The crypto investing
glossary.
Clear definitions of the terms that matter when real capital is at risk: position sizing, leverage, liquidation, drawdown and more.
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- Categorically CongruentCategorically congruent is Chad Wittfeldt's term for how crypto moves by market cap tier: when the market pumps or dumps, every tier moves the same direction, with mid caps moving harder than large caps and small caps harder than mid caps. Picking tiers is choosing how hard your portfolio swings, not diversifying away risk.
- Cause and EffectCause and effect is the rule that the size of the move you expect has to match the size of the structure that causes it. A pattern on a small timeframe causes a small move, and a range built on a higher timeframe can cause a large one. A 15 minute pattern can't carry a target that needs a daily-sized move.
- Cold WalletA cold wallet is a crypto wallet whose private keys are generated and kept offline, usually on a dedicated hardware device, so they never touch an internet-connected computer or phone. It is the safest place for crypto you plan to hold for months or years, because an online attacker can't reach keys that are never online.
- Cross MarginCross margin is a margin mode where your entire available account balance backs every open leveraged position at once. It pushes liquidation further away, but one bad trade, or several correlated ones, can draw down the whole account. We don't recommend it for new traders; isolated margin keeps each trade's worst case separate.
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- Decision ProtocolThe Decision Protocol is a seven-step trading process: thesis, invalidation level, position size, total exposure, entry and exit plan, journal and review, made in that order on every trade. Five decisions happen before the order is placed and two after the trade closes.
- Dollar Cost AveragingDollar cost averaging (DCA) is investing a fixed amount of money on a fixed schedule, such as every week, regardless of price. Spreading purchases across highs and lows smooths out volatility in your average entry price instead of tying the whole position to one day's price.
- DrawdownDrawdown is the fall in an account from its highest value to its lowest point before a new high, usually shown as a percentage. Maximum drawdown is the largest such fall over a period, and climbing back always takes a bigger percentage gain than the drop itself.
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- Equal Lows StrategyThe equal lows strategy is a liquidity sweep entry: wait for price to run below a set of equal lows, trigger the stops resting there, then reclaim the range, and enter after the reclaim with the stop at the sweep low. It is the Wyckoff spring turned into a repeatable entry rule.
- ExpectancyExpectancy is the average amount a trading approach makes or loses per trade, measured in R (multiples of the fixed amount risked). It combines win rate with average win and average loss: expectancy equals win rate times average win, minus loss rate times average loss. A positive number after costs means the process has an edge.
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- Fake Out TakeoutA fake out takeout is a breakout that fails and then takes out the traders who chased it. Price breaks a level, late buyers or sellers pile in with stops just behind the break, price snaps back through the level, and their stops fuel a move in the opposite direction.
- Fake Trading PlatformA fake trading platform is a website or app that accepts crypto deposits, shows an invented balance growing daily under the cover of trading, mining or arbitrage, allows one small withdrawal to build trust, and then blocks larger withdrawals behind made-up taxes and fees. Nothing is ever traded or mined, and the deposit address belongs to the operator.
- Funding RateThe funding rate is a periodic payment between long and short holders of a perpetual futures contract that keeps the contract price anchored to spot. When it is positive, longs pay shorts; when it is negative, shorts pay longs. It is charged on the full position value, so it is a real holding cost.
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- HODLHODL is crypto slang for buying an asset and holding it through every price swing instead of selling. It began as a misspelling of "hold" on a Bitcoin forum in 2013 and was later read as "hold on for dear life." Holding is a legitimate allocation, but on its own it has no entry rule, no exit rule and the slowest payoff of any approach in crypto.
- Hot WalletA hot wallet is a self-custody crypto wallet whose private keys live on an internet-connected device, usually a browser extension or a phone app. It is convenient for crypto you are actively swapping, staking or moving, but because the keys sit on an online device it is more exposed to attack than a cold wallet.
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- Imposter ScamAn imposter scam is a fraud in which someone builds a profile from a real person's name, photos and reputation, usually a trader, educator or public figure, and messages that person's followers with an offer to trade crypto for them or to join a private group that requires a deposit on a platform the imposter controls.
- Invalidation LevelThe invalidation level is the price at which the chart proves a trade idea wrong. It is where the stop-loss belongs, and the distance from entry to that price is what sets the position size.
- Isolated MarginIsolated margin is a margin mode where only the collateral assigned to one position can be lost if that position is liquidated. The rest of the account balance is walled off from that trade. It is the mode we recommend, because it caps the worst case of any single position at a number you chose in advance.
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- LeverageLeverage is borrowed exposure that lets you control a position larger than the margin you put up: at 10x, $1,000 of margin controls $10,000. It changes how much margin a trade ties up and how close liquidation sits; the stop distance and position size decide what the trade actually risks.
- Liquidation PriceLiquidation price is the price where a leveraged trading platform force-closes your position because your margin can no longer cover the loss. On a long it sits roughly 1 divided by your leverage below entry, a little closer once maintenance margin is counted. Your stop should always sit well before it.
- Liquidity SweepA liquidity sweep is a fast move through an obvious high or low that triggers the stop orders resting beyond it, then reverses back into the prior range. Traders also call it a stop hunt or liquidity grab. The sweep fills large orders using other traders' stops, and the reclaim afterward is often the cleaner entry.
- Long PositionA long position is a trade that gains when the price of an asset rises and loses when it falls. You go long by buying the asset outright on spot or by opening a long futures contract; on futures, the amount at risk should be set by the stop and the position size, not by the leverage.
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- MarginMargin is the collateral you put up to open and hold a leveraged position. Initial margin is what it takes to open the trade, maintenance margin is the minimum needed to keep it open, and on isolated margin only the collateral assigned to that one position is at stake.
- Market CycleA market cycle is the repeating pattern of expansion, peak, contraction and bottom that a market moves through. In crypto, Bitcoin's cycles have historically run about four years, roughly three years of rising prices followed by about one year of decline, and the rest of the market has tended to move with it.
- Market StructureMarket structure is the sequence of swing highs and swing lows on a chart. Higher highs and higher lows describe an uptrend, lower highs and lower lows describe a downtrend, and the first break in that sequence is the earliest sign a trend may be changing.
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- Perpetual FuturesPerpetual futures are crypto derivative contracts that track an asset's price with no expiry date, so a long or short position can stay open as long as its margin supports it. A periodic funding rate paid between longs and shorts keeps the contract price close to the spot price.
- Pig Butchering ScamA pig butchering scam is a long-con investment fraud in which a stranger builds trust over weeks or months, then steers the target onto a fake crypto trading platform, shows invented profits to draw in larger deposits, and blocks withdrawals with made-up fees until the money is gone.
- Position SizingPosition sizing is calculating how large a trade should be so that, if price reaches the stop-loss, the account gives up exactly the dollar amount you fixed in advance. Size equals dollar risk divided by the distance between entry and stop.
- Profit FactorProfit factor is gross profit divided by gross loss over a set of trades. Above 1.0 the winning trades outweighed the losing ones; below 1.0 they did not. At a 1:3 risk to reward, winning one trade in four gives a profit factor of exactly 1.0, the break-even point before costs.
- Prop Firm ChallengeA prop firm challenge is a paid evaluation in which a trader must reach a profit target on a simulated account without breaking the firm's daily loss limit, maximum drawdown and other trading rules. Passing earns a "funded" account that shares profits, though at most large firms that funded stage is also simulated.
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- Recovery ScamA recovery scam is a second fraud aimed at people who already lost money to a first one: someone posing as a recovery agent, asset recovery firm, law firm or investigator offers to get the stolen crypto back for an upfront fee, personal details or wallet access, then disappears with that too. The CFTC calls recovery offers a form of advance fee fraud.
- Risk per TradeRisk per trade is the share of your account, usually a percentage, that you accept giving up if a single position reaches its stop-loss. We teach 1 to 2% per trade while you are learning and treat 4% as the hard ceiling.
- Risk-Reward RatioThe risk-reward ratio compares the distance from entry to the stop-loss (the risk) with the distance from entry to the target (the reward). A 1:3 ratio means the target is three times further away than the stop, and 1:3 is our minimum for taking a trade.
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- Seed PhraseA seed phrase is a list of 12 or 24 words, generated when a self-custody wallet is created, that can restore every key in that wallet on any compatible device. Anyone who has the words controls the funds, and there is no way to reset or replace them, so the phrase must be stored offline and never shared.
- Short PositionA short position is a trade that gains when the price of an asset falls and loses when it rises. In crypto it is usually opened with perpetual futures, and because price has no ceiling, a short needs a stop at the level that invalidates the idea and a size solved from that stop before it is opened.
- SlippageSlippage is the difference between the price you expected and the price you actually got. In crypto it matters most on stops: a stop is only a trigger, and once triggered it becomes a market order that fills at the best available prices, which in a fast move can be worse than the stop price. Plan for it by rounding size down, never by moving the stop.
- Stop-Loss OrderA stop-loss order is an instruction that closes a position automatically when price reaches the level where the trade idea is proven wrong. It caps what one trade can cost at the amount the position was sized for, and it is never moved further away.
- Sunk Cost FallacyThe sunk cost fallacy is the habit of putting more money, time or effort into a decision because of what has already been spent on it, rather than because of what the next dollar is likely to do. In trading it shows up as holding past invalidation, widening a stop or adding to a position that has already been proven wrong.
- Support and ResistanceSupport is a price zone where buying has repeatedly stopped a fall; resistance is a zone where selling has repeatedly stopped a rise. They are zones, not single lines, and they grow stronger with more distinct touches and a higher timeframe. Stops belong beyond the sweep low or high of the zone, not right at it.
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- Take ProfitA take profit is the planned exit that closes a winning trade at a target set from chart structure before entry. Most platforms allow one take profit order per position, so partial profits at other areas of interest are closed by hand. The stop moves to break even at around 1 to 1.5R in profit, then into profit by hand as new structure forms.
- The 1:3 FilterThe 1:3 filter is a pass or fail rule: a trade is only taken if the distance to a realistic, structure-based target is at least three times the distance to the stop. At 1:3, one winning trade in four covers three stopped trades before costs, so the math stays workable even when most trades fail.
- The HODL ParadoxThe HODL Paradox is the gap between why people buy crypto and how HODLing actually pays. Most arrive expecting fast results from headlines, yet buying and holding is the slowest strategy in crypto, measured in full market cycles. When expectations of speed meet a multi-year timeline, emotion takes over and drives the worst decisions.
- Timeframe ImpositionTimeframe imposition is the principle that lower-timeframe price structure builds higher-timeframe structure, so the move you expect has to match the timeframe the setup formed on. A 15-minute setup is a cause sized for a 15-minute effect, and a higher-timeframe trade needs a wider stop and a smaller size for the same dollar risk.
- Top-Down AnalysisTop-down analysis is reading the chart from the highest relevant timeframe down to the lowest before entering: the daily for direction, the 6 hour for the local structure, the 1 hour for the setup, and the 15 minute for the entry. Higher timeframes set the bias and the target; the lower timeframe only times the entry.
- Total ExposureTotal exposure is the combined risk of every open position, counted as if all positions that move together hit their stops at the same time. Five altcoin longs that follow Bitcoin behave like one large Bitcoin long, so their risk is added up, not counted separately.
- Trade ThesisA trade thesis is a short written statement of what you expect the market to do, why you expect it, on what timeframe, and what price action would prove you wrong. It is the first decision in a trading plan: the invalidation level, position size and target all come from it.
- Trading JournalA trading journal is a record, written at the time, of every trade's thesis, entry, invalidation level, size, dollar risk, target, result and whether the plan was followed. Reviewed regularly, it is the only reliable way to tell a weak strategy apart from weak execution.
- TrendlineA trendline is a straight line drawn through at least three distinct swing lows in an uptrend, or swing highs in a downtrend, to show the direction of the market and where price is likely to react. Lines with more touches, more days of data, a moderate angle and a higher timeframe are the strongest.