other futures.

lower high A swing high that is lower than a previous swing high.
lower low A swing low that is lower than a previous swing low.
low 1, 2, 3, or 4 A low 1 is a bar with a low below the prior bar in a bear flag or near the top of a trading range. If there is then a bar with a
higher low (it can occur one or several bars later), the next bar in this correction whose low is below the prior bar's low is a low 2. Third and
fourth occurrences are a low 3 and 4. A low 3 is a wedge bear flag variant.
major trend line Any trend line that contains most of the price action on the screen and is typically drawn using bars that are at least 10 bars
apart.
major trend reversal A reversal from a bull to a bear trend or from a bear trend to a bull trend. The setup must include a test of the old trend
extreme after a break of the trend line.
meltdown A sell-off in a bear spike or a tight bear channel without significant pullbacks and that extends further than the fundamentals would
dictate.
melt-up A rally in a bull spike or a tight bull channel without significant pullbacks and that extends further than the fundamentals would dictate.
micro Any traditional pattern can form over one to about five bars and still be valid, although easily overlooked. When it forms, it is a micro
version of the pattern. Every micro pattern is a traditional pattern on a smaller time frame chart, and every traditional pattern is a micro pattern
on a higher time frame chart.
micro channel A very tight channel where most of the bars have their highs and lows touching the trend line and, often, also the trend channel
line. It is the most extreme form of a tight channel, and it has no pullbacks or only one or two small pullbacks.
micro double bottom Consecutive or nearly consecutive bars with lows that are near the same price.
micro double top Consecutive or nearly consecutive bars with highs that are near the same price.
micro measuring gap When the bar before and the bar after a strong trend bar do not overlap, this is a sign of strength and often leads to a
measured move. For example, if there is a strong bull trend bar and the low of the bar after it is at or above the high of the bar before it, the
midpoint between that low and that high is the micro measuring gap.
micro trend channel line A trend channel line drawn across the highs or lows of three to five consecutive bars.
micro trend line breakout A trend line on any time frame that is drawn across from two to about 10 bars where most of the bars touch or are
close to the trend line, and then one of the bars has a false breakout through the trend line. This false breakout sets up a with-trend entry. If it
fails within a bar or two, then there is usually a countertrend trade.
money stop A stop based on a fixed dollar amount or number of points, like two points in the Eminis or a dollar in a stock.
moving average The charts in this book use a 20-bar exponential moving average, but any moving average can be useful.
moving average gap bar (gap bar) A bar that does not touch the moving average. The space between the bar and the moving average is
the gap. The first pullback in a strong trend that results in a moving average gap bar is usually followed by a test of the trend's extreme. For
example, when there is a strong bull trend and there is a pullback that finally has a bar with a high below the moving average, this is often a buy
setup for a test of the high of the trend.
nesting Sometimes a pattern has a smaller version of a comparable pattern “nested” within it. For example, it is common for the right
shoulder of a head and shoulders top to be either a small head and shoulders top or a double top.
news Useless information generated by the media for the sole purpose of selling advertising and making money for the media company. It is
unrelated to trading, is impossible to evaluate, and should always be ignored.
oio Outside-inside-outside, an outside bar followed by an inside bar, followed by an outside bar.
oo Outside-outside, an outside bar followed by a larger outside bar.
opening reversal A reversal in the first hour or so of the day.
outside bar A bar with a high that is above or at the high of the prior bar and a low that is below the low of the prior bar, or a bar with a low
that is below or at the low of the prior bar and a high that is above the high of the prior bar.
outside down bar An outside bar with a close below its open.
outside up bar An outside bar with a close above its open.
overshoot The market surpasses a prior price of significance like a swing point or a trend line.
pause bar A bar that does not extend the trend. In a bull trend, a pause bar has a high that is at or below the prior bar, or a small bar with a
high that is only a tick or so higher than the previous bar when the previous bar is a strong bull trend bar. It is a type of pullback.
pip A tick in the foreign exchange (forex) market. However, some data vendors provide quotes with an extra decimal place, which should be
ignored.
pressing their longs In a bull trend, bulls add to their longs as in a bull spike and as the market breaks out to a new high, because they
expect another leg up to about a measured move.
pressing their shorts In a bear trend, bears add to their shorts in a bear spike and as the market breaks out to a new low, because they
expect another leg down to about a measured move.
price action Any change in price on any chart type or time frame.
probability The chance of success. For example, if a trader looks back at the most recent 100 times a certain setup led to a trade and finds
that it led to a profitable trade 60 times, then that would indicate that the setup has about a 60 percent probability of success. There are many
variables that can never be fully tested, so probabilities are only approximations and at times can be very misleading.
probably At least 60 percent certain.
pullback A temporary pause or countertrend move that is part of a trend, swing, or leg and does not retrace beyond the start of the trend,
swing, or leg. It is a small trading range where traders expect the trend to resume soon. For example, a bear pullback is a sideways to upward
move in a bear trend, swing, or leg that will be followed by at least a test of the prior low. It can be as small as a one-tick move above the high
of the prior bar or it can even be a pause, like an inside bar.
pullback bar A bar that reverses the prior bar by at least one tick. In an uptrend, it is a bar with a low below that of the prior bar.
reasonable A setup with a favorable trader's equation.
reversal A change to an opposite type of behavior. Most technicians use the term to mean a change from a bull trend to a bear trend or from
a bear trend to a bull trend. However, trading range behavior is opposite to trending behavior, so when a trend becomes a trading range, this
is also a reversal. When a trading range becomes a trend, it is a reversal but is usually called a breakout.
reversal bar A trend bar in the opposite direction of the trend. When a bear leg is reversing up, a bull reversal bar is a bull trend bar, and the
classic description includes a tail at the bottom and a close above the open and near the top. A bear reversal bar is a bear trend bar in a bull
leg, and the traditional description includes a tail at the top and a close below the open and near the bottom.
reward The number of ticks that a trader expects to make from a trade. For example, if the trader exits with a limit order at a profit target, it is
the number of ticks between the entry price and the profit target.
risk The number of ticks from a trader's entry price to a protective stop. It is the minimum that the trader will lose if a trade goes against him
(slippage and other factors can make the actual risk greater than the theoretical risk).
risk off When traders think that the stock market will fall, they become risk averse, sell out of volatile stocks and currencies, and transition into
safe-haven investments, like Johnson & Johnson (JNJ), Altria Group (MO), Procter & Gamble (PG), the U.S. dollar, and the Swiss franc.
risk on When traders think that the stock market is strong, they are willing to take more risks and invest in stocks that tend to rise faster than
the overall market, and invest in more volatile currencies, like the Australian dollar or the Swedish krona.
risky When the trader's equation is unclear or barely favorable for a trade. It can also mean that the probability of success for a trade is 50
percent or less, regardless of the risk and potential reward.
scalp A trade that is exited with a small profit, usually before there are any pullbacks. In the Emini, when the average range is about 10 to 15
points, a scalp trade is usually any trade where the goal is less than four points. For the SPY or stocks, it might be 10 to 30 cents. For more
expensive stocks, it can be $1 to $2. Since the profit is often smaller than the risk, a trader has to win at least 70 percent of the time, which is
an unrealistic goal for most traders. Traders should take trades only where the potential reward is at least as great as the risk unless they are
extremely skilled.
scalper A trader who primarily scalps for small profits, usually using a tight stop.
scalper's profit A typical amount of profit that a scalper would be targeting.
scratch A trade that is close to breakeven with either a small profit or a loss.
second entry The second time within a few bars of the first entry where there is an entry bar based on the same logic as the first entry. For
example, if a breakout above a wedge bull flag fails and pulls back to a double bottom bull flag, this pullback sets up a second buy signal for
the wedge bull flag.
second moving average gap bar setup If there is a first moving average gap bar and a reversal toward the moving average does not
reach the moving average, and instead the move away from the moving average continues, it is the next reversal in the direction of the moving
average.
second signal The second time within a few bars of the first signal where there is a setup based on the same logic as the first signal.
selling pressure Strong bears are asserting themselves and their selling is creating bear trend bars, bars with tails at the tops, and two-bar
bear reversals. The effect is cumulative and usually is eventually followed by lower prices.
setup A pattern of one or more bars used by traders as the basis to place entry orders. If an entry order is filled, the last bar of the setup
becomes the signal bar. Most setups are just a single bar.
shaved body A candle with no tail at one or both ends. A shaved top has no tail at the top and a shaved bottom has no tail at the bottom.
short As a verb, to sell a stock or futures contract to initiate a new position (not to exit a prior purchase). As a noun, a person who sells
something short, or the actual position itself.
shrinking stairs A stairs pattern where the most recent breakout is smaller than the previous one. It is a series of three or more trending
highs in a bull trend or lows in a bear trend where each breakout to a new extreme is by fewer ticks than the prior breakout, indicating waning
momentum. It can be a three-push pattern, but it does not have to resemble a wedge and can be any series of broad swings in a trend.
signal bar The bar immediately before the bar in which an entry order is filled (the entry bar). It is the final bar of a setup.
smaller time frame (STF) A chart covering the same amount of time as the current chart, but having more bars. For example, compared to
the day session 5 minute Emini chart on an average day, examples of smaller time frame charts include a 1 minute chart, a tick chart with 500
ticks per bar, and a volume chart with 1,000 contracts per bar (each of these charts usually has more than 200 bars on an average day,
compared to the 81 bars on the 5 minute chart).
smart traders Consistently profitable traders who are usually trading large positions and are generally on the right side of the market.
spike and channel A breakout into a trend in which the follow-through is in the form of a channel where the momentum is less and there is
two-sided trading taking place.
stair A push to a new extreme in a trending trading range trend or a broad channel trend where there is a series of three or more trending
swings that resembles a sloping trading range and is roughly contained in a channel. After the breakout, there is a breakout pullback that
retraces at least slightly into the prior trading range, which is not a requirement of other trending trading ranges. Two-way trading is taking
place but one side is in slightly more control, accounting for the slope.
STF See smaller time frame (STF).
strong bulls and bears Institutional traders and their cumulative buying and selling determine the direction of the market.
success Refers to traders achieving their objective. Their profit target was reached before their protective stop was hit.
swing A smaller trend that breaks a trend line of any size; the term is used only when there are at least two on the chart. They can occur within
a larger trend or in a sideways market.
swing high A bar that looks like a spike up on the chart and extends up beyond the neighboring bars. Its high is at or above that of the bar
before it and that of the bar after it.
swing high/low Either a swing high or a swing low.
swing low A bar that looks like a spike down on the chart and extends down beyond the neighboring bars. Its low is at or below that of the bar
before it and that of the bar after it.
swing point Either a swing high or a swing low.
swing trade For a day trader using a short-term intraday chart like the 5 minute, it is any trade that lasts longer than a scalp and that the
trader will hold through one or more pullbacks. For a trader using higher time frame charts, it is a trade that lasts for hours to several days.
Typically, at least part of the trade is held without a profit target, since the trader is hoping for an extended move. The potential reward is
usually at least as large as the risk. Small swing trades are called scalps by many traders. In the Emini, when the average range is about 10 to
15 points, a swing trade is usually any trade where the goal is four or more points.
test When the market approaches a prior price of significance and can overshoot or undershoot the target. The term failed test is used to