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Glossary
Reference sheets
- Candlestick Patterns11 terms · The shapes that matter, what they claim, and the context that makes them credible.
- Support, Resistance & Breakouts10 terms · Zones, polarity flips, breakout quality and retest entries.
- Order Types & Execution10 terms · Which order to send, when, and what it costs you.
- Valuation Ratios9 terms · Multiples, yields and what "cheap" requires.
- Earnings Quality Checklist9 terms · Red flags and green lights in reported numbers.
- Options Greeks9 terms · Delta, theta, vega, IV — what each number does to your position.
- Covered Calls & CSPs9 terms · The two income workhorses — mechanics and tradeoffs.
- The Wheel10 terms · The full cycle, the math, and the failure modes.
- Risk Rules9 terms · Sizing, stops, expectancy and drawdown — the survival card.
- Market Sessions8 terms · US equity hours, auctions and liquidity rhythm.
- Macro Dashboard8 terms · The indicators worth a glance each week.
- Bias Checklist9 terms · Pre-trade and quarterly self-checks against your own wiring.
Candlestick Patterns
- HammerSmall body at top, long lower wick after a decline — buyers absorbed the lows.
- Shooting starSmall body at bottom, long upper wick after a rise — upside rejected.
- Bullish engulfingGreen body fully covers prior red body.
- Bearish engulfingRed body fully covers prior green body at highs.
- Morning / evening star3-bar bottoming/topping: strong candle → small indecision → opposite strong candle.
- Three white soldiersThree strong rising green candles — trend resumption.
- Rising three methodsBig candle, three small inside pullbacks, breakout candle.
- MarubozuNo wicks — open at extreme, close at extreme. Pure conviction.
- LocationPatterns matter at levels (support/resistance, MAs, gap edges), not mid-range.
- VolumeExpanding volume supports the claim; thin volume weakens it.
- Base ratesMost patterns work 55–65% of the time — confirmation tools, not prophecies.
Support, Resistance & Breakouts
- SupportZone where buyers repeatedly absorbed selling.
- ResistanceZone where sellers repeatedly capped rallies.
- Zones, not linesGive levels a few percent of width; grade by touches and time span.
- Polarity flipBroken resistance tends to act as support (and vice versa).
- Decisive closeClose beyond the zone, not a wick-through.
- VolumeWell above recent average supports validity.
- CoilingTight consolidation against the level beforehand raises odds.
- RetestPrice returning to the level from the other side; holding = confirmed.
- Risk definitionStop just below reclaimed level; small risk, clean thesis.
- TradeoffYou may miss strongest breakouts that never look back.
Order Types & Execution
- MarketFill guaranteed, price not. Use only in liquid names during market hours.
- LimitPrice guaranteed, fill not. Default for thin names and patient entries.
- StopTriggers a market order at your level — can gap-fill beyond it.
- Stop-limitTrigger converts to limit — protects price, may never execute.
- SpreadBid−ask gap paid instantly on crossing. Round trip = 2× spread.
- SlippageExtra cost when size exceeds book depth.
- Thin-name ruleCheck spread + dollar volume before any order.
- OpenHeaviest volume; widest repricing; widest spreads early.
- MiddayThinnest liquidity of the day.
- CloseSecond volume surge; closing auction prints the reference price.
Valuation Ratios
- P/EPrice ÷ EPS. Compare within sector + own history; forward vs. trailing matters.
- PEGP/E ÷ growth%. Below ~1 historically flagged value — crude but useful.
- EV/EBITDACapital-structure-neutral — fairer across different debt loads.
- P/SFor unprofitable growers; only meaningful with margin trajectory.
- Earnings yieldEPS ÷ price (inverse P/E) — compare directly to bond yields.
- FCF yieldFCF ÷ market cap — the cash version of valuation.
- Peak-cycle P/ECyclicals look "cheap" at peak earnings.
- Adjusted-EPS P/EInherits adjusted accounting’s optimism.
- Cheap without thesisNever buy cheap without stating WHY it is cheap and what closes the gap.
Earnings Quality Checklist
- Revenue↑, OCF flatCash not following profit — accrual gap widening.
- Receivables racingA/R growing much faster than revenue = aggressive recognition risk.
- Perpetual one-timers"Non-recurring" charges every year.
- Adjusted-GAAP gap wideningManagement framing drifting further from GAAP.
- Inventory buildInventory outpacing sales — demand or obsolescence risk.
- FCF conversion >95%FCF ÷ net income near 1 — profits are cash-backed.
- Stable/rising gross marginPricing power holding vs. peers.
- ROIC > WACCGrowth creates value.
- Clean footnotesFew adjustments, conservative estimates.
Options Greeks
- DeltaChange per $1 stock move; rough ITM probability. ATM ≈ 0.5.
- GammaHow fast delta changes — highest ATM near expiry (0DTE whip source).
- ThetaDaily decay; accelerates in final ~30–45 days.
- VegaSensitivity to IV changes; long vega wins if fear rises.
- IV rank(IV − 1y low) ÷ (1y high − low). Sell >~50%, buy <~25% (heuristics).
- IV crushPost-event IV collapse — long options can lose despite right direction.
- Event calendarKnow earnings/CPI/Fed dates before any option entry.
- 30–45 DTEStandard income cadence — decay captured without terminal-week risk.
- Defined riskSpreads over naked shorts until assignment management is routine.
Covered Calls & CSPs
- SetupOwn 100 shares + sell 1 call, 30–45 DTE, ~5–8% OTM.
- IncomePremium collected; annualized ≈ premium ÷ price × (365/DTE).
- CostUpside capped at strike — you sell your best case.
- ManagementExit at ~50% profit or ~21 DTE; roll up/out if challenged.
- SetupSell put at a price you want to own; cash fully reserved.
- OutcomeExpired OTM → keep premium; assigned → own at strike − premium.
- StandardOnly sell on names you would limit-order buy anyway.
- Yield realityGood premium selling historically ≈ 8–15%/yr with equity-like drawdowns.
- Not freeIncome is payment for accepting the tail — know the tail.
The Wheel
- Leg 1Sell CSP at desired entry; assigned → own at strike − premium.
- Leg 2Sell covered calls above basis; called away → cycle restarts.
- Basis mathEach premium lowers effective basis; both legs stack.
- Sustained bearAssigned at tops; calls worthless; basis bleeds.
- Melt-upCalled away early; re-entry at worse prices.
- Vol spikePremium balloons → oversizing temptation.
- Position capOne wheel ≤ 15–20% of option capital.
- Entry testWould you buy at the strike with zero premium?
- Trend ruleStop selling calls if basis underwater + trend broken.
- DD exitPre-commit a total drawdown exit for the position.
Risk Rules
- 1% ruleRisk ≤1% of capital per trade (0.5–2% range by style).
- FormulaShares = (capital × risk%) ÷ (entry − stop).
- Streak mathTen 1% losses ≈ −9.6%; ten 5% losses ≈ −40%.
- Structure firstStop at thesis invalidation, not arbitrary percent.
- ATR checkKeep ≥ ~1.5–2× ATR from entry for your timeframe.
- Gap honestyStops fill at gap prices — size covers what orders cannot.
- FormulaE = W×avgWin − L×avgLoss (in R). Positive E = edge.
- Recovery tax−20% needs +25%; −50% needs +100%.
- Design goalWorst realistic streak stays inside your holdable drawdown.
Market Sessions
- Regular9:30–16:00.
- Pre-market4:00–9:30 — thin, wide spreads, gap-prone.
- After-hours16:00–20:00 — thin; earnings land here.
- Opening auction9:30 max-volume print — cleanest reference of the day.
- Closing auction16:00 — institutions route size here deliberately.
- Open surgeOvernight info repriced in 15–30 min.
- Midday lullThinnest liquidity — widest spreads.
- Close surgeSecond burst; day-trader flattening + institutional finish.
Macro Dashboard
- Fed fundsPolicy short rate — the floor.
- 10Y yieldMarket-set equity discount benchmark.
- 2s10s curveInversion precedes recessions — with lag and false alarms.
- CPI / PCEHeadline + core; expectations (breakevens) move markets first.
- Real returnNominal − inflation ≈ your purchasing-power progress.
- Credit spreadsIG/HY spread widening = tightening conditions.
- VIXFear gauge — level and term structure.
- Event calendarFOMC, CPI dates, earnings nights — plan positions around them.
Bias Checklist
- Setup written?If no setup exists, there is no trade (kills FOMO).
- Size from formula?Risk budget ÷ stop distance — not conviction.
- State checkAm I trading to feel something (revenge/boredom/excitement)?
- Buy-today testWould I buy it at this price today? If not — why hold?
- Anchor checkAm I citing my entry price or an old high as value?
- Fresh-eyes ritualQuarterly: re-decide each holding as if unowned.
- Journal reviewTag trades by state: planned/chased/revenge — fix the worst bucket.
- CalibrationScore your predictions vs. outcomes; adjust confidence to reality.
- Base-rate checkBefore "my case is special," check how similar cases went.
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Learn content is for education only — not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk. Examples are simplified and historical patterns never guarantee future results.