Essential Vocabulary and Terminology for futures trading.

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3. Approach
Adjustments made to execution derived from having market awareness.
Average True Range (ATR)
A study that takes the moving average of the true range over a specific period.
Bar Chart
A graphic record in which each day’s price action shows as a vertical bar, with the closing
price denoted by a short horizontal tick mark.
Bear
One who expects prices to decline. The opposite of a bull.
Bear Market
A market in which prices are declining.
Bid
The price that market participants are willing to pay.

4. Bollinger Bands
The purpose of Bollinger Bands is to provide a relative definition of high and low. By
definition prices are high at the upper band and low at the lower band. This definition can
aid in rigorous pattern recognition and is useful in comparing price action to the action of
indicators to arrive at systematic trading decisions. A Bollinger Band consists of two
lines, one line displayed above and the other below the user-specified moving average.
The distance between each line and the moving average line represents the number of
square root deviations of each price away from the moving average, multiplied by a user-
specified constant. The following steps are used to calculate a Bollinger Band: Calculate
a moving average based on the type, period, and price parameters. Calculate the square
root deviation. Multiply the calculated square root deviation by the number specified via
the standard deviation parameter in the Bollinger Band setup window. Add the
calculated value to the moving average to produce the upper Bollinger Band line, and
subtract the calculated value from the moving average to produce the lower Bollinger
Band line. This is calculated automatically with most charting systems.

5. Break
A sharp, rapid price decline.
Bull
One who expects prices to rise.
Bull Market
A market in which prices are rising.
Candlestick Chart
Candlestick charts represent an alternate way of displaying bar charts. The difference is
that the body of the candlestick which consists of open to close of bar is filled in by a
color that shows if the close was higher or lower than the open.
Car
A loose, quantitative term used to describe a contract, e.g., a “car of cattle”. Derived
from the fact that quantities of the product specified in a contract used to correspond
closely to the capacity of a railroad car. Quantity may also be referred to in terms of
“lots”.

6. Cash Market
Market in which participants buy and sell the actual products or financial instruments.
Cash Price
The current price of the actual physical commodity.
Close
The period at the end of the trading session that determines the closing price. Sometimes
referred to as the closing range.
Closing Range
The high and low prices, or bids and offers, recorded during the period designated as the
official close.
Contract
Unit of trading for a financial or commodity future. Also, actual bilateral agreement
between the parties (buyer and seller) of a futures transaction as defined by an
exchange.

7. Cover
To buy or sell futures offsetting existing positions.
Day Trading
Refers to establishing and liquidation the same position or positions within one day’s trading, thus
ending the day with no established position in the market.
Extensions
An extension is a peak in Bollinger Bands that occurs after a rapid price move.
Fibonacci Retracement
Derived from contributions medieval mathematician Leonardo Fibonacci made to the numbers
theory, retracements measure price areas where a market move is likely to pause or reverse a
trend. Many traders rely on Fibonacci numbers to compute these levels of support and resistance.
The following retracement scales are the default ratios:
0.000, 0.250, 0.382, 0.420, 0.500, 0.618, 0.750, 1.000, and 1.382.
Futures
A term used to designate all contracts covering the purchase and sale of financial instruments or
physical commodities for future delivery on a commodity futures exchange.
Half
The term used when the last two digits of a price quotation are “50”.

8. Handle
The second or third digit from the right in a price quotation.
Hedge
The purchase or sale of a futures contract as a temporary substitute for a cash market transaction
to be made at a later date. Usually it involves opposite positions in the cash market and futures
market at the same time. Hedges are used to minimize the risk of loss due to adverse price
movements.
High Volume Bar
The highest volume traded at a particular price during a single session or day.
House
Clearing member firm.
Limit Order
An order entered in the market that specifies a price; the order can be executed only if the market
reaches or betters that price.
Limit Price
The maximum allowable daily price move up or down from the previous day’s settlement price.

9. Line Chart
Connects successive values on a chart. The setting in the price parameter determines which values
are connected. The most common is from open to close of a specific time frame.
Liquidation
Any transactions that offsets or closes out a long or short futures position.
Liquid Market
One in which there is considerable trading volume and orders may be executed with a minimum of
price disturbance.
Long
One who has established a market position by buying a futures contract.
Lot
The term used to describe a designated number of contracts.
MACD
The MACD is a specific type of OSCILLATOR study. It measures the difference between two
exponential moving averages of different lengths, in addition, a trailing moving average of the
MACD is plotted (MACDA), this is commonly referred to as the “trigger” line. The two moving
averages have different sensitivities to market action, thereby providing an indication of a change
in the market environment, such as the emergence of a new trend or a trend reversal.

10. Market Awareness
Is the ability to see beyond an entry price of a strategy signal. Seeing what is happening in the
market you are trading and other correlating markets.
Market Order
An order to buy or sell futures at the best price available immediately after order is entered.
Market Profile
Market Profiles display price distributions over a period of time. Market Profile distributions are
constructed of TPOs (Time Price Opportunities). Each TPO letter identifies a time when the market
traded at the price indicated on the vertical axis. TPO letter values change depending on whether
the chart is 30-min, daily, or monthly. When a contract opens during a particular TPO, the first
thirty minutes of trading for that contract are plotted using the letter of the TPO that was in
progress at the opening. Subsequent trades are plotted using the letter of the TPO in progress at
the beginning of the corresponding 30-minute interval.

11. Market Profile Value Areas (MPVA)
This study calculates the Market Profile’s value area and Point of Control (POC). The value area
begins calculating at the POC. The system expands the value area one price at a time in either
direction until the value area represents 70% of the TPOs, choosing the direction on each iteration
on the basis of the number of TPOs the two prices adjacent to the current value area have. It is
expanded in the direction of the price having more TPOs. The high boundary of the value area is
represented by a green line, and the low boundary of the value area is represented by a red line.
You can change these colors. The POC is calculated as the price that has the maximum TPO during
the specified time period. If several prices have the same max TPO, then the price that is closest to
the middle price range is the POC price. The POC is blue by default. Traders may want to analyze
the value area’s width to determine trade facilitation. Traders may also want to compare the
previous day’s value area to the current day. A higher value area may indicate that the market is
buying.

12. MIT
Market if touched. A price order that automatically becomes a market order if the price is reached.
Moving Average (MA)
The Moving Average (MA) study plots the average price over a user-specified period. Five methods
of calculating the Moving Average are available: Simple, Smoothed, Centered, Weighted, and
Exponential.
Moving Average Cross
The Moving Average Cross study plots three moving averages of different lengths or types. Each
average has a different sensitivity to market action. Taken together, the behavior of the averages
provides an indication of a change in the market environment, such as the emergence of a new
trend.
Offer
Indicates a willingness to sell a futures contract at a given price.
Open Interest
The number of open (not liquidated) contracts. This refers to either open longs or open shorts, not
their combined total.

13. Opening
The period of the trading session during which all transactions are considered made or first
transactions were completed.
Opening Range
The range of prices at which the first bids and offers were made or first transactions were
completed.
Overbought
A technical opinion regarding a market in which the price has risen too high in relation to the
underlying fundamental factors.
Oversold
A technical opinion regarding a market in which the price has declined too far in relation to the
underlying fundamental factors.
Point of Control (POC)
The price in which the most time was spent.

14. Position
An interest in the market, either long or short.
Quarter
Term used when the last two digits of a quote are “25”.
Rally
A term used to describe a sharp increase in price.
Range
The high and low prices.
Resistance
A price above the market that has a reason or reasons to hold.
Rotation
Equal range above and below a particular price.
To Trade for small gains. Scalping normally involves establishing and liquidation a position
quickly, usually within the same day, hour or even just a few minutes.

15. Scratch
When you buy and sell at the exact same price.
Short
One, who has established a market position by selling a futures contract and, in contracts with
physical delivery, may have to make a delivery of the commodity if he doesn’t offset his position by
buying the futures contract.
Speculator
A market participant, including the general public and traders, who uses their own capital in the
hopes of profiting from price movements.
Stop Order
A resting order that becomes a market order when prices reach that level. A “buy” stop is placed
above the current market, “sell” stop is placed below the current market. Stop orders may be used
to open or close out a position.

16. Support
A price below the market that has some reason or reasons to hold.
Technical Analysis
The study of the market action itself; of the behavior of price, volume and open interest.
Tick
The minimum amount by which a commodity price can change. One tick may be equal to one or
more points.
Trading Volume
The number of futures contracts that changed hands during a certain period, usually a day.
Trend
The tendency of prices to move in one direction more readily than another. The general direction a
market is moving.
Trend Channel
Plots two parallel lines and an optional third line related to the initial lines. Giving you a visual of
the current trend in the market.

17. Volatility
The degree of price activity.
Volume
The total number of transactions in a futures contract made during a specified period of time.
Volume Profile
Volume profiles are horizontal bar graphs that appear on the right of the chart showing the day’s
volume distribution.