Trading Terminology

Checkout the day trader's dictionary

Algorithm

• A process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer.

Bull Market

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

Bullish

• In trading, “bullish” means your bias is “up” or “up trending”. You believe equities will rise.

Bear Market

• A bear market is one in which investors expect stock prices to fall. This is where short-sellers shine. A generally accepted threshold for a bear market is when the security or equities decline by at least 20%.

Bearish

• In trading, “bearish" means your bias is “down” or “down-trending”. You believe equities will decline.

Broker

• To trade stocks, a trader needs to have an intermediary to connect to a stock exchange, known as a broker. Brokers do not own securities but purchase or sell stocks on behalf of an investor in exchange for a small commission. (Although recently, most brokerages have gone commission-free).

Cash-Secured Put

• Obligation to BUY 100 shares of a stock at the strike price.

• A cash-secured Put (CSP) is an options trading strategy where you sell a put option on a stock or ETF to generate income (and potentially own the stock). You receive a credit for the value of the option’s premium when selling a put option.

• However, you must have enough cash in your brokerage account to cover the cost of purchasing shares if the option is exercised. Remember - one option contract is equivalent to 100 shares of stock.

• Agreeing to buy the stock at a predetermined price (the strike price) if the stock price falls below the strike before expiration.

Selling a Covered Call

• Obligation to SELL 100 shares of a stock at the strike price if the option is exercised before expiration date. It's a strategy used by investors who are willing to potentially sell their stock holdings at a certain price in exchange for receiving premium income upfront.

Go long

• To "go long" means to take a bullish position or to buy shares in a company because you think it will rise in price.

Go short

• To "go short," in simpler terms, means you are betting against a stock. In other words, you believe its price will decline and your short position makes money as the stock loses value.

Equity Curve

• A graphical representation of your account balance over time.

Good till Cancelled Order:

• A GTC order means that your order remains open until it is filled, or you cancel it. Unless either of those two things happens, your order will be executed whenever the stock reaches your price - even if that’s 2-3 weeks down the road.

Limit Order

• An order to buy or sell a stock at a specific price. The order will not be filled unless the stock reaches your desired price or a price that is more favorable.

Market Order

• A market order executes virtually instantaneously by filling at "market price." This can often lead to a bad fill price. Most traders do not recommend using market orders.

Mean Reversion

• The belief that an asset’s price will return to its average despite upward and downward volatility (for example in a range-bound market).

Momentum

• The rate at which price is accelerating compared to a previous period of time (example: “the momentum of the current candle compared to the last 14 candles is X”).

Moving Average

• A stock’s average price-per-share during a specific period of time. For example, common moving averages are the 50-day and 200-day moving averages.

Support and Resistance (S&R)

• Levels or ranges that have been identified on the chart where price has done something noteworthy such as made multiple highs or lows, broken away from a range with momentum, seen a significant amount of trading volume, consistently reacted for some reason, or even more generally where there is an indication that there should be a reaction in the future based on past occurrences.

Support / Resistance Flip (S/R Flip)

• When previous support becomes resistance or previous resistance becomes support.

Swing High

• A peak that is reached before a notable decline in price.

Swing Low

• A low that is 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. Typically a trading style that is longer than day trading.