.
Leading diagonal
A wedge that forms at the start of a move, in wave 1 or wave A. Its legs overlap like an ending diagonal's, but after a pullback the move usually carries on in the wedge's direction instead of reversing.
Check where a wedge sits in the trend before you trade it, so you do not mistake one kind for the other.
Leverage
Borrowed buying power on a futures position, quoted as a multiple of your margin. It enlarges gains and losses as a share of that margin and moves the liquidation price closer. This manual's house constraint is a ceiling of 3x, a choice and not a recommended allocation; lower is allowed.
At 3x, a move of roughly a third against you can force the position closed. See leverage.
Limit order
An order to buy or sell at a set price or better. It waits on the order book until someone takes the other side, so it may never fill.
A buy limit above the current price, or a sell limit below it, fills at once, much like a market order. See order types.
Liquidation
The exchange closing your position by force because losses have used up nearly all the margin backing it. You lose that margin, part of it often as a liquidation fee.
Higher leverage puts the liquidation price closer to entry, so a smaller move against you can trigger it.
Liquidation price
The price at which the exchange will liquidate a leveraged position. It moves closer to your entry as leverage rises, and fees and maintenance margin bring it closer still.
Your stop must sit well before it. See liquidation price.
Liquidity
Also: thin market, thin markets
How easily you can trade a coin without moving its price. A thin market has few orders on the book, so a single large trade can push price through levels.
A thin book can let one order push price through a level and fill a stop well past its price. Daily volume is a rough first check; the depth near the price is the real one.
Long
Also: long position, going long
A position that gains when price rises and loses when it falls. You open one by buying, and close it by selling.
On a perpetual future you can go long with leverage, but the cash you lose at your stop depends on the position size, not on how much margin backs it.
Lookback period
Also: lookback
The number of past bars an indicator uses in its calculation. A longer lookback reacts more slowly and smooths out noise; a shorter one reacts faster and flips more often.
The Chandelier Exit's published lookback is 22 bars.
Lower high
Also: higher high, higher low, lower low
A swing peak below the one before it. A run of lower highs and lower lows marks a downtrend; higher highs and higher lows mark an uptrend.
In a short, the latest lower high is a common place to move the stop to.
MACD
Also: MACD histogram
A momentum indicator built from the gap between two EMAs, usually 12 and 26 bars, with a 9-bar signal line. The histogram shows the gap between the MACD line and its signal line.
It lags price, and a shrinking histogram only hints that a move is tiring. See MACD.
Maintenance margin
The minimum margin an exchange requires to keep a leveraged position open. If your margin falls below it, the position is liquidated.
It is why the real liquidation price sits a little closer than the simple estimate.
Margin
The collateral you put up to open and hold a leveraged position. Your position's full size equals margin times leverage.
Hold spare funds you could move in quickly, and leave on any exchange only what you are prepared to see disappear.
Market order
An order to buy or sell at once at the best price available. It always fills while there are orders on the book, but the price can be worse than the last trade.
Use it when getting out matters more than the exact price, for example when a trade's idea has clearly failed. See order types.
Momentum
Also: momentum indicator
How fast price is moving in its current direction. Momentum indicators such as RSI and MACD work it out from recent price changes, so they describe what price has already done.
A new price high with a weaker momentum reading warns that the push is tiring. Read it as one reason among several. See RSI divergence.
Multiplier
Also: ATR multiplier
The number an indicator multiplies ATR by to set how far its line sits from price. The Chandelier Exit and Supertrend both use one, and 3 is a common default.
A bigger multiplier gives a wider line that flips less often but hands back more of a move before it exits; a smaller one hugs price and flips more. See Chandelier Exit.
Notional value
Also: position value
The full size of a position: margin times leverage. A position worth 3,000 on 1,000 of margin has a notional value of 3,000.
Size positions from notional value and the stop distance, not from margin.
Order book
The live list of open buy and sell limit orders for a market, sorted by price. Market orders fill against it, starting from the best price on the other side.
When the book is thin, one large order can eat through several price levels, so the fill lands well away from the last trade. See order types.
Parabolic move
Also: parabolic
A run where price rises faster and faster, so the chart curves almost straight up. Indicators and wave counts become unreliable, and any sensible stop sits far away.
Most setups in this manual skip coins in a parabolic move.
Perpetual future
Also: perpetual, perp, perpetual swap
A futures contract with no expiry date. A funding rate paid between longs and shorts keeps its price close to the spot price.
Most leveraged crypto trading happens on perpetuals. See perpetual futures.
Position size
Also: position sizing
How much of a coin you hold in a trade. It follows from your account risk and the distance to your stop, not from how sure you feel.
Divide the cash you are willing to lose by the stop distance as a fraction of price. See position sizing.
Rejection candle
Also: rejection
A candle that pushes into a level and closes back away from it, usually leaving a long wick toward the level. It shows the other side stepping in.
On a retest after a break, one rejection candle on a low timeframe is often the entry trigger.
Resistance
A price area where sellers have stepped in before and pushed price back down. Mark it as a zone, not a single price.
Once broken, old resistance can act as support when price returns to it, a belief rather than a rule. See support and resistance.
Retest
Price coming back to a level it just broke and testing it from the other side. A retest that holds is one observation, not confirmation that the break will continue.
Entering on a retest gives a shorter stop distance than entering on the break for the same planned loss, but the retest does not always come.
Reward to risk
Also: risk to reward, R:R
The possible gain on a trade divided by the possible loss, worked out from the entry, stop and target before you enter.
It says nothing about how often a trade wins. See risk and reward.
RSI
Also: Relative Strength Index
A momentum oscillator that runs from 0 to 100, usually over 14 bars. Readings above 70 and below 30 are the usual extremes.
Divergence between RSI and price is the main way this manual uses it. See RSI divergence.
Short
Also: short position, shorting, going short
A position that gains when price falls and loses when it rises. On a futures exchange you open one by selling a contract and close it by buying the contract back.
In principle a short's loss has no ceiling, because price can keep climbing. That is why the stop goes in at the same time as the entry.
Spot price
Also: spot, spot market
The current price for buying or selling a coin outright, with delivery straight away. A perpetual future tracks it through the funding rate.
Buying on the spot market without borrowing means you own the coin itself, with no expiry, no funding payments and no liquidation price.
Stop-limit order
Also: stop-limit
A stop with two prices: a trigger, and a limit for the order it places. If price gaps past the limit, the order can sit unfilled.
Set the limit on the side that can still fill: below the trigger when closing a long, above it when closing a short.
Stop-loss order
Also: stop loss, stop
An order that closes a position when price reaches a set level against you, which sets the planned loss. The realised loss can be larger, because slippage or a gap can fill the order past the level. It goes outside the pattern you trade, where price should not reach if the idea is right.
See stop-loss placement.
Stop-market order
Also: stop-market
A stop that sends a market order once its trigger price trades. It fills even when price moves fast, though possibly at a worse price than the trigger.
For a protective stop in a fast market it is usually the safer choice, because getting filled matters more than the exact price.
Supertrend
A trailing line set a multiple of ATR above or below the midpoint of each bar's high and low. It flips sides when price closes through it. Common defaults are 10 bars and a multiplier of 3.
See Supertrend.
Support
A price area where buyers have stepped in before and held price up. More touches make a zone easier to see, not more likely to hold.
Once broken, old support can act as resistance when price returns to it, a belief rather than a rule. See support and resistance.
Swing
Also: swing high, swing low, leg
One move in a single direction between two turning points. A swing high is a peak that the bars on either side fail to reach; a swing low is the matching trough.
Patterns such as wedges are built from swings, often called legs. Stops and trendlines usually go at swing highs and lows.
Take profit
Also: take-profit order, partial exit, profit target
Closing part or all of a winning trade at a planned level. A partial exit banks some gain and leaves the rest running.
Pick one method and use it long enough to judge it. See taking profit.
Timeframe
The period each candle covers, such as 5 minutes, 1 hour or 1 day. Higher timeframes show the larger trend; lower ones show detail and noise.
When two timeframes disagree, a common convention gives the higher one more weight. Write your rule before you trade. See multi-timeframe analysis.
Trailing stop
A stop that follows price as a trade moves in your favour and never moves back. It locks in part of the gain while giving the trend room.
The Chandelier Exit and Supertrend are two common ways to set one.
Trendline
Also: trend line
A straight line through a run of highs or lows. It marks the slope of a trend and the edges of patterns such as wedges and channels.
Draw it through candle bodies, and redraw it if it only fits by cutting through many candles. See trendlines and channels.
True range
For one bar, the largest of three distances: high minus low, high minus the previous close, and the previous close minus low. The last two catch gaps between bars.
ATR is an average of true range.
Volatility
How widely and quickly price moves. ATR is one common way to measure it.
Very volatile coins need wider stops and so smaller positions; very quiet coins allow tight stops, and the sum from a tight stop can come out above the 3x ceiling, which still caps the position. See volatility.
Volume
The amount traded over a period, counted in coins, quote currency or contracts. It shows how much changed hands, not what rests in the order book now or whether a move will hold.
Low daily volume is a sign of a thin market. See volume.
Wedge
Also: rising wedge, falling wedge
Two trendlines sloping the same way and closing in on each other. A rising wedge slopes up and is commonly read as bearish; a falling wedge slopes down and is commonly read as bullish. Either reading is a belief, not a forecast.
An ending diagonal is a wedge with a specific wave structure.
Wick
Also: shadow
The thin line above or below a candle's body, showing the furthest price reached in that period.
A wick through a level has not closed beyond it, so wait for the close on the timeframe your plan is read on. A lower chart can only tell you to leave early.
Wilder smoothing
Also: Wilder's method, RMA
A slow moving average in which each new value carries a weight of one divided by the length. Most platforms use it to smooth ATR and RSI.
It reacts more slowly than an EMA of the same length.