Talk the Talk Before You Walk the Trade: Mastering Stock Market Lingo
Here is an A-Z list of terminology commonly used in the stock trading community. It’s important for you to master the lingo before you can master the stock market
**Annual Report** – An annual report is a report prepared by a company that’s intended to impress shareholders. It contains tons of information about the company, from its cash flow to its management strategy.
**Ask** – The price that a seller is willing to take for a share of stock; how much it will cost you to buy stock
**Averaging Down** – When an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.
**Back testing** – Applying a strategy to historical data to see if it is valid
**Bear Market** – A period of declining stock value, usually accompanied by investor pessimism. The Vanguard Group defines a bear market as a price decline of 20% or more over at least a two-month period
**Break and Hold (BNH)**- Break and hold typically implies the price breaking an indicated level and bids stepping up to confirm the break.
**Beta** – A measurement of the relationship between the price of a stock and the movement of the whole market. If stock XYZ has a beta of 1.5, that means that for every 1 point move in the market, stock XYZ moves 1.5 points, and vice versa.
**Block Trade** – Buying or selling a large amount of shares; the minimum is 10,000 shares but most block trades are much larger
**Blue Chip**– An established company with a national or international reputation for stability, profitability, and value
**Bull Market** – A period of rising stock value, usually accompanied by investor optimism.
**Build**: Build Represents the particular price level to get long (buy calls or equity), but since many
traders are not familiar with reading the tape (understanding level 2), “build” represents the
entry point when the stock confirms a price twice. For example, Samc posts his watch list with
“AAPL 150 Build.” Before getting in, let the stock break through the 150 level and put a new high
(I.e. 151.50). Then, let it retrace (the bigger the retrace the better). Now, once AAPL breaks
through 151.50, this confirms the breakout and signals an entry. Essentially, entering positions
with this system reduces the chances of a false breakout because it is confirming the breakout
twice. Lastly, if there is no aggressive price action in the first minute or so, use your break even as the Stop Loss (SL) level.
**Bid** – The price that a buyer is willing to pay; how much you will make when you sell
**Bounce** When a stock breaks an up trend often times it will retract or “drop” to a level of support and “Bounce off. Bounces are good for a quick scalp.
**Close** – The price of the stock at the end of the trading day
**Day Trading** – The practice of buying and selling within the same trading day, before the close of the markets on that day, is called day-trading.
**Dividend** – A payment made out of the company’s profits to its shareholders
**Dow Jones Industrial Average** – The leading stock market index in the U.S.; averages the value of 30 component stocks (blue chip stocks)
**Earnings Per Share (EPS)** – The company’s profit divided by the average number of outstanding shares, or shares currently in the market; gives you an idea of the stock’s value
**Exchange** – A place in which different investments are traded. The most well-known exchanges in the United States are the New York Stock Exchange (NYSE) and the Nasdaq.
**Fundamental Analysis **– Examining the financial health and strength of a company to determine its share price, future value, and earnings expectations
**Good ‘Til Cancelled (GTC)** – When your order is valid until you cancel it; placing an order to buy 100 shares at $10 GTC means that is a standing order until you tell the system to kill it
**Gap**: an empty space where there are no contracts or shares traded.
**Gap fill:** A gap “getting filled” is when price action at a later time retraces to the closing price of
the day preceding the gap. Once it's retraced fully, then the gap is considered filled
**Hedge** – Limiting your losses or reducing risk by placing orders to cover two or more possible events in the market
**High, or HOD** – A high or high of day refers to a market milestone in which a stock or index reaches a greater price point than previously. Record highs can signal that a stock or index has never reached the current price point, but there are also time-constrained highs, such as 30-day highs.
**Index** – A benchmark that is used as a reference marker for traders and portfolio managers. A 10 percent return may sound good, but if the market index returned 12 percent, then you didn’t do very well. Examples are the Dow Jones Industrial Average and Standard & Poor’s 500.
**Initial Public Offering (IPO)** – The first time a company’s stock is available to the public on an exchange
**Limit Order** – When you want to buy or sell a stock at a specific price or better
**Liquidity** – Being able to sell or buy shares in a stock without the transaction seriously affecting the stock’s price; also refers to how easy it is to buy or sell shares
**Margin **– Borrowing money to trade for more than what you have in your account
**Margin Call** – When the amount of money you have in your margin account falls below the broker’s minimum margin requirement, or the lowest amount you must have in your account
**Market Capitalization** – One measure of a company’s worth; the price of a share multiplied by the number of shares currently in the market
**Moving Average** – The average of a stock’s price over a period of time, adjusted daily; gives you an idea of a stock’s trend
**Open-high-low-close (OHLC)** – A type of chart that shows you the open, high, low, and close price of a stock for a period of time; a candlestick chart is an OHLC chart
**Portfolio** – A collection of investments owned by an investor makes up his or her portfolio. You can have as few as one stock in a portfolio, but you can also own an infinite amount of stocks or other securities.
**Price-to-Earnings Ratio (P/E Ratio) **– How much a stock costs relative to how much the company earns per share of stock; calculated by dividing the stock price by the company’s earnings per share (EPS)
**Quote** – The bid, ask, and last price for a stock at a given point during the trading day
**Rally** – A rapid increase in the general price level of the market or of the price of a stock is known as a rally.
**Scalp**- Scalping is a trading style that specializes in profiting off of small price changes and making a fast profit off reselling. These are essentially VERY fast Day Trades (as quick as 30 seconds to 5/10 mins in and out of the trade)
**Sector** – A group of stocks that are in the same industry belong to the same sector. An example would be the technology sector, which includes companies like Apple and Microsoft.
**Short Sale** – When a trader borrows shares from a brokerage, sells them, then buys them back when the stock is cheaper, returning them to the broker and pocketing the difference (the profit); used when you think a stock’s price is going to decrease. For example, ABC is at $10. You borrow 100 shares and sell them for $1,000. The price goes down to $9. You buy 100 shares of ABC for $900 and return them to the broker, thus pocketing a $100 profit ($1,000 minus $900)
Spread – The difference between the bid and ask price
**Stock Ticker** – A stock symbol is a one- to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange. Apple’s stock symbol is AAPL, while Walmart’s is WMT.
**Stop Order** – When you want to buy or sell a stock after it reaches a certain price; at that time, the order turns into a market order. Used often to limit losses or to protect profits (also known as a stop-loss order)-
**TP**: Take Profit, closing a position for a profit.
**Trim**: Selling part of your position but not all. Holding a few contracts (1 or 2) but selling the rest to lock in profits and reduce exposure.
**Target (T1, T2, T3):** Each target point represents a point you can take profits at. Each level
signifies an area that you should begin to TP based upon technicals. Though it varies on your
own Risk Management, I tend to take profit on 50-70% of my contracts at T1, then if momentum is still strong, I’ll take profit of half of the remaining contracts at T2, then by T3 or
T4- all profits should be taken here. The idea is to maximize profits and minimize downside.
**Technical Analysis**– Examining a stock’s price through the use of metrics, indicators, past data, and other techniques to identify trends
**Uptick **– When a stock’s price rises
**Volatility** – How much a stock’s price rises or falls over a period of time; a highly-volatile stock will have its price go up and down drastically over a period of time, while a stable stock has low volatility
**Volume** – The amount of shares being traded at a given point in time; this gives you an idea of how much interest there is in the stock
**Yield** – The percentage of a stock’s price that is paid out in a dividend; For example, a stock that is worth $50 per share and pays out a dividend of $5 per quarter has a quarterly yield of 10%
**0DTE:** Zero Days Till Expiration, these are highly volatile contracts that are scalps