Chapter 2 · Part One
Core Vocabulary
Fifteen terms. Learn them now so the rest reads quickly.
About 6 minutes
This chapter is a reference, not an argument. Skim it now, then come back whenever a term stops making sense.
Price action
Term
Fair value gap, FVG
- A three-candle pattern where price moved so fast it left a gap. Price almost always comes back to it.
Term
Imbalance
- The same concept as an FVG. An area where price moved too fast, creating inefficiency.
Term
Displacement
- A strong, impulsive move. Big-bodied candles with conviction. This is institutional activity.
Term
Order block
- The last opposing candle before a displacement. The last bearish candle before a bullish move is a bullish order block.
Term
IFVG, inverse FVG
- A previous FVG that gets traded through and flips its role. Used for extra confirmation.
Market structure
Term
MSS
- Market structure shift. Price breaks a significant swing high or low against the direction it was trending, signalling the trend is changing.
Term
BOS
- Break of structure. Price breaks a swing high or low in the direction it was already going, confirming continuation.
Term
Neckline
- The structure point that must break for the MSS to be confirmed. Non-negotiable.
Liquidity
Term
ERL
- External range liquidity. The highs and lows where stops cluster.
Term
IRL
- Internal range liquidity. FVGs, order blocks and imbalances, where fair value lives.
Term
DOL
- Draw on liquidity. The magnet price is heading toward.
Term
FTSL / FTSH
- Failure to seek lows or highs. Price tried and could not. Bullish and bearish respectively.
Term
Protected high / low
- A swing point defended by institutions, formed off a higher-timeframe level. The strongest reversal zones.
Term
Premium / discount
- Upper half of a range, look to sell. Lower half, look to buy.
Term
EQ
- Equilibrium. The fifty percent level of any range. A natural magnet and a first target.
Risk
Term
R
- One unit of risk. The dollar distance from entry to the structural stop on that specific trade. Every trade is measured in R, never in points.
Term
Structural stop
- A stop placed beyond the swept ERL wick. Its width is set by the chart, not by you.
Term
Sizing
- The number of contracts, calculated so the structural stop equals your fixed dollar risk.
Before you move on
- You can define ERL, IRL and DOL from memory
- You know what has to break for an MSS to be confirmed
- You can explain why R matters more than points
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