Trading Terminology

  1. ADRs (American Depository Receipts):

    • ADRs represent shares of foreign companies that trade in the U.S.

    • They allow U.S. investors to invest in foreign companies without directly buying shares on foreign exchanges.

    • ADRs are denominated in U.S. dollars and often represent a specific number of shares of the foreign company.

  2. Ask Price:

    • The ask price is the price at which sellers are willing to sell their shares.

    • When you want to buy a stock, you’ll pay the ask price.

  3. Authorized Shares:

    • The total number of shares that a company is legally allowed to issue.

    • This number is typically larger than the public float, which represents the shares available for trading in the market.

  4. Averaging Down:

    • When investors buy more of a stock as its price decreases.

    • This results in a decrease in the average price at which they purchased the stock.

    • Averaging down can be risky if the stock continues to decline.

  5. Bear Market:

    • A market condition where investors expect stock prices to fall.

    • Short sellers tend to benefit during bear markets.

  6. Bearish:

    • Refers to the bias that the market is trending down.

    • Bearish investors anticipate price declines.

  7. Beta:

    • A measurement of the relationship between the price of a stock and the movement of the overall market (usually represented by an index like the S&P 500).

    • A beta greater than 1 indicates the stock is more volatile than the market, while a beta less than 1 suggests lower volatility.

  8. Bias:

    • A prejudice in favor of or against something.

    • In trading, having a bias that doesn’t align with the trend can be risky.

  9. Bid Price:

    • The price a buyer is willing to pay for a stock.

    • When you want to sell a stock, you’ll receive the bid price.

  10. Bid-Ask Spread:

    • The difference between the buying price (bid) and the selling price (ask) of a stock.

    • Resolving this spread is necessary for a transaction to take place.

  11. Blue Chip Stocks:

    • Large, well-established companies with a history of stable earnings and dividends.

    • Examples include companies like Apple, Microsoft, and Coca-Cola.

  12. Broker:

    • A person or firm that facilitates buying or selling investments for a fee.

    • Brokers execute orders on behalf of clients.

  13. Bull Market:

    • A market condition where stock prices are expected to rise.

    • Bullish investors anticipate upward trends.

  14. Capitalization (Market Cap):

    • Market capitalization refers to what the market believes a company’s value is.

    • It is calculated by multiplying the stock price by the total number of outstanding shares.

  15. Chop:

    • Range-bound price action where stock prices move sideways.

    • Trend traders may struggle during choppy markets.

  16. Confluence:

    • A situation where two or more factors align, such as multiple buy or sell signals occurring simultaneously.

    • Confluence can strengthen the validity of a trading decision.

  17. Curve-Fitting:

    • Fitting a trading strategy too closely to historical data.

    • Overfit strategies may not perform well in real-world conditions.

  18. Day Order:

    • An order that is valid only for the day it is placed.

    • If not executed, it expires at the end of the trading day.

  19. Day Trading:

    • The practice of buying and selling within the same trading day.

    • Day traders aim to profit from short-term price movements.

    • Requires close monitoring of the market and quick decision-making.

  20. Dividend:

    • A portion of a company’s earnings paid to shareholders.

    • Typically distributed on a quarterly or annual basis.

    • Dividends provide income to investors.

  21. Dogs of the Dow:

    • Refers to Dow Jones stocks that pay dividends.

    • Investors often consider these stocks as a traditional choice for long-term investment.

    • The strategy involves selecting the highest-yielding Dow stocks.

  22. Drawdown:

    • The amount by which a portfolio, fund, or position declines from its peak value to a subsequent low point.

    • Drawdowns are common during market downturns.

  23. Equity Curve:

    • A graphical representation of an account balance over time.

    • Shows the performance of an investment or trading strategy.

    • Helps assess risk and track progress.

  24. ETF (Exchange-Traded Fund):

    • An investment fund that trades on stock exchanges.

    • ETFs track an index, commodity, or basket of assets.

    • Provides diversification and liquidity.

  25. Exchange:

    • A marketplace where different financial instruments (stocks, bonds, commodities) are bought and sold.

    • Examples include the New York Stock Exchange (NYSE) and NASDAQ.

  26. Execution:

    • When an order to buy or sell is completed.

    • Execution can occur at the market price or a specified limit price.

  27. Forex (Foreign Exchange):

    • Trading different currencies in the global foreign exchange market.

    • Forex traders speculate on currency exchange rate movements.

  28. Fundamentals:

    • Refers to a company’s financial health, earnings, product launches, and impact of regulations.

    • Fundamental analysis helps evaluate investment opportunities.

  29. Going Long:

    • Betting that a company’s stock price will increase.

    • Long positions involve buying shares with the expectation of future gains.

  30. Good Till Canceled Order (GTC):

    • An order that remains active until canceled by the investor.

    • It will be executed whenever the stock reaches the desired price.

  31. Hedge Funds / Mutual Funds:

    • Two different types of investment accounts that pool money from multiple investors.

    • Hedge funds often use complex strategies, while mutual funds are more straightforward.

  32. Indices:

    • Statistical measures of the stock market or a specific segment of it.

    • Examples include the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite.

  33. IPO (Initial Public Offering):

    • Occurs when a private company becomes publicly traded by issuing shares to the public.

    • Investors can participate in IPOs to buy shares at the offering price.

  34. Limit Order:

    • An instruction to execute a trade only at or under a specified purchase price (buy limit) or at or above a sale price (sell limit).

    • Helps control entry and exit points.

  35. Line of Best Fit:

    • A trendline fitted to price action data.

    • Used in technical analysis to identify trends and potential reversals.

  36. Liquidity:

    • Refers to how easily you can buy or sell an asset without significantly affecting its price.

    • High liquidity means ample trading volume.

  37. Margin:

    • A margin account allows borrowing money from a broker to purchase investments.

    • The difference between the loan amount and the securities’ price is the margin.

  38. Market Order:

    • An instruction to execute a transaction at the present market price.

    • Be cautious with market orders, as they may not always fill at the expected price.

  39. Mean Reversion:

    • The belief that an asset’s price will return to its average over time.

    • Despite short-term volatility, mean reversion suggests a tendency toward equilibrium.

  40. Momentum:

    • The rate at which a stock’s price accelerates compared to a previous period.

    • Momentum traders seek stocks with strong upward or downward trends.

  41. Moving Average:

    • A stock’s average price per share over a specific time period.

    • Moving averages help identify trends and potential reversals.

  42. Order Types:

    • Order Block: A specific price level where a large number of buy or sell orders are clustered.

    • Pennant: A technical chart pattern that indicates a brief consolidation before a continuation of the previous trend.

  43. Portfolio:

    • A collection of investments owned by an investor.

    • Diversifying a portfolio helps manage risk.

  44. Position Sizing:

    • Determining the amount of trading capital allocated to a single trade.

    • Proper position sizing is crucial for risk management.

  45. Primary & Secondary Market:

    • Primary Market: Where securities (stocks, bonds) are created and issued (e.g., initial public offerings).

    • Secondary Market: Where existing securities are traded among investors (e.g., stock exchanges).

  46. Probability:

    • The likelihood that a specific event or outcome will occur.

    • Traders use probabilities to assess risk and make informed decisions.

  47. Public Float:

    • The number of shares available for trading once shares held by insiders are excluded.

    • Public float affects liquidity and stock price movements.

  48. Rally:

    • A rapid increase in the general price level of the market or an individual stock.

    • Bullish rallies can lead to significant gains.

  49. Range:

    • A price area on a chart where price action consolidates between a swing high and swing low.

    • Range-bound markets lack clear trends.

  50. Resistance:

    • A level or price range where a stock has seen reactions before and is likely to face selling pressure.

    • Resistance levels can act as barriers to further price increases.

  51. Risk Management:

    • The process of limiting losses to protect capital.

    • Techniques include setting stop-loss orders and proper position sizing.

  52. Risk-to-Reward Ratio (R:R):

    • Compares the potential loss to the possible gain from a single trade.

    • Traders aim for favorable R:R ratios (e.g., 2:1 or higher).

  53. Rule-Based System:

    • A repeatable set of criteria that, if followed, leads to predictable results.

    • Rule-based trading helps reduce emotional decision-making.

  54. Sector:

    • A group of stocks in the same industry or business.

    • Examples include technology, healthcare, and energy sectors.

  55. Secondary Offering:

    • When a company issues additional shares to raise more capital.

    • Existing shareholders may sell their shares in secondary offerings.

  56. Shorting:

    • Borrowing shares to sell, with the intention of buying them back at a lower price.

    • Short sellers profit from falling stock prices.

  57. Stock Splits:

    • When a company increases its outstanding shares by issuing more shares to current shareholders.

    • Stock splits adjust share prices while maintaining ownership proportions.

  58. Stock Symbol:

    • A one to four-character alphabetic root symbol representing a publicly traded company on a stock exchange.

    • Examples: AAPL (Apple), MSFT (Microsoft).

  59. Stop Loss:

    • An order that sells an entire position at the best available price.

    • Used to limit losses when a stock’s price moves against the trader.

  60. Support:

    • A level or price range where price has previously seen reactions (bounces) and is likely to react again.

    • Support acts as a floor, preventing prices from falling further.

  61. Support / Resistance Flip (S/R Flip):

    • Occurs when previous support levels become resistance, or vice versa.

    • A level that was once a floor (support) now acts as a ceiling (resistance), or vice versa.

  62. Swing High:

    • A peak reached before a notable decline in price.

    • Swing highs often indicate potential trend reversals.

  63. Swing Low:

    • A low reached before a notable increase in price.

    • Swing lows signal potential trend changes.

  64. Swing Trading:

    • A trading style focused on obtaining gains over multiple days, weeks, or months.

    • Swing traders aim to capture short- to medium-term price movements.

  65. Systematic:

    • Acting according to a fixed plan or trading system.

    • Systematic traders follow predefined rules and strategies.

  66. Technicals:

    • Studying price action and using technical analysis (TA) to make trading decisions.

    • Technicals involve analyzing charts, patterns, and indicators.

  67. Theta:

    • The rate at which the price of an option changes over time.

    • Theta measures the impact of time decay on option prices.

  68. Trade Setup:

    • A pre-planned trading plan with entry, exit, and stop-loss levels.

    • Trade setups help traders make informed decisions.

  69. Trading Capital:

    • The amount of money available for trading.

    • Properly managing trading capital is crucial for risk management.

  70. Trading Edge:

    • Having an advantage over other market participants.

    • Traders seek edges through analysis, strategies, or information.

  71. Trading Volume:

    • The number of shares traded in a given period (usually a day).

    • High volume often indicates significant market interest.

  72. Trend:

    • The direction of an asset’s price over a specific time period.

    • Trends can be upward (bullish), downward (bearish), or sideways.

  73. Trend Line:

    • A visual representation of a trend by connecting specific price points on a chart with a line.

    • An upper trendline connects significant highs, while a lower trendline connects significant lows.

  74. Trend Trading:

    • A strategy of going long in an uptrend, short in a downtrend, and remaining flat when there is no clear trend.

    • Trend traders follow the prevailing market direction.

  75. Volatility:

    • The measure of how much price is moving.

    • Volatile stocks experience rapid price changes.

  76. Win Rate:

    • The ratio of winning trades to losing trades.

    • Traders aim for a high win rate, but it must be balanced with risk-to-reward ratios.

  77. Quote:

    • Information about a stock’s latest trading price.

    • Quotes may be delayed by 20 minutes unless accessed through a real-time broker platform.

  78. Yield:

    • A measure of the return on an investment received from dividends or interest payments.

    • Yield reflects income generated by an investment.

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