Trading Glossary C–D

C

CAGR (Compounded Annual Growth Rate) — The annualised return of an investment or strategy, accounting for compounding. CAGR is the most useful return metric for comparing strategies tested over different periods. Formula: CAGR = (Ending Value ÷ Starting Value)^(1÷Years) − 1. A strategy that turns ₹1,00,000 into ₹1,61,000 over 3 years has CAGR = 17.2%.

Call Option — A derivatives contract giving the buyer the right (but not the obligation) to buy the underlying asset at the strike price before expiry. Call buyers profit when the underlying rises above the strike price plus premium paid. Call sellers (writers) collect premium and profit when the underlying stays flat or falls. On NSE, NIFTY 23,500 CE means the right to buy NIFTY at 23,500.

Calmar Ratio — A risk-adjusted return metric calculated as CAGR divided by Maximum Drawdown. Example: 20% CAGR with 15% max drawdown = Calmar of 1.33. Higher is better. Calmar above 1.0 is considered good; above 2.0 is excellent. Particularly useful for comparing strategies with similar returns but different drawdown profiles.

Candlestick — A chart representation of price action for a specific period showing Open, High, Low, and Close (OHLC). The body shows the Open-to-Close range. Wicks show the High and Low extremes. Green candles (Close above Open) indicate buyers won the session. Red candles (Close below Open) indicate sellers won. Originating in 18th-century Japan, candlestick charts are the standard for technical analysis globally.

CCI (Commodity Channel Index) — A momentum indicator measuring how far price has moved from its statistical average. CCI oscillates without a fixed range (typically −200 to +200). CCI crossing above +100 signals bullish momentum breakout. CCI crossing below −100 signals bearish momentum. Useful on NSE weekly charts for identifying major trend changes in sector indices.

CHOCH (Change of Character) — A Smart Money Concepts term for the first break of the opposing structure — the earliest warning that a trend is reversing. A bullish CHOCH in a downtrend occurs when price breaks above the most recent Lower High for the first time. A CHOCH precedes a Break of Structure (BOS) and is used for early reversal entries with tighter stops.

Circuit Breaker — A regulatory mechanism that automatically pauses trading when prices move beyond permitted limits. For individual NSE stocks: upper and lower circuits of 2%, 5%, 10%, or 20% depending on the stock category. For indices: 10%, 15%, and 20% market-wide circuit breakers. Circuit breakers prevent extreme volatility and give the market time to absorb information.

Consolidation — A period of sideways price movement between support and resistance, after a trend. During consolidation, the market is digesting the previous move. Consolidation can lead to trend continuation (most common) or reversal. Tight, orderly consolidation on declining volume followed by a high-volume breakout is a high-probability continuation setup on NSE.

Covered Call — An options strategy where an investor holding a stock sells a Call option against their position. The premium collected provides income and a limited downside buffer. The trade-off: upside is capped at the strike price. Example: Hold 100 shares of Infosys at ₹1,500. Sell 1 lot of ₹1,600 CE. Collect ₹30 premium. If Infosys stays below ₹1,600, keep the premium as profit.

D

Dark Pool — Private trading venues where large institutional orders are executed away from public exchanges to minimise market impact. Dark pool trades eventually appear in reported volumes. The existence of dark pool activity helps explain why large price moves sometimes occur on seemingly normal volume — the real accumulation was done privately.

Day Trading (Intraday Trading) — Buying and selling securities within the same trading session — all positions closed by NSE market close at 3:30 PM. Day traders use MIS (Margin Intraday Square Off) orders which brokers automatically close at 3:15–3:20 PM. MIS provides higher leverage than CNC (delivery) orders but all positions must be squared off daily.

Dead Cat Bounce — A temporary recovery in price during a larger downtrend that quickly fails and resumes the decline. Named after the macabre expression "even a dead cat bounces if dropped from a great height." Common after a sharp initial drop, the bounce attracts buyers hoping for a reversal — but the downtrend resumes, trapping those buyers at a loss.

Delivery Trading (CNC) — Buying shares with the intention of holding overnight or longer, taking actual delivery to your Demat account. No leverage from brokers (must pay full price). Lower brokerage rates at most discount brokers. Long-term capital gains (LTCG) tax at 10% for holdings above 1 year. The most common mode for positional and investing strategies.

Delta — An options Greek measuring how much an option's price changes for a ₹1 move in the underlying. Delta ranges from 0 to 1 for calls and 0 to −1 for puts. ATM options have Delta ≈ 0.5 (price moves ₹0.50 for each ₹1 move in NIFTY). Deep ITM options have Delta approaching 1.0. Deep OTM options have Delta near 0.

Demat Account — Dematerialised account that holds shares in electronic form. Mandatory for trading in NSE/BSE. Shares purchased in delivery (CNC) are credited to the Demat account after T+1 settlement. Most Indian traders have Demat accounts with brokers like Zerodha, Upstox, Angel One, or ICICI Direct.

Divergence — When price and a momentum indicator (RSI, MACD, Stochastic) move in opposite directions. Bullish divergence: price makes a lower low but indicator makes a higher low — selling pressure is weakening. Bearish divergence: price makes a higher high but indicator makes a lower high — buying pressure is weakening. Divergence at key support/resistance levels is a high-probability reversal signal on NSE.

DII (Domestic Institutional Investors) — Indian institutional investors including mutual funds, insurance companies, and pension funds. DII flows partially offset FII selling during market corrections — they are often contrarian buyers when FIIs sell. DII buy/sell data is published daily by NSE and is a key metric for understanding institutional market direction.

Distribution — The phase in the smart money cycle where institutions sell their accumulated positions into retail buying demand. Distribution zones are identified by high volume, wide price ranges, and inability to make new highs despite multiple attempts. The top of every major NSE bull market is a distribution phase.

Doji — A candlestick where Open and Close are virtually equal, creating a cross or plus-sign shape. A Doji signals indecision — neither buyers nor sellers gained control during the session. Doji at key levels (resistance after uptrend, support after downtrend) are significant reversal warnings. Requires confirmation from the following candle before trading.

Double Bottom — A bullish reversal pattern forming two roughly equal lows separated by a peak. Signals strong support at the low level — buyers defended it twice. Pattern is confirmed when price closes above the peak between the two lows (the neckline). Target = neckline + distance from neckline to the bottom. One of the most reliable reversal signals on NSE daily charts.

Double Top — A bearish reversal pattern forming two roughly equal highs separated by a trough. Confirms that resistance is strong — sellers defended the level twice. Confirmed when price closes below the trough (neckline). One of the most common patterns at NSE stock tops, particularly after earnings-driven rallies that fail to sustain new highs.

Drawdown — The peak-to-trough decline in account value during a trading period. Maximum drawdown is the largest such decline historically. Critical for strategy evaluation — a 30% drawdown requires a 42.9% recovery just to break even. Always check maximum drawdown before trading any backtested strategy. Target maximum drawdown below 20–25% for retail traders.