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Trading Terminology

  • ADRs: American Depository Receipts for foreign companies that trade in the US.
  • Ask: The price sellers are looking to get for their shares.
  • Authorized Shares: The total number of shares that a company can trade, always bigger than the public float.
  • Averaging Down: When investors buy more of a stock as the price goes down, resulting in a decrease in the average price at they purchased the stock.
  • Bear Market: A market condition where investors expect stock prices to fall. Short sellers tend to benefit from this.
  • Bearish: Refers to the bias that the market is trending down.
  • Beta: A measurement of the relationship between the price of a stock and the movement of the whole market.
  • Bias: A prejudice in favor of or against one thing. In trading, a bias that doesn't agree with the trend is dangerous.
  • Bid: The price a buyer is willing to pay for a stock.
  • Bid-Ask Spread: The difference between the buying price and the selling price of a stock, which must be resolved before a transaction can take place.
  • Blue Chip Stocks: Large, industry-leading companies that offer stable dividend payments.
  • Broker: A person who buys or sells an investment for a fee.
  • Brokerage account: An account that allows an individual to buy and sell securities.
  • Bull Market: A market condition where stock prices are expected to rise.
  • Bullish: Refers to the bias that the market is trending up.
  • Buy: To take a position or purchase shares in a company.
  • Capitalization: Market capitalization refers to what the market thinks a company's value is.
  • Chop: Range-bound price action that can cause trend traders to get "chopped up" or "whipsawed."
  • Confluence: A situation in which two or more things come together, such as two buy or sell signals happening at the same time.
  • Curve-fitting: Fitting a strategy to the data at hand for the best possible outcome, resulting in an "overfit strategy" that doesn't work outside of the single example it was built on.
  • Day Order: An order that is only good for the day when it's placed.
  • Day Trading: The practice of buying and selling within the same trading day.
  • Dividend: A portion of a company's earnings paid to shareholders on a quarterly or annual basis.
  • Dogs of the Dow: Dow Jones stocks that pay dividends, a traditional choice for long-term investors.
  • Drawdown: The amount of a portfolio, fund, or position lost from one high point to the following low point.
  • Equity Curve: A graphical representation of an account balance over time.
  • ETF: Exchange-traded funds that track an index.
  • Exchange: A place in which different investments are traded.
  • Execution: When an order to buy or sell has been completed.
  • Forex: Trading different currencies.
  • Fundamentals: Refers to a company's issuance, product launch, earnings, or impact of new regulations.
  • Going Long: Betting that the company's stock will increase in price.
  • Good till canceled order (GTC): An order that stands until it is canceled and will be executed whenever the stock reaches the desired price.
  • Hedge Funds/ Mutual Funds: Two different types of investment accounts that invest in multiple stocks.
  • Indices: Statistical measures of the stock market or a portion of it.
  • IPO: An initial public offering that occurs when a private company becomes publicly traded.
  • Limit Order: An instruction to only execute a trade at or under a purchase price or at or above a sale price.
  • Line of Best Fit: A trendline fitted to price action, which can lead to subjectively drawn trend lines that deviate from standard rulesets.
  • Liquidity: how easily you can get into and out of a stock.
  • Margin: a margin account lets you borrow money from a broker to purchase an investment. The difference between the amount of the loan and the price of the securities is called the margin.
  • Market Order: provides instruction to execute a transaction at the present or market price. Avoid using market orders.
  • Mean Reversion: the belief that an asset’s price will return to its average despite upward and downward volatility.
  • Momentum: the rate at which price is accelerating compared to a previous period of time.
  • Moving Average: a stock’s average price-per-share during a specific period of time.
  • Order types: Order Block and Pennant.
  • Portfolio: a collection of investments owned by an investor.
  • Position Sizing: the amount of trading capital committed to a single trade.
  • Primary & secondary market: the primary market is where securities are created, while the secondary market is where they are traded among investors.
  • Probability: the likelihood that something will occur.
  • Public Float: the number of shares that can actually trade, once shares that insiders control are subtracted.
  • Rally: a rapid increase in the general price level of the market or of the price of an individual stock.
  • Range: a place on the chart where price action has consolidated or is consolidating between a swing high and swing low.
  • Range-bound: trading within a range.
  • Resistance: a level or range where price has seen reactions before and is likely to react again.
  • Risk management: the process of limiting your losses to ensure capital preservation.
  • Risk-to-Reward Ratio (R:R): the amount you can lose compared to the amount of possible gain from a single trade.
  • Rule-Based System: a repeatable set of criteria that if followed will result in predictable results.
  • Sector: a group of stocks that are in the same business.
  • Secondary Offering: when a company does another offering in order to sell more stock and raise more money.
  • Sell: getting rid of the shares that you purchased.
  • Shorting: borrowing shares to sell in the hope that you can buy them back at a lower price.
  • Stock splits: when a company increases the number of its outstanding shares by issuing more shares to its current shareholders.
  • Stock Symbol: a one to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange.
  • Stop Loss: an order that sells an entire position at the best available price, used to limit loss when a trade goes against you.
  • Support: a level or range where price has seen reactions before and is likely to react again.
  • Support / Resistance Flip (S/R Flip): when previous support becomes resistance or previous resistance becomes support.
  • Support and Resistance (S&R): levels or ranges that have been identified on the chart where price has done something noteworthy.
  • Swing High: a peak reached before a notable decline in price.
  • Swing Low: a low reached before a notable increase in price.
  • Swing Trading: a style of trading often referred to as obtaining gains over the course of multiple days, weeks or even months.
  • Systematic: acting according to a fixed plan or system.
  • Technicals: studying price action, Technical Analysis (TA).
  • Theta: the rate at which the price of an option changes over time.
  • Trade Setup: a pre-planned and pre-evaluated trading plan with entry(s), exit(s), stop(s), that are decided before the trade is taken.
  • Trading Capital: the amount of money you have available to trade with.
  • Trading Edge: having an advantage over the rest of the market.
  • Trading Volume: the number of shares being traded each day.
  • Trend: the direction of an asset’s price over a specific time period.
  • Trend Line: a visual representation of the trend by connecting specific price points on a chart with a line. An upper trendline is created by significant highs of price, a lower trendline is created by significant lows of price.
  • Trend Trading: a strategy of going long in an uptrend, short in a downtrend, and being flat when there is no trend.
  • Volatility: the process of measuring how much price is moving. It is simply how fast a stock moves up and down.
  • Win Rate: the rate of wins to losses when trading.
  • Quote: information of a stock’s latest trading price, sometimes delayed by 20 minutes unless you are using an actual broker trading platform.
  • Yield: a measure of the return on an investment received from the payment of a dividend.