Stock Market Terms & Trading Terminology

 

Stock Market Terms & Trading Terminology

Do not get lost in the stock market terminologies. Learn these terms before you begin reading about indicators and chart patterns

To fully get to grips with learning the stock market, you first need to understand all the different terminology that is often used. Use our stock market terminology page as a guide that you can consult for a glossary of terms and lingo that will help you understand the markets better. If the terminology page still doesn't help with a query or problem that you have then please feel free to contact us for help you're stock market education is important to us.

Understand Stock Market Lingo Used in Everyday Trading

Advance/Decline Line - (A/D)

Measures the net difference between advancing issues and declining issues and adds it to previous results. This gives an accumulative value which is then plotted on a chart.

Ask

The lowest price being offered by a seller of a security.

Ask size

The total amount being offered at the current ask to sell a particular security.

At the Money

When the option's strike price is the same as the price of the underlying security.

Averages and Indices

Measures the combined performance of a basket of stocks such as SP-500 and Dow Jones.

Averaging Down

Buying a security as it drops resulting in a lower average purchase price.

Bear Market

A market, often measured by the averages, which is in a downtrend e.g. falling stocks.

Bear Trap

Price breaks support and creates sell signals. The price then rallies and cancels the sell signal thereby catching all the short sellers on the wrong side.

Bid

The highest price being offered by a buyer of a security.

Bid Size

The total amount being offered at the current bid to buy a particular security.

Black Box

A computer program designed to trade the market.

Blue Chip Stock

A stock that is publicly well known and believed to be financially strong.

Breakaway Gap

A gap that is not filled immediately as price continues to move in the direction of the gap.

Bull Market

A market, often measured by the averages, which in an uptrend e.g. rising stocks.

Buying Into Weakness

Buying a stock while it drops instead of buying after it reaches the low point of the move.

Call option

A call option gives the owner the right, but not the obligation, to buy a security at a predetermined price within a specific time. A call option is bought for leverage or for limiting your risk.

Candlestick

A very old form of Japanese charting. A line (shadow/wick) shows the high/low and a wider body shows opening and closing price.

Chart Analysis

An analysis of a security using price action on charts such as highs and lows and support/resistance. Used for the prediction of the direction of the next move.

Choppy Market

A market where price is moving rapidly up and down without any real trend.

Commission

The fee the broker charges for buying or selling a security on the client behalf.

Commodity

Raw materials such as gold, silver, oil or pork bellies.

Correction

A decline after an advance where the beginning of the advance is not penetrated.

Day Order

An order that is valid for the day and if unfilled by market close it will be cancelled.

Day Trading

Trading where all positions are cleared before closing bell.

Divergence

When a trendline on an indicator points in opposite direction then trendline is on price. Often seen when price makes a higher high and indicator makes a lower high the trendline above the price will point up and the trendline on the indicator will point down.

Dow Jones Industrial Average

A price weighted index of 30 blue chip stocks chosen by Dow Jones & Co. The higher price the stocks have, the bigger influence it has on the index.

Dow Theory

A very popular and old trading signal which is given when Dow industrials and Dow Transportation takes out prior swing high/low.

Elliot Wave Theory

A strategy developed by Ralph Nelson Elliot which is based on wave counting. He believed price moves in repetitive waves.

Equities

Common or preferred stocks, which represent a part in the ownership for a company.

Exchange Traded Funds - ETF

A fund that is designed to follow an index/commodity. Can be traded like a stock.

Exhaustion Gap

A gap that is filled and price then continues in the opposite direction of the gap resulting in a reversal of the trend prior to the gap.

Expiration Date

The date an option expires.

Filters

A set of rules that helps the trader narrow down the amount of trades and only focus on those believe to be quality trades.

Front Month

The closest month of which a future or option expires.

Fundamental Analysis - FA

Analysis of a stock, the market or economy based on news, earnings, forecast etc.

Futures

Contracts to buy or sell securities at the future date. Often commodities or indexes.

Gap

When price opens at another price then previous close.

Good Till Cancel Order - GTC

An order that stays open till either filled or cancelled however there is a time limit of 90 days.

Good Till Date Order - GTD

An order that stays open until either filled or until the specified date where it will automatically be cancelled.

Hedge

A way to protect your investment. Done by making a transaction that offsets the existing investment.

Hedge Fund

A fund which invests in any available instrument but more aggressively than a mutual fund as the hedge fund is exempt from many rules so it can both short sell, use leverage etc.

HOD

Abbreviation of High of Day. The highest price where the security traded at that day.

Index

Measures the combined performance of a basket of stocks. Such as SP-500 and Dow Jones.

Indicator

A mathematical formula used to predict the direction of a security. Often a derivative of price, but also of volume.

Initial Public Offering - IPO

When a company first issue its stock to the public.

Inside Information

Non-public information in a business that could move price of a stock, should that information made public.

Insider

Anyone in a company who are presumed to have the opportunity to gather inside information concerning that company. Anyone owning more than 10% of the voting stocks of that company is also considered an insider.

Insider Trading

·         Legal: When insiders trade the stock of their company and report these trades to the appropriate securities.

·         Illegal: Insiders who trade based on inside information.

Investment Advisor

An employee of an investment dealer who advice clients of investment opportunities and/or executes trades for the clients.

Island Reversal

When price gaps up/down and then trades above/below the gap but then the gap goes down/up leaving all the price action unconnected like an island.

Laggard

A stock or sector that underperforms the market.

Leader

A stock or sector that outperforms the market.

Liabilities

A company or a person's debt. Current liabilities are debt which is due for payment within one year. Long term liabilities are debt that is due for payment after one year.

Limit Order

An order to buy or sell a security at a fixed price. Fill will always be at the limit or better.

Line Chart

A chart that is draw only using the closing price resulting in a line.

Liquidity

The possibility to buy or sell a security in volume without big price fluctuations. A liquid stock is one with a high daily volume.

LOD

Abbreviation of Low of Day. The lowest price where the security traded at that day.

Long

Owning the security.

Margin Account

An account that uses credit from the brokerage firm to buy or sell short securities. The client will be charged interest on the credit. The client will have to deposit a margin amount to get the credit.

Market Capitalization

Also referred to as Market Cap. The total value of a company which is calculated by multiplying total amount of shares with stock price.

Market Maker

A brokerage that's able to have an ask and bid in the market for any given security to be ready and able to trade at the price. If traded the market maker will supply or receive the given security. Market Makers are providing liquidity in the market and are essential for the market to stay efficient.

Market Order

An order to buy or sell at best available price at the current price.

Momentum

Speed of a move in price or volume.

Mutual Fund

A fund which invests in any available instrument, stocks, bonds etc. Mutual fund units can be bought and sold through a brokerage firm.

Nasdaq 100 Index

An index that tracks the 100 biggest stocks on Nasdaq Composite.

Nasdaq Composite Index

A market capitalization weighted index of over 5000 stocks. The bigger market cap on the stock the more influence it has on the index.

Net Change

The difference between the previous closing price and the last traded price.

Net Worth

The sum between a company or person's total assets and total liabilities.

NYSE Composite Index

An index that measures the value of all common stocks on NYSE. Often used as a market average.

Offer

The lowest price being offered by a seller of a security.

OHLC bar chart.

A chart where the OHLC is clearly marked. OHLC stands for Open - High - Low - Close.

Open Interest

Shows the amount of open options or futures currently being held by people/institutions at the end of day.

Open Order

An order that stays in the market/system for more than 1 day.

Option

An option gives the owner the right but not the obligation to buy/sell a security at a predetermined price within a specific time. An option is bought/sold for leverage or for limiting your risk.

Order Sends Order - OSO

When price hits the order/price the broker will automatically place a limit order at a predetermined price.

Overbought

A term used when technical indicators suggest that the price of a security is too high and is bound to fall.

Oversold

A term used when technical indicators suggest that the price of a security is too low and is bound to rise.

Painting the Tape

When a market maker has artificially inflated or deflated price in order to make a security look better or worse than the truth.

Paper Trade

When a trade is not taken with real money but merely "written down" in order to keep a record. A risk free way of testing a trading strategy.

Pattern Day Trader

SEC term for traders who trade (buy and sell) more than 4 times a day in any given stock over a period of 5 days and for whom the same-day trades makes up of more than 6% of their activity for that period.

Penny Stock

A highly speculative stock priced under $1.00 per share.

Point & Figure Chart

A chart consisting of X's and O's and only take price into consideration. When price climbs, a predetermined amount the chart will plot a X and when price drops it will plot an O.

Portfolio

The holdings of investments or open trades by a person or institution.

Price/Earnings Ratio - P/E Ratio

P/E Ratio shows the stock price divided with the company's earnings per share. It makes is easy to compare to other stocks.

Proxy

When a stock follows a sector, index or commodity so close that you can substitute it for the other.

Pull Back

A relative small drop in price in a prevailing uptrend.

Put Option

A put option gives the owner the right but not the obligation to sell a security at a predetermined price within a specific time. A put option is sold for leverage or for limiting your risk.

Range Bound Trading

A strategy where the trader will be looking to trade securities trading in a channel, either sideways or trending channel.

Relative Strength Comparison

A comparison of a security's trend with for example the market or sector to see whether it's underperforming or outperforming.

Resistance

A level where price seems to run into too much supply so price stalls and possibly reverses down.

Reversal

Price suddenly change direction and reverse prior trend.

Risk/Reward

A calculation of the potential loss vs. potential gain in a trade.

Run Away Gap

A gap that is not filled immediately as price continues to move in the direction of the gap.

Russel 2000

An index that tracks 2000 small cap stocks.

S&P 500

An index that list the 500 largest stocks. One of the most popular indexes.

S/R

Abbreviation for support/resistance.

Seat

Membership on a stock exchange. Often mentioned as owning a seat on the exchange. This membership gives certain benefits such as lower commissions.

Sector

A group of stocks that generate revenue from similar areas.

Selling Into Strength

Selling a stock while it is still advancing instead of selling after reaching the high point of the move.

Securities

Proof of ownership of various investment products, stocks, bonds etc.

Securities and Exchange Commission - SEC

The regulatory body for security trades in the United States.

Settlement

When the seller delivers the security to the buyer and buyer pays the seller.

Settlement Date

The date where the settlement has to take place.

Shake Out

An incident where traders/investors are scared out of a position only to see it move in the right direction.

Short Interest

The total amount of stocks sold short by traders; privately or institutions.

Short Selling

Speculating that the security will drop in value by selling a not yet owned security and then looking to buy it back at a lower price. The short seller then returns the borrowed securities.

Sideways Market

A market where price is no longer making higher high/higher low or lower low/lower highs.

Spread

The difference between bid and ask of a security.

Stop Loss

The price that triggers your order (often market order but limit order is used too) for exiting your position.

Strike Price

The price of the underlying security an option owner can buy or sell at.

Support

A level where price seems to run into too much demand so price stalls and possibly reverse up.

Swing Trading

Buying and selling positions for the intention of holding two days or more. Looking for quick gains.

Technical Analysis

An analysis of a security using charts with various indicators plotted. Used for the prediction of the direction of the next move.

Thin Market

An illiquid market where there are few bids and offers. Slippage often occurs in these markets.

Tick

Minimum spread between bid and ask. Can be a cent or a dollar etc.

Ticker Tape

Shows completed trades.

Times & Sales

Shows reasoned trades, price, size and time.

Top Down Approach

Analysis divided up in three steps. First analysis of the overall market, then the sectors and finally the individual stocks.

Trading Session

The time where the exchange is open for trading.

Trailing Stop

A stop loss that is being moved with the trade as price moves. In a long trade the stop would be moved up and in a short trade the stop loss would be moved down. Never move stop against the direction of the trade.

Trend

Price either makes higher highs/higher lows or lower lows/lower highs.

Volatility

A measurement of price fluctuations. Often measured in percentage. When traders talk about increased volatility they are referring to price moving up and down rather fast.

Volume

The amount of shares or futures traded over a specific period of time.

Washout Day

Also known as Flushout Day. When a decline ends with a high volume bar that "washes out" all the sellers. Buyers take over and the stock can climb again.

Whipsaw

When a trading signal is reversed shortly after appearing resulting in a close of the trade.