Before diving into our discussion on technical analysis, there are a few terms that every stock market enthusiast needs to know. These are terms that will be used frequently throughout these blogs and terms that you will hear every time you invest in the markets.

What is Technical Analysis Terminology?

The term "technical analysis terminology" refers to a collection of technical language that analysts and traders use to explain the many patterns, indicators, and instruments used in technical analysis. By looking at market activity data, such as historical prices and trading volume, this analytical technique is used to assess securities. In order to identify patterns and trends in the market and make wise trading decisions, technical analysts employ a wide variety of tools and indicators, including trend lines, candlestick charts, and moving averages.

List of A to Z Trading Jargons: 

  • Activity Level: Activity level is the price level at which there has historically been major activity like an old support or resistance levels.
  • Arbitrage: Arbitrage is the act of buying and selling a financial asset at the same time in different markets to benefit from the minute price differences.
  • Average Loss/Profit: Average loss/win is the metric where traders divide the total loss/profit by the total number of trades to determine the average result per trade. This helps them determine what does/doesn’t work for them.
  • Back Testing: Back testing is the process of using historical price data to determine the effectiveness of a trading strategy.
  • Bear/Bull Market: A Bear/Bull market is a condition where the bears/bulls are dominant in the market and are driving the market down/up without much resistance.
  • Bear/Bull Trap: This is a chart pattern where major players cause a temporary reversal in the overall trend to trap traders. If the stock is falling down, these players would cause a sudden spike which would appear like a potential reversal, causing traders to open a long position and then the players would dump the stock, resulting in losses.
  • Beta: Beta refers to movement of stock when compared to the market as a whole. For example, if a stock has a beta of 2, a 1% decline in the market would result in a 2% decline in the stock.
  • Breakdown: A breakdown is a phenomenon where price falls through a critical support level. This indicates that buyers are unable to hold the price and sellers have successfully overpowered them.
  • Breakout: A breakout is a phenomenon where price breaks through a critical resistance level. This indicates that sellers are unable to hold the price and buyers have successfully overpowered them.
  • Call: In Options contracts, a call is a contract that gives the owner the option to buy the underlying security at the pre-determined Strike Price upon expiry.
  • Candlestick: The most important chart type where every asset’s price is shown in the form of a candlestick. More about candlesticks click here.
  • Charting: Charting is the visual representation of an asset’s data over a period of time to derive insights from such presentation.
  • Churning: Churning is a scenario where prices remain stagnant despite significant activity in the market. This shows that the market is indecisive.
  • CMP: Current Market Price is the price of any security that is prevailing in the market currently due to the forces of demand and supply.
  • Consolidation: Consolidation is a condition where the price of an asset trades within the range of its support and resistance and is unable to move decisively in either direction.
  • Correction: A correction is a price movement in the opposite movement of the opposite direction as the existing trend. 
  • Countertrend: Countertrend is a move in the opposite direction from the existing trend. This move is not a reversal, but a short term correction which does not last long.
  • Divergence: Prices move in the opposite direction to another indicator. E.g. Share price rising but volume decreasing may indicate a potential turning point is on the way.
  • Dow: Also called the Dow Jones Industrial Average, it is the best known US stock index which represents the price movement of the top 30 American blue-chip stocks. 
  • Dow Theory: The Dow theory is one of the most important theories in the stock markets according to which the market moves in three major trends: Primary, Secondary, and a Minor trend.
  • Downtrend: It is a sequence where prices hit lower lows and lower highs.
  • Elliott Wave Theory: This theory is one of the most important pillars of technical analysis as it explains how markets move in repetitive patterns, and not random trends. 
  • Entry: Entry or Entry Point refers to the price at which an investor starts a position in any security. This is generally the point at which an investor buys a stock and holds it till his target price. 
  • Exit: Exit or Exit Point refers to the price at which an investor closes a position in any security. This is generally the point at which an investor sells a stock that he has been holding since the Entry point.
  • Expiry: An Expiry date is the date at which an open position of a trader closes automatically. This is not something one sees in stocks. Expiry is seen mostly in CFDs or derivative contracts.
  • Fibonacci ratios: Fibonacci ratios are a technical tool which shows possible levels of a stock to predict future prices. Read more about it here.
  • Float: Float refers to shares of a company that are available to be traded by the public. Every Indian company is required to have at least 25% of its share capital with the public, and this publicly traded portion is called the Float.
  • Gap-Up: A Gap-up opening is an event where the price of a security opens higher than the previous day’s close. If the price of such security opens higher than the previous day’s close but not the previous day’s High, it is called a ‘Partial Gap-up Opening’. However, if the security opens well above the previous day’s close and high, it is considered a ‘Full Gap-up Opening’.
  • Gap-Down: A Gap-down opening is an event where the price of a security opens lower than the previous day’s close. If the price of such security opens lower than the previous day’s close but not the previous day’s low, it is called a ‘Partial Gap-down Opening’. However, if the security opens well below the previous day’s close and low, it is considered a ‘Full Gap-down Opening’.
  • Going Long: ‘Going Long’ or taking a ‘Long Position’ generally refers to buying a share and holding it to sell at a higher price. 
  • Going Short: ‘Going Short’ refers to selling a stock initially with the view that it will go down and the stock will be bought at a lower price.
  • Index: Index is a combination of major stocks, same country/sector, which helps investors monitor the country’s stock market’s movement. Read more about it here.
  • Insider trading: Insider trading is the illegal act of buying/selling securities after receiving tips from a company’s internal sources to make gains.
  • Line Chart: It is the simplest form of a chart connecting the end of the day/time period closes.
  • Liquidity: Liquidity refers to how fast and easily the buyers/sellers can enter into/exit from the market.
  • Margin: In some trades, such as Intraday, a trader need not pay the entire amount of the securities he is buying/selling. Every broker has an estimate about the movement of the stock, say 25-30%. In such cases, the trader only needs to put down such ‘margin’ money to enter the trade and exit the trade either when he is done or his margin has exhausted.
  • Market Cap: Market cap is the total value of the company in the market today. The formula for this is: Total Number of Shares Outstanding X Current Market Price. This concept explains how big the company is in the stock market.
  • Nasdaq: National Association of Securities Dealers Automated Quotations (NASDAQ) is an American stock exchange located in New York City.
  • Noise: It refers to the day-to-day random price fluctuations in the market which do not affect the long term outlook but make it difficult to assess the short term scenario.
  • Pullback: Pullback refers to the retreat from a breakout where price initially breaches a resistance but ends up being ‘pulled back’ below the resistance level.
  • Put: In Options contracts, a put is a contract that gives the owner the option to sell the underlying security at the pre-determined Strike Price upon expiry. 
  • Relative Performance: It is a comparison between a share and its peers or the market as a whole to determine over/underperformance.
  • Resistance: Resistance is the price level at which demand is lowest and supply is highest, resulting in a sharp ‘resistance’ against higher levels. Read more about it here.
  • Retracement: This is a temporary fall/rise in a market against the prevailing trend and does not affect the larger trend.
  • S&P 500: This is one of the most famous indices in the financial world which measures the performance of the top 500 companies listed in the US.
  • Short Selling: Short selling refers to the process of borrowing stocks to sell them and buy them back at lower prices to gain from the price difference.
  • Slippage: Slippage refers to the difference between estimated costs of transacting and the actual cost incurred.
  • Stop-loss order: A stop loss order is one where traders set a level above/below the security’s existing price (depends on the type of transaction) to ensure their losses do not surpass that level in case of a price reversal.
  • Support: Support refers to the price level where demand for the security is highest while supply is the lowest.
  • Technical Analysis: Technical analysis refers to the practice of ignoring fundamental concepts of a security and focusing entirely on technical aspects like price and indicators. Read more about it here.
  • Trend: Trend is the direction in which the price of a security is moving. Read more about it here.
  • Trendline- Trendline is the linethath is plotted on the price chart to clearly denote a persisting trend. 
  • Volatility: Volatility refers to the rate at which an asset’s price changes. If the price changes too much in too little time, the stock is considered highly volatile.
  • Yield: Yield refers to the % of return an investor earns on their investment.