Glossary of Terms

Quick reference for trading and TradeDots-specific terminology.

Accumulation: Phase where institutional investors buy stock, often appears as sideways consolidation after decline. See Market Structure.

ATR (Average True Range): Measure of volatility showing average price range over period (typically 14 days). Higher ATR = more volatile. Used in AI App Factor 4.

Ascending Triangle: Bullish chart pattern with horizontal resistance and rising support. Breakout typically upward. See Chart Pattern & Market Structure.

Backtesting: Testing trading strategy on historical data to evaluate performance. TradeDots AI App backtested over 3 years (2022-2024).

Bar Coloring: Visual feature in Buy Sell Signals V2 showing trend direction with candle colors (green = bullish, red = bearish, gray = neutral).

Bayesian Probability: Statistical method combining multiple factors to calculate overall probability. Used in Price Reversal Probability + Forecast indicator.

Bear Flag: Bearish continuation pattern - sharp decline (pole) followed by upward consolidation (flag), then continuation downward.

Bear Market: Market condition where major index (SPY) in downtrend, typically -20%+ from highs.

BOS (Break of Structure): Confirmation signal showing trend continuing. Bullish BOS = break above higher high (uptrend intact). Used in Chart Pattern & Market Structure indicator.

Breakout: Price movement above resistance or below support with volume confirmation. One of AI App's 10 factors (Factor 10).

Bull Flag: Bullish continuation pattern - sharp rally (pole) followed by downward consolidation (flag), then continuation upward.

Bull Market: Market condition where major index (SPY) in uptrend, making higher highs and higher lows.

Buy Sell Signals V2: Comprehensive TradeDots indicator combining 5 components (Supertrend, signals, zones, trendlines, bar coloring) for entry/exit timing.

Candlestick: Visual representation of price action showing open, high, low, close for time period. See Price Action.

ChoCh (Change of Character): Warning signal that trend may be ending. First sign of potential reversal before BOS confirms. Used in Chart Pattern & Market Structure.

Choppy Market: Market condition with no clear trend, frequent reversals, ranging price action.

Confidence Interval: Statistical range showing likely outcomes. 95% CI means 95% of outcomes fall within range. Used in Price Reversal Probability + Forecast.

Confirmation: Additional indicator or factor agreeing with primary signal. Multi-confirmation = multiple indicators aligned.

Cup and Handle: Bullish pattern showing U-shaped bottom (cup) followed by small consolidation (handle), then breakout upward.

Demand Zone: Price area where buyers previously stepped in strongly, creating support. Green shaded zones in Buy Sell Signals V2.

Divergence: Disagreement between price and indicator. Bullish divergence = price lower low, indicator higher low (reversal signal). See Smart MACD.

Distribution: Phase where institutional investors sell stock, often appears as topping formation. See Market Structure.

Double Bottom: Bullish reversal pattern with two troughs at similar price level, showing support holding.

Double Top: Bearish reversal pattern with two peaks at similar price level, showing resistance holding.

Downtrend: Price pattern making lower highs (LH) and lower lows (LL), indicating bearish direction.

Dynamic Stop: Stop loss that moves with price (trailing stop) rather than staying fixed.

EMA (Exponential Moving Average): Moving average giving more weight to recent prices. Responds faster to price changes than SMA.

Expected Value (EV): Average profit per trade over many trades. Formula: (Win Rate × Avg Win) - (Loss Rate × Avg Loss). See Statistical Thinking.

False Breakout: Price briefly breaks support/resistance but quickly reverses. Often occurs with low volume.

Fibonacci Retracement: Technical tool showing potential support/resistance at 23.6%, 38.2%, 50%, 61.8%, 78.6% levels after move.

Flag Pattern: Continuation pattern showing consolidation (flag) after strong directional move (pole).

Forecast Zone: Target price range with confidence intervals. Used in Price Reversal Probability + Forecast indicator.

Gap: Price difference between close and next open. Gap up = opens higher, gap down = opens lower.

GTC (Good-Til-Canceled): Order type remaining active until executed or manually canceled.

Head and Shoulders: Bearish reversal pattern with three peaks (left shoulder, head, right shoulder) and neckline support.

TradeDots AI App: TradeDots' real-time ranking of 1,000+ stocks using TradeDots AI Score (0-100).

Higher High (HH): Peak higher than previous peak, characteristic of uptrend.

Higher Low (HL): Trough higher than previous trough, characteristic of uptrend.

HTF (Higher Timeframe): Longer-duration chart used for context. Daily is HTF relative to 1-hour chart.

Indicator: Technical analysis tool calculating values from price/volume data to generate trading signals.

Inverse Head and Shoulders: Bullish reversal pattern (inverted H&S) with three troughs.

Kelly Criterion: Mathematical formula for optimal position sizing based on win rate and average win/loss. Conservative traders use fractional Kelly.

Liquidity: Ease of buying/selling without affecting price significantly. High liquidity = tight spreads, high volume. AI App Factor 9.

Lower High (LH): Peak lower than previous peak, characteristic of downtrend.

Lower Low (LL): Trough lower than previous trough, characteristic of downtrend.

LTF (Lower Timeframe): Shorter-duration chart used for entry timing. 1-hour is LTF relative to daily chart.

MACD (Moving Average Convergence Divergence): Momentum indicator showing relationship between two moving averages. See Smart MACD.

Market Cap: Total value of company (share price × shares outstanding). AI App uses $500M+ minimum.

Market Structure: Framework for identifying trend phases and structural levels. See Market Structure.

Momentum: Rate of price change over time. Strong momentum = fast moves, weak momentum = slow moves.

Momentum Persistence: Consistency of momentum across multiple timeframes. AI App Factor 8.

Multi-Confirmation: Setup where 3+ indicators or factors align in same direction, increasing probability.

Multi-Timeframe Analysis: Analyzing multiple chart durations (e.g., daily, 4H, 1H) for confirmation.

OBOS Index (Overbought/Oversold Index): Proprietary calculation in Price Momentum Reversal indicator measuring extreme conditions (-100 to +100 scale, where negative = oversold, positive = overbought).

Order Block: Price zone where institutional orders created swing point. Darker shaded zones in Buy Sell Signals V2.

Overbought: Condition where price rallied too far too fast, indicating potential reversal or pullback.

Oversold: Condition where price declined too far too fast, indicating potential bounce or reversal.

Overfitting: Creating trading system optimized for past data that fails in future. TradeDots avoids by building on market principles.

Pattern Recognition: Algorithmic identification of chart patterns (flags, triangles, H&S, etc.). AI App Factor 7 and Chart Pattern & Market Structure indicator.

Pivot High/Low: Confirmed swing point where price reversed. Used to identify support/resistance.

Position Sizing: Calculating number of shares to trade based on account risk %. Formula: (Account × Risk%) / Stop Distance.

Price Action: Study of raw price movement without indicators. See Price Action.

Price Momentum: Rate of change in price. AI App Factor 1 (20% weight).

Pullback: Temporary move against trend. In uptrend, pullback = decline to support before trend resumes.

Range: Market condition with horizontal price movement between support and resistance.

Rectangle Pattern: Consolidation with horizontal support and resistance (trading range).

Relative Strength: Stock's performance compared to benchmark (SPY). AI App Factor 3.

Resistance: Price level where selling pressure exceeds buying pressure, causing reversals or stalling.

Reversal: Trend change from bullish to bearish or vice versa. Identified by ChoCh then BOS in opposite direction.

Risk/Reward Ratio (R:R): Comparison of potential loss (stop distance) to potential gain (target distance). 2:1 = target 2x farther than stop.

ROC (Rate of Change): Percentage price change over period. Formula: ((Current - Previous) / Previous) × 100.

RSI (Relative Strength Index): Momentum oscillator (0-100) showing overbought (>70) and oversold (<30) conditions.

Scalp: Very short-term trade (minutes to hours) taking small profit quickly.

Sector Rotation: Capital flow shifting between market sectors (tech energy healthcare, etc.).

Sell Signal: Indication to exit long or enter short. Generated by indicators when bearish conditions met.

Sharpe Ratio: Risk-adjusted return measure. Higher = better return per unit of risk. AI App top decile: 1.85.

SMA (Simple Moving Average): Average price over period with equal weight to all data points.

Smart MACD: TradeDots enhanced MACD indicator with color-coding, divergence detection, and multi-level analysis.

Stop Loss: Predetermined exit price to limit loss if trade moves against you.

Strong Signal: Highest-conviction signal type in Trend Following indicator (all factors aligned, ~70-75% win rate).

Supply Zone: Price area where sellers previously stepped in strongly, creating resistance. Red shaded zones in Buy Sell Signals V2.

Support: Price level where buying pressure exceeds selling pressure, causing bounces or stalling.

Supertrend: Trend-following indicator showing direction with trailing stop line. Green = uptrend, red = downtrend. Component of Buy Sell Signals V2.

Swing High/Low: Local peak or trough in price. Used to identify market structure.

Swing Trading: Multi-day trading style (3-7 days typical), capturing price swings within trends.

Symmetrical Triangle: Pattern with converging trendlines (descending resistance, ascending support), breakout either direction.

Target: Predetermined exit price to take profit.

Technical Alignment: Consensus across multiple technical indicators. AI App Factor 5.

Technical Analysis: Study of price charts and indicators to forecast future price movement.

Timeframe: Duration represented by each candle (5-min, 1H, daily, weekly, etc.).

Trailing Stop: Stop loss that moves with favorable price movement to protect profits.

Trend: Directional price movement (up, down, or sideways) over period.

Trend Following: Trading strategy entering in direction of established trend.

Trendline: Line connecting swing points (highs for downtrend, lows for uptrend) showing trend structure.

Triangle Pattern: Consolidation with converging trendlines (ascending, descending, or symmetrical).

Uptrend: Price pattern making higher highs (HH) and higher lows (HL), indicating bullish direction.

VIX: CBOE Volatility Index measuring expected market volatility. <20 = calm, 20-30 = elevated, >30 = high fear.

Volatility: Measure of price variation over time. High volatility = large price swings, low volatility = small moves.

Volume: Number of shares traded during period. Confirmation tool - high volume validates price moves.

Volume Surge: Current volume significantly above average. AI App Factor 2 (15% weight).

VWAP (Volume Weighted Average Price): Average price weighted by volume. Shows institutional entry levels. See Volume Analysis.

Weak Signal: Lower-conviction signal type in Trend Following indicator (partial factor alignment, ~55-60% win rate).

Wedge: Pattern with converging trendlines both sloping same direction. Rising wedge (bearish), falling wedge (bullish).

Win Rate: Percentage of winning trades. Formula: Winning Trades / Total Trades. 65-70% is excellent.

Zone: Price range (not single level) acting as support or resistance. Provides entry range rather than exact price. See demand zones and supply zones.

AI Score Thresholds:

Position Sizing:

Risk/Reward Minimums:

Win Rate Targets by Setup:

Market Condition Indicators:

See Also: