Double support
BUY!!
the double bottom chart pattern, which signals a strong potential area of support where buying pressure has emerged twice. It is a bullish reversal pattern that forms in a downtrend and looks like the letter “W”. Traders look for a breakout above the “neckline” (the high point between the two lows) to confirm a potential uptrend reversal
TP
Take profit
Forex
Foreign exchange
Foreign exchange
An exchange of one currency for another, e.g. going to vacation
Futures
Futures are derivative contracts that obligate the buyer to purchase, or the seller to sell, a specific asset at a predetermined price on a future date. These contracts are standardized and traded on exchanges, allowing investors to speculate on price movements or hedge against price fluctuations. They involve risk due to leverage, which amplifies both potential gains and losses.
The process works by agreeing on a price now that will be paid later, with profits or losses realized at expiration or when the position is closed before expiration.
Pip
Percentage in point
- A measure of a change in value (in a currency pair)
- The 4th decimal place
Pipette
- Also known as fractional pips (which is 1/10 of a pip)
- The 5th decimal place
- The 3id decimal place (for JPY pairs)
Prop firm
a proprietary trading firm that provides skilled traders with capital and a platform to trade financial markets for a share of the profits. These firms don’t take on outside investors like a hedge fund; they use their own money to trade equities, futures, and other assets. Traders can access larger capital than they might have on their own, but they often must pass an evaluation or funding challenge with strict rules to prove their trading skill and risk management abilities before being funded.
Trading combine
A trading combine is a simulated trading evaluation program that allows traders to prove their skills and risk management abilities for a monthly fee, with the goal of earning a “funded account” to trade with real capital. These programs require traders to meet specific performance targets, such as profit goals, while adhering to strict rules like daily loss limits and drawdown restrictions, before they can move on to trade a live account. It’s a way for aspiring traders to gain access to larger capital without risking their own savings
Express Funded Account (XFA)
An Express Funded Account (XFA) is a simulated trading account for traders who have passed a “Trading Combine” or evaluation, such as the one offered by Topstep. It allows traders to earn income through profit payouts, though the account itself is a simulation and has no real-money risk for the user. Key features include a one-time activation fee and a streamlined path to earning, but the account can be closed for inactivity for more than 30 days, notes Topstep.
Love Funded Account
A live funded account is a real brokerage account where a trader manages a company’s capital in live, real-time markets, after demonstrating consistent profitability in a simulated environment. The trader receives a starting balance based on their performance in the simulated account and can earn a share of the profits, often subject to rules like loss limits and withdrawal conditions
Contract
In a proprietary trading firm like Topstep, a “contract” is a single unit of a tradable asset like an E-mini S&P 500 futures contract. To have a maximum position size of 5 contracts means that at any given time, you cannot have more than a total of 5 open contracts combined across all instruments, including both long and short positions. For example, a trader with a 5-contract maximum could hold a long position of 2 contracts and a short position of 3 contracts simultaneously, but not 6 total contracts.
Understanding contracts and position size
What is a contract? A contract is the standardized quantity of an underlying asset, such as 1,000 barrels of crude oil or 50 times the value of the S&P 500 index for an E-mini contract.
Maximum position size: This is the absolute total number of contracts you are allowed to have open at one time. This limit is in place to manage risk and prevent traders from over-leveraging themselves.
How it works in practice: If your maximum position size is 5, you can hold various combinations of long and short positions as long as the total number of contracts does not exceed 5.
- Example 1: You can be long 3 E-mini S&P contracts and short 2 E-mini S&P contracts. The total is 5 contracts.
- Example 2: You could be long 5 E-mini S&P contracts. You cannot open any more contracts, even a single short contract.
- Example 3: You could be long 2 E-mini S&P contracts and short 1 Crude Oil contract. The total is 3 contracts, which is below your limit of 5, so this is allowed.
It applies to all instruments: The maximum position size applies across all instruments you are trading, not just a single one.
Individual orders are rejected: If you try to place an order that would exceed the maximum position size, the order will be rejected before it can be executed.
You don’t have to trade the maximum: You are not required to trade the maximum number of contracts. Trading fewer contracts is perfectly acceptable and is often a strategy to manage risk.
Balance
the amount of money in your trading account after all positions have been closed. This amount includes the money you have deposited into your account, plus or minus the profits and losses from closed trades.
Retracement
a temporary, short-term price pullback against a larger market trend, after which the original trend is expected to resume. It is not a sign of a complete trend reversal, but rather a healthy pause for consolidation. Technical analysts use tools like Fibonacci retracement levels to identify potential areas where the price might reverse back to its dominant trend.
In finance, a retracement is a temporary, short-term pullback in an asset’s price that moves against the prevailing trend, followed by a continuation of the original trend. For example, in an uptrend, a retracement is a temporary drop in price before the stock moves higher again. Traders distinguish this from a reversal, which is a more significant and longer-term change in the overall market direction.
Support and resistance
Support and resistance are price levels in trading that act as barriers to price movement. Support is a price level where a downtrend is expected to pause and reverse, as there is a concentration of buying interest. Resistance is a price level where an uptrend is expected to pause and reverse, as there is a concentration of selling interest.
Support and resistance levels
Support: A “floor” that stops a price from falling further, where demand exceeds supply, and buyers are more willing to purchase.
Resistance: A “ceiling” that stops a price from rising further, where supply exceeds demand, and sellers are more willing to sell.
Trading Range: When support and resistance levels are well-defined, they can create a trading range where the price oscillates between the two levels.
Breakouts: If a price breaks through a support or resistance level, it can indicate the start of a new trend.
Role Reversal: A broken resistance level can become a new support level, and a broken support level can become a new resistance level.
How traders use support and resistance
Buying at support: Traders may buy an asset when its price falls to a support level, expecting it to bounce back up.
Selling at resistance: Traders may sell an asset when its price rises to a resistance level, expecting it to pull back down.
Buying a breakout: Some traders may buy when the price decisively breaks through a resistance level, anticipating a continuation of the new uptrend.
Selling a breakdown: Conversely, some may sell when the price breaks down through a support level, expecting the downtrend to continue.
Identifying support and resistance levels
Look for price reversals: Identify areas on a price chart where the price has previously stopped falling and reversed (swing lows) or stopped rising and reversed (swing highs).
Connect points: Draw horizontal lines to connect these swing lows to identify potential support and swing highs to identify potential resistance.
Multiple touches: A level is considered stronger if price has reversed at that level multiple times, indicating consistent buying or selling pressure.
Psychological barriers: These levels can also be psychological barriers where a large number of traders are waiting to act, which strengthens the level.
End of day drawdown
End-of-day (EOD) drawdown is a risk management rule, often used in prop trading, that defines the maximum loss an account can sustain by the end of a trading day. The account’s balance is only assessed at the close of the market, meaning intraday fluctuations do not trigger a breach as long as the closing balance remains above the threshold. This type of drawdown is often trailing, meaning the limit moves up as the account balance grows, but does not move down during the day
How it works
Initial limit: A starting EOD drawdown is set based on the initial account balance. For example, a $50,000 account with a $2,500 maximum drawdown has an initial EOD limit of $47,500.
Daily assessment: The account’s performance is only evaluated at the end of the trading day. If the closing balance is above the drawdown limit, the account is not liquidated.
Trailing the limit: If the account ends the day with a profit, the drawdown limit is updated to a new, higher level for the next day. For example, if the account closes at $51,000, the new limit becomes $48,500 ($51,000 minus $2,500).
Breaching the rule: If the account’s closing balance falls below the EOD drawdown limit, the account is liquidated.
Key differences from other types of drawdown
Intraday drawdown: This type of drawdown measures losses in real-time throughout the trading day, factoring in unrealized gains and losses.
Static drawdown: This is a fixed limit that does not change throughout the trading period, regardless of account profits.
Benefits of EOD drawdown
Allows traders to manage their risk without being forced out of a profitable position by short-term intraday volatility.
Provides a more stable environment for traders, especially those who experience large swings during the day but consistently end with profits.
Unrealized drawdown
Calculated in real-time based on your floating (open) profit and loss (P&L)
Unrealized (Intraday Trailing) Drawdown
Calculation: The drawdown limit adjusts in real-time as your account equity (balance + unrealized P&L) changes throughout the trading day.
Impact on Trading: If an open position shows a large unrealized profit but then pulls back significantly, your drawdown limit is set from that highest intraday peak. A subsequent dip below this new, higher threshold will trigger a failure, even if the trade eventually recovers or closes positive. This often forces traders to use tighter stops or take profits earlier.
PNL
product/grain loss evaluation
Drawdown
the decline in value of a trading account or investment from its highest point (peak) to its lowest point (trough), before it recovers to a new peak
a decline in an investment or fund.
an act of drawing on available funds or loan facilities.
Uptrend breakout
An uptrend breakout is when a security’s price decisively moves above a significant resistance level (like a price ceiling or trendline) with high trading volume, signaling the end of a consolidation period and the potential start of a strong, sustained upward price trend (a series of higher highs and lows). It’s a key bullish signal, suggesting strong buying interest and momentum as sellers are overcome, with the old resistance often turning into new support.
Key Characteristics
Price Action: The price closes firmly above a resistance level, which could be a horizontal line, a diagonal trendline, or part of a chart pattern like a triangle or flag.
Volume: A significant surge in trading volume confirms the breakout’s strength and validity, indicating broad investor conviction.
Momentum: The breakout triggers increased buying, causing rapid price appreciation and the formation of higher highs and higher lows, defining the new uptrend.
Confirmation: A reliable breakout is confirmed by the price action continuing upward, not immediately falling back (a “fakeout”).
Example Usage
Entering a Trade: Traders enter a “long” (buy) position hoping to profit from the ensuing price rise.
Continuation: It can signal the continuation of a primary uptrend after a brief pause (a “continuation breakout”).
Pattern Resolution: A breakout from patterns like a bullish flag or pennant confirms the trend is resuming.
