Stock market glossary

Also called false breakdown, failed breakdown.

A bear trap is when price dips below a support level and then jumps back above it. The dip looks like the start of a fall. Traders who read it that way, and positioned for more weakness with a short position, find the move did not last. On NSE cash and F&O charts you can only name it after the reversal, once price has taken the broken support back.

Also called false breakout, false bullish breakout.

A bull trap is when a stock, index or F&O contract rises above a resistance level or an earlier swing high. The move looks like a breakout. Then it fails to hold and falls back below the level. Buyers who took it as a real breakout are left "trapped" as price drops back into or below the old range. It is a common name for one kind of false breakout on NSE cash and derivatives markets.

A breakout is when a stock's or index's price moves past a boundary drawn earlier. That boundary may be the top of a trading range, a swing high or low, or a flat support or resistance level. On NSE cash and F&O charts it is commonly noted when the close pushes through the level, not when price merely touches it intraday. Traders often look at the traded volume alongside it to judge whether the move has participation behind it.

Also called Fake Breakout, Fakeout.

A false breakout is when price moves past a defined level. It then fails to stay there and turns back inside the old range. The level may be a support, a resistance, a trendline or the day's opening range. On NSE cash and F&O charts it is often named after the fact. That happens once a candle closes back inside the range. The break appears to confirm a directional move, but it does not hold.

Also called Support & Resistance, S&R.

Support and resistance are price zones on a chart. Buying or selling interest has clustered there before. Price may pause, slow or turn there. Support sits below the current price, where demand has tended to absorb selling. Resistance sits above it, where supply has tended to cap advances. On NSE cash and F&O charts, they are commonly drawn from earlier swing highs and lows. Round numbers, prior session highs and lows, and areas of heavy volume are also used.

Also called 52-Week Low, Fifty-Two Week High/Low.

The 52-week high is the highest price a security has traded at over the trailing one-year period. The 52-week low is the lowest over that same window. On NSE they are computed from intraday traded prices across the rolling 52 weeks, roughly 252 trading sessions. They are commonly shown on quote pages for cash-market stocks and indices, and referenced for some F&O underlyings. The figures update continuously as new sessions are added and the oldest ones roll off.

Also called Delivery Volume Percentage, Deliverable Percentage.

Delivery Percentage is the share of a stock's traded quantity that ends in real delivery. Shares move into demat accounts. The rest was squared off intraday. In the NSE cash (equity) segment, a client may buy and sell the same stock on one day. Those trades cancel out. Only what is left needs delivery. The exchange publishes the figure. It appears in the end-of-day bhavcopy and in security-wise delivery data. It is a percentage of that day's traded volume.

Also called OI, outstanding contracts.

Open Interest (OI) is the number of futures or options contracts in the NSE F&O segment that are still open. They have not been settled, closed out or exercised. OI is counted in contracts, or in units of the underlying. It is reported for each instrument, such as one strike and expiry. OI rises when a new buyer and a new seller create a fresh contract. It falls when both sides close their existing positions.

Also called Shorts Covering, Covering Shorts.

Short covering is when traders who had sold earlier buy back what they sold. Selling first, without owning, is called going short. The buying closes those positions in a stock or F&O contract. So a cluster of that buying can lift the price. That can happen even when no new bullish bets enter the market. It is commonly seen in the NSE cash and F&O segments when existing short positions are unwound.

Also called trading volume meaning, what does volume mean in stocks.

Traded volume is the quantity that changed hands during a set period. It is expressed in the units the data source supplies: shares for a cash security, contracts or units for a derivative. It counts activity, not people. The same share can be bought and sold many times within a session. Each trade adds to the total. Every completed trade has a buyer and a seller. That is why volume can never tell you there were more buyers than sellers.

Also called rvol, how to compare todays volume.

Relative volume compares the volume traded so far against a reference average. The two windows must match. It is usually written as a ratio. Take two hundred thousand shares in a full session. Set that against a hundred-thousand-share average for the same kind of session. Relative volume is 2.0. The reference period is part of the definition, not a detail. An average over five prior sessions and one over twenty can give very different answers from the same day.

Also called intraday VWAP.

VWAP is the average price a stock, index or contract has traded at over a chosen period, weighted by the volume at each price. On NSE cash and F&O charts it is almost always intraday. It resets each session, so the line shows the volume-weighted average for that one day. Large trades pull the line more than thin ones. So VWAP is often described as the "average price the bulk of the day's turnover changed hands at."

Also called Avg True Range, Average True Range indicator.

ATR (Average True Range) measures volatility. It is how much an instrument's price has moved, on average, over a chosen lookback period, commonly 14 periods. It is built from the "true range" of each bar, which covers the full extent of a move, including any overnight or pre-open gap. ATR is stated in the instrument's price units, for example points for a stock or index, not as a percentage. So a higher reading simply means bigger recent price swings.

Also called EMA 20, EMA 50.

An EMA is a smoothed price line. Each new reading mixes the latest candle's close with the previous average. Newer closes carry more weight than older ones. The period sets how fast the line reacts. EMA 20 reacts faster than EMA 50 on the same candles. These are 20 or 50 candles, rather than a fixed number of minutes. On a 3-minute chart, each input is a 3-minute candle.

Also called price bands.

Bollinger Bands are 2 lines around a price average. The desk uses the last 20 candle closes. The middle line is their simple average. The upper and lower lines sit 2 standard deviations away from it. Standard deviation measures how spread out the closes are around their average. Wider bands show a wider recent spread. Narrower bands show a smaller one. The settings describe this chart. They do not promise the next price will stay inside the bands.

Also called RSI 14.

RSI compares recent gains with recent falls. It puts that balance on a scale from 0 to 100. The desk uses period 14 with Wilder smoothing. A higher reading means recent smoothed gains are larger than recent smoothed falls. A lower reading means the reverse. It is a number without price units, so it belongs in its own pane below the price chart. It does not compare NIFTY with BANKNIFTY or tell you which one is stronger.

Also called EMA 20 and EMA 50 cross, low risk chart strategy.

Trend follow is a fixed chart rule with a low risk level. It watches 2 lines, EMA 20 and EMA 50. EMA 20 moves faster than EMA 50. When EMA 20 crosses above EMA 50, the rule plans a Buy. When it crosses below, the rule plans a Sell. Each trade gets 3 prices before it starts: the entry, the stop and the target. The stop is where the trade gives up. The target is where it takes the gain.

Also called Pullback to VWAP, medium risk chart strategy.

VWAP pullback is a fixed chart rule with a medium risk level. VWAP is the day's average price, weighted by how much traded at each price. The rule first finds the trend with EMA 20 and EMA 50. Then it waits for a pullback. A pullback is a short move back against the trend. If price dips to VWAP and closes back on the trend side, the rule plans a trade with the trend.

Also called high risk chart strategy.

Squeeze breakout is a fixed chart rule with a high risk level. It uses Bollinger Bands, 2 lines around a 20-candle average. When the bands get very narrow, prices have been calm. That is called a squeeze. After a squeeze, the rule waits for a candle to close outside a band. A close above the upper band plans a Buy. A close below the lower band plans a Sell. Its stop is tight, close to the entry.

Also called option price, LTP of an option.

An option's price is its premium. The buyer pays it and the seller receives it. Multiply the quoted premium by the lot size to find the amount for one lot. Premium has two parts. Intrinsic value is what the option would be worth if it expired now. Time value is the amount above that, paid for possible movement before expiry.

Also called in-the-money amount, real value of an option.

Intrinsic value is the part of an option's premium that would survive if the contract expired at this instant. For a call it is the current level of the underlying minus the strike. For a put it is the strike minus the current level. It can never be negative. Where the arithmetic gives a negative number the intrinsic value is zero. An option that is worth nothing to exercise is simply not exercised.

Also called extrinsic value, option time premium.

Time value is the part of an option's premium that is left after intrinsic value is taken out. It is the amount paid for the chance that the underlying moves further before expiry. Time value is largest when the strike is close to the current level. It is also largest when there is a long time to run. It is exactly zero at expiry. There is then no time left for anything further to happen.

Also called exercise price, strike rate.

The strike price is the level at which an option can be exercised. A call buyer may buy the underlying at that price. A put buyer may sell it there. It is fixed when the contract is listed. It never changes for the life of that contract. The exchange lists strikes at a set interval around the current level. So a whole chain of strikes exists. A trader chooses among them rather than naming their own.

Also called in the money, at the money.

Moneyness describes where an option's strike sits relative to the current level of the underlying. A call is in the money (ITM) when the level is above its strike. It is at the money (ATM) when the two are about the same. It is out of the money (OTM) when the level is below it. All three reverse for a put. A put is in the money when the level is below its strike.

Also called options chain, strike ladder.

An option chain is the table of every listed strike for one underlying and one expiry. The calls sit on one side and the puts on the other. The strikes run down the middle. Against each strike the exchange publishes four things: the traded price, the volume, the open interest and the change in open interest. So the chain is a snapshot. It shows what exists and what has traded across the whole ladder at once.

Also called option IV.

Implied volatility is the market's assumption about how much the underlying will move before expiry. Volatility here means the size of the swings, not the direction. It is backed out of the option's own price. It is not measured from past prices. It is expressed as an annualised percentage. It comes from the premium. That restates what the option costs. The new form can be compared across strikes, expiries and instruments.

Also called hedge ratio.

Delta is the rate at which an option's premium changes for a one-unit change in the underlying. A call has a delta between 0 and 1. A put has a delta between -1 and 0. An at-the-money option sits near 0.5, so its premium picks up roughly half of each move. A far out-of-the-money option can sit at 0.1 or below, so the same move barely reaches it.

Also called rate of change of delta.

Gamma is the rate at which an option's delta changes as the underlying moves. Delta says how much of a move the premium picks up now. Gamma says how quickly that responsiveness itself changes. It is largest for options near the money and close to expiry. It is small for options far from the strike, or with a long time to run.

Also called time decay, daily decay.

Theta is the rate at which an option's premium erodes as one day passes. Everything else is held equal. It applies only to the time-value part of the premium. Intrinsic value does not decay. So theta is largest for options near the money. It grows as expiry approaches. For a buyer theta works against the position. For a seller it works for it.

Also called volatility sensitivity option, what happens to option price when iv falls.

Vega measures how much an option's theoretical price changes when implied volatility changes. Every other input is held fixed. Most platforms quote it per ONE PERCENTAGE POINT. So a vega of 5 means a premium change of about 5. That is for a move from 20% to 21%. Long calls and puts generally have positive vega. Uncertainty is worth something to a buyer.

Also called F&O expiry, settlement day.

Expiry day is the last day on which a derivative contract can be traded. After that it is settled and stops existing. Index options are settled in cash. No shares change hands. The cash amount comes from a settlement value based on the underlying index. Stock derivatives on the NSE are settled by real delivery of the shares. Every open contract in that series is settled or closed on that day. Its open interest then ends at zero.

Also called rolling a position.

Rollover means closing a position in an expiring derivative series. A series is the contract for one expiry. You then open the same position in the next series. The exposure carries on past expiry. It is done as two trades, not one. The cost is the price gap between the two series. Add the charges on both legs. The rollover percentage is the share of the expiring series' open interest that turns up in the next one.

Also called Upper Circuit, Lower Circuit.

On NSE, a circuit limit (price band) is the most a security's price may move in one trading session, measured from the previous day's close. The "upper circuit" caps how far it can rise. The "lower circuit" caps how far it can fall. Orders priced beyond those bounds are not accepted. Separate market-wide circuit breakers can halt trading across the whole market for a set duration when a benchmark index moves by a large pre-defined percentage.

Also called T plus 1 settlement, rolling settlement T+1.

T+1 settlement is the Indian cash-market rolling settlement convention. A trade executed on a trading day (T) is settled one settlement day later. That is when the shares and funds change hands. Here "T+1" counts settlement days, not calendar days. Weekends, exchange holidays and NSE Clearing settlement holidays are skipped. On a few settlement holidays the market still trades, but nothing settles. Since early 2023 the Indian equity cash segment has run on this T+1 rolling cycle as the standard.

Also called share transaction tax.

Securities Transaction Tax (STT) is a statutory tax the Government of India levies on purchases and sales of securities. It applies to trades on a recognised stock exchange. The NSE and BSE are among them. It covers equity shares, equity-oriented mutual funds and equity derivatives (futures and options). The exchange or clearing member collects it when the trade happens. It passes to the government. STT is one of several mandatory charges on top of brokerage.

Also called execution cost, spread cost.

Impact cost is the difference between the price shown on screen and the price a trade is actually filled at. It arises because an order has to meet the other side of the book. A buy pays up toward the ask. A sell gives up toward the bid. A larger order moves further through the available depth. It appears on no contract note as a charge. That is why it is the cost most often left out.

Also called market depth, depth.

Liquidity describes how easily a given quantity can be traded. The test is whether it trades near the prices now on screen. It is a property of the order book. It is not a property of the last traded price. Liquidity depends on how much size rests on each side. It depends on how tightly the best bid and ask are spaced. It also depends on how fast fresh orders replace the ones used up.

Also called market lot, contract size.

Lot size is the number of units of the underlying that one derivatives contract stands for. A futures or options contract cannot be traded in any quantity you like. The exchange fixes the units per lot for each instrument. Every order must be a whole multiple of that. So lot size is the multiplier. Multiply the quoted price by the lot size to get the amount for one contract.

Also called mark to market, mtm.

Margin is the money a participant must keep in place to carry a leveraged position. Leveraged means the position is larger than the cash put up for it. Margin is held with the broker. Through the broker it reaches the clearing corporation. It is collateral against a possible loss. It is not the price of the position. It is blocked while the position is open. It is adjusted as risk changes. It is released when the position is closed.

Also called Muhurat session, Mahurat trading.

Muhurat Trading is a short, special session that the NSE and BSE hold for Diwali (Laxmi Pujan). Hindu tradition treats it as an auspicious time. It marks the start of the new Samvat year. It is much shorter than a normal trading day. Diwali falls on a different date each year. So each exchange sets the date and the timings in a circular of its own, close to the day.

Breakeven is the point at which a defined result is exactly zero. There is neither profit nor loss. It holds only within a stated accounting scope. The scope is the whole of the definition. One breakeven is worked out before charges. Another is worked out after the charges a tool models. A third is worked out after every debit an account actually incurs. Those are three different numbers. Only the stated scope says which one is being quoted.

Also called unconditional probability, benchmark rate.

The base rate is how often an outcome occurs. No rule is applied at all. It is the unconditional frequency of the thing being predicted. It is measured over the same population and the same period. It is the benchmark every conditional claim has to be read against. A rule can only be credited with the difference between its own rate and this one.

Also called win rate, strike rate.

The hit rate is the share of occasions on which a rule or a decision turned out the way it was meant to. It is a simple count: occasions that worked, divided by occasions taken. It is also the most quoted and least interpretable number in the subject. On its own it says nothing about how much was won or lost on each occasion.

Also called expected value per trade, average trade.

Expectancy is the average amount a single decision is worth. Wins, losses and costs are all counted. It is the hit rate multiplied by the average win. From that, subtract the miss rate multiplied by the average loss. Then subtract the cost of placing the trade. Its sign matters far more than its size. A positive expectancy is worth repeating. A negative one is worth stopping. The number of trades multiplies whichever it is.

Also called number of observations, n.

The sample size is how many independent observations a measurement rests on. It does not change the measured value. What it decides is how far the true value could plausibly sit from it. At small sample sizes that range is wide. It can be wide enough to contain both a strong effect and no effect at all. A measurement on ten days and the same one on a thousand days are not the same evidence.

Also called peak to trough, loss from peak.

A drawdown is the fall from a previous peak to a subsequent low, expressed as a percentage of that peak. The maximum drawdown is the largest such fall over a period. It measures how far a balance actually went down along the way. That is a different question from where it finished.

Also called permutation test, randomisation test.

A null model is a deliberately meaningless version of the same analysis. It is built to show what the output looks like when nothing is going on. The common construction is a shuffle. Take the same data. Randomly break the link between the rule and the outcomes. Re-run it several hundred times and record the results. The spread of those results is what chance alone produces.

Also called curve fitting, data mining bias.

Overfitting is arriving at a rule that describes only the data it was built from. It does not describe anything that repeats. The rule fits the past and then fails on new data. It happens whenever the same data is used both to choose the rule and to judge it. That includes tuning thresholds. It includes trying many variations and reporting the best. It includes adjusting a chart's parameters until it looks convincing.

Also called forward test, walk forward.

An out-of-sample test evaluates a rule on data that played no part in choosing it. No threshold was tuned on it. No date range was selected because of it. No variation was discarded by looking at it. Data used to build a rule cannot also test it. It already contains the answer that suggested the rule in the first place.

Also called annualised return, annualized return.

CAGR expresses the change between a starting value and an ending value as a single constant annual rate. It covers the whole period. It is the rate that would have produced the same ending value. It is a smoothing device. It answers one question: what steady yearly rate is equivalent to the observed start-to-end change? It does not say what was actually earned in any single year.

Also called irr on dates, money weighted return.

XIRR is an annualised rate of return. It works on cash flows that happen on set calendar dates. It is the rate that makes those flows sum to zero in present-value terms. A simple start-to-end growth rate ignores the dates. XIRR uses the actual date of every contribution, every withdrawal and the closing valuation. So money put in for only part of the period is credited only for that time.

Also called share sale gain, short-term capital gain.

A capital gain is the gain from selling an asset for more than its eligible cost. For listed shares, a calculation starts with sale value minus purchase cost. Eligible expenses can change the taxable amount. The holding dates decide which tax class the gain enters.

Also called maximum pain.

Max pain is the strike where the open options in a table would pay buyers the least at expiry. For fixed purchase costs, that gives buyers the largest total loss. Open interest (OI) counts those open contracts. The name describes a sum, not a price forecast.