SMC and trading glossary
Short definitions of the terms used on this site. Where a note explains a term in more detail, the definition links to it.
- Market structure
- The sequence of swing highs and lows. Higher highs and higher lows mean an uptrend, lower highs and lower lows mean a downtrend. Read more
- Swing high and swing low
- A high with lower highs on both sides, or a low with higher lows on both sides. Structure is read from these points.
- Break of structure (BOS)
- A close beyond the last swing point in the direction of the trend. It confirms that the trend continues. Read more
- Change of character (CHoCH)
- The first break of structure against the trend. An early sign that the trend may be turning, not a proof. Read more
- Order block (OB)
- The last opposite candle before a strong move, for example the last down candle before a rally. A zone watched for a reaction when price returns. Read more
- Fair value gap (FVG)
- A gap inside a fast move: in three candles, the first and the third do not overlap. It shows that one side was barely traded. Read more
- Displacement
- A strong, fast move in one direction, usually with large candles. Displacement often leaves fair value gaps behind.
- Liquidity
- Resting orders, mainly stop losses, clustered around obvious highs and lows. Larger players need it to fill big orders. Read more
- Equal highs and equal lows
- Two or more highs or lows at almost the same price. Stops tend to cluster just beyond them, so they often act as liquidity. Read more
- Liquidity sweep
- Price moves beyond a level, triggers the orders resting there, then closes back inside the range. It usually leaves a long wick. Read more
- Inducement
- A minor high or low that price takes before reaching the zone it is heading for. It pulls in early entries, whose stops then add liquidity.
- Mitigation
- Price returning to an order block or another zone. After the first return, many traders treat the zone as used.
- Optimal trade entry (OTE)
- A retracement zone between roughly 62% and 79% of a leg, measured with Fibonacci levels.
- Killzone
- A time window, defined in New York time, when liquidity and volatility tend to be higher, for example the London or the New York killzone. Read more
- Drawdown
- The fall of a balance from its previous peak, in percent. The maximum drawdown is the largest such fall over a period. Read more
- Pip and point
- A point is the smallest price step, on gold usually 0.01. There is no single standard for a pip on gold: 0.10 is common, but check your broker. Read more
- Lot and contract size
- A lot is a standard trade size. For gold, one lot is usually 100 ounces, so a 1.00 move is worth 100 per lot. Read more