Trading Terms
Just as with any other professional discipline, Trading has its fair share of lingo! As a quick reference, we’ve compiled a set of what we believe are the most important trading terms every Day Trader must know.
| Term | Definition |
|---|---|
| After Hours Trading | Trading can still occur electronically outside of normal market hours, but usually does so with a relatively low volume of transactions. This is done through Electronic Communication Networks (ECN). |
| Ask Price | The Ask Price is the price at which the trader offers to sell the shares when exiting a position. The trader puts in an order to sell the shares at the Ask Price and once a buyer is available to purchase the shares at that price, the transaction proceeds. |
| Bear or Bearish | A "bear market" refers to a weak market where stock prices are generally falling. To be "bearish" as a trader is to approach a trade with the expectation that the stock will fall -- therefore taking "short" positions to capitalize on the price decline. |
| Beta | Beta is one of the "Greeks" used to measure risk. Beta specifically measures a stock's volatility in relation to the overall market. The market itself has a Beta of 1.0. "High Beta" stocks -- with a Beta over 1.0 -- swing up and down more than the market over time, and so are considered more risky (though may provide higher returns). |
| Bid Price | A Bid Price is the price at which the trader offers to purchase the shares when an order is placed. For example, a trader may "bid" $10 for the shares, and once there is a seller available to provide the shares for that price, the transaction proceeds. Bid Price is the opposite of Ask Price. |
| Blue Chip | A Blue Chip stock is typically a company with a large market cap and a longstanding reputation for success in the business world. |
| Bond | Unlike a stock which is an equity security, a bond is a debt security. When an investor purchases a bond, they are in a sense lending money to the company (or governmental body) at a fixed interest rate for a certain period of time. A typical bond pays interest payments ("coupons") to investor, but not all bonds do this. A "zero-coupon bond" does not pay interest but like a typical bond, the investor receives the face value of the bond at maturity (i.e. the date the principal of the bond debt comes due). The price an investor pays to purchase the the bond is usually less than the face value of the bond, so there are typically two ways to profit from a bond: the interest payments ("coupons") and the difference between the amount paid for the bond and the full face value received when the bond matures. |
| Bull or Bullish | A "bull market" refers to a strong market where stock prices are generally rising. To be "bullish" as a trader is to approach a trade with the expectation that the stock will rise. |
| Capital Gains | Capital Gains is a tax-related term which refers to the gains made by the investor when an asset (like a stock) is sold for more than the amount at which it was originally purchased. The difference between the purchase price and the sales price is the "capital gains", which is taxable at the "capital gains" rate (rather than the tax rate associated with typical "income"). |
| Cash Account | A Cash Account is funded entirely with the trader's cash. Stock trades can take "T+2" (transaction + 2 days) to settle in a cash account, not unlike waiting for a check deposit to clear; options can take "T+1" (transaction + 1 day) to settle. |
| Circuit Breakers | Circuit Breakers are U.S. regulatory mechanisms to temporarily halt trades when triggered by dramatic downward price moves in an effort to curb panic-selling. Although circuit breakers are revised from time to time, they are currently in place with three trigger levels to halt trading: when the S&P 500 index drops 7%, 13% and 20%. |
| Coincident Indicator | Coincident Indicators are statistical measurements that are evaluated in real-time to evaluate the current state of the economy or the market. Well-known coincident indicators used to evaluate the current state of the economy include GDP (Gross Domestic Product) and Personal Income. |
| Covering | Covering is a term used for short selling. In order to close a short position, the trader must "cover" the position by buying the shares they borrowed from the broker. The broker will provide a timeframe within which the cover must happen, and if the trader has not covered their position by the end of that timeframe the broker will typically do this automatically and charge the trader a fee. |
| Crossed Market | A crossed market occurs when the bid price of a particular security is higher than the asking price. |
| Dark Pools | Dark Pools -- also called "the upstairs market", dark liquidity and dark pool liquidity -- refers to trading volume created by large block orders 10k shares or more at a time) executed on private exchanges, primarily by large institutional investors (such as investment banks). Since the information about transactions conducted via these private exchanges is mostly unavailable to the public, traders using strategies that consider the liquidity of the market must be cautious since dark pools represent a potentially significant amount of additional liquidity. There are tools available like FlowAlgo which provide some degree of useful insight into the orders in dark pools. |
| Day Trading | Day Trading, also called "intraday trading", takes place when financial instruments are bought with the intention of selling them before the end of the day. This differs from "swing trading" which involves keeping the shares for a timeframe of one to four days in an effort to capitalize on short-term momentum. Day Trading is subject to special Pattern Day Trader rules (see definition). |
| Derivative | A Derivative is a security with a price which is dependent on one or more underlying assets or a benchmark. Futures contracts, forwards, options and swaps are all derivatives. Derivatives are not traded on exchanges and are commonly used to hedge risk or speculate on price changes in the underlying assets. |
| Divergence | Diverence occurs when the price of a security is moving in the opposite direction of other indicators or data. This usually indicates a weakness in the price trend, which means a reversal may be immanent. |
| Dividend | Dividends are payments voluntarily made by a company to a certain class of shareholders where the company shares a portion of its earnings to reward those shareholders for their investment. Shareholders who are eligible to receive dividend payments are those who hold their shares through the "ex-dividend date" set by the company's Board of Directors. |
| Earnings Per Share | Earnings Per Share (EPS) is a measurement of the company's value. It's calculated by taking the net profit of the company and dividing that figure by the total number of outstanding common shares in the market. A high EPS may indicate a strong value (and thus higher demand for the shares) if investors believe the company's share price doesn't fully reflect the level of profits being generated. |
| Electronic Communication Network (ECN) | An Electronic Communication Network (ECN) is an "alternative trading system" (ATS) as classified by the SEC. ECNs allow investors to trade outside of normal market hours by matching buyers and sellers. Using an ECN provides additional flexibility for traders but at a cost, as the service is offered for a fee; commissions and access fees can be costly. |
| Equity | Equity (Shareholder Equity) is the amount of money that would be returned to a company's sharesholders after all assets are liquidated and all debts paid. It's calculated by subtracting the total liabilities from the total assets as presented on a company's balance sheet. |
| ETF | An ETF (Exchange Traded Fund) is a security that consists of a collection of securities (sometimes belonging to a particular industry sector or index) that trades like a stock on an exchange. An ETF is similar to a Mutual Fund, except that it is traded like an ordinary stock thoughout the day (whereas a Mutual Fund is traded only once a day after the market closes). |
| Ex-Dividend | The Ex-Dividend date is the date before which and until which an investor must hold the security in order to be eligible to receive a dividend (if payout of a dividend is announced by the company's Board of Directors). |
| Fill or Kill (FOK) | A "Fill or Kill" order (FOK) is essentially an "all or nothing" order -- either the entire order will be filled exactly as placed (no partial fills allowed), or not at all. It's used typically for very large trades to ensure the entire position will be excuted at current market prices in the fastest possible time to minimize price disruption. The FOK type of order does not occur very often. |
| Fill Price | This is the price at which the trade is executed with the broker. |
| Float | The "Float" is the supply of outstanding shares available to trade. The share price will be most volatile when supply is limited and demand is high (in this case, share price should increase quickly). |
| Fundamental Analysis (FA) | Fundamental Analysis (FA) is a method for assessing a security's intrinsic value by considering financial and economic factors that can indicate whether a stock is overvalued or undervalued. A trader using FA aims to find stocks whose price is trading above or below the fair market value. The FA approach comprehensively looks at the state of the economy and the strength of the company's industry before also evaluating the company's financial performance (revenue, earnings, growth, return on equity, profit margins and other data available in the company's financial statements). |
| Good Till Cancelled (GTC) | A "Good Till Cancelled" order (GTC) keeps the order open with the brokerage until it is able to be filled at a specified price, or until it is cancelled by the trader. Although GTC orders can help with day-to-day portfolio management, there is a risk the order will execute at an undesirable time, possibly leaving traders with unexpected losses. |
| Hard-to-Borrow | Brokerages keep an internal list of stocks where it has a low inventory of shares available to "borrow" (a process needed for short sale transactions). This is called the "Hard-to-Borrow" list. If the trader intends to short-sell a stock, the transaction may be rejected by the brokerage if the stock is on the Hard-to-Borrow list. While this list is not typically available to traders and is kept as an internal list for the brokerage, the list of "Easy-to-Borrow" stocks is made available to traders. It can be safely assumed that stocks on the "Easy-to-Borrow" list can be sold short without a problem. |
| High Frequency Trading (HFT) | Some very sophisticated traders and institutions use powerful computer systems to automate the execution of trades at high speeds throughout the day, commonly tied to an algorithm which programmatically determines when to buy or sell. |
| Initial Public Offering (IPO) | An IPO occurs when a company sells a fixed number of shares publicly -- on the open market -- to raise money for its growth-oriented business objectives. Almost immediately after the IPO has launched, the initial offering price will change, sometimes dramatically, in response to market excitement and increased trade activity, but will soon "normalize" once the initial hype has calmed. |
| Lagging Indicator | Lagging Indicators are technical measurements that retrospectively evaluate events in the economy or the market. Lagging indicators look back at prior events to confirm a pattern in-progress. Among the most well-known and reliable Lagging Indicators is the unemployment rate (a good indication of the strength of the economy) and the Consumer Price Index or CPI (measuring changes in the inflation rate). |
| Leading Indicator | Leading Indicators are the opposiite of Lagging Indicators. A Leading Indicator points toward possible future events. A good example of a leading indicator is new housing starts. When new housing starts rise, it indicates that builders are optimisitic about the future demand for homes (which can indicate an up-trend in the economy). |
| Level 1 | Level 1 refers to a type of trading screen which displays the best bid-offer-volume quotes in real-time. Level 1 quotes are usually sufficient for long-term investors since the price may change slightly, but day traders may use Level 2 quotes which provide deeper information, such as real-time quotes for each firm or individual providing bids and offers (these are called "Market Makers"). See the definition for Level 2 for more information. |
| Level 2 | Level 2 refers to a type of trading screen which displays the full range of real-time bids and asks/offers and the size of the orders along with the firm or individual (Market Maker) making the bid or ask. In contrast to Level 1 quotes which only provides a single quote, Level 2 provides full insight into all the bids and asks in the market. It's also useful to observe how tightly grouped the prices are. All of this additional information can help the trader gauge the strength of support and resistance around the price. |
| Leverage Rate | Leverage Rate refers to the multiple of cash the brokerage will extend to the trader in the form of a line of credit. U.S. brokerage firms will extend "4x" leverage, meaning a $25k cash deposit will be extended credit of an additional $75k for a total of $100k in buying power (4x $25k). Suretrader provides 6x leverage. |
| Limit Order | A "limit order" essentially allows the trader to declare the highest price at which he/she is willing to buy the stock, or the lowest price at which he/she is willing to sell the stock. This is unlike a "market order" where the price is dictated by the market, and gives the trader more control over the order with less possibilty of unintended results. Compared to the simple "market order", "limit orders" may incur higher commissions from the brokerage firm since there is more work involved in filling the order. |
| Liquidity | Liquidity refers to how easy it is to convert a security into cash with little to no effect on its market price. Cash is considered to the the most liquid asset, since it can be converted into other assets without affecting its intrinsic value. Stocks, or markets, can have varying levels of liquidity at any given time. A stock that has a large float (large number of shares available to trade) and has a high level of interest from traders not interested in selling, is considered highly liquid and will have a relatively small spread between the bid price and the ask price (the "spread"). |
| Long | To trade "long" means to buy shares; to maintain a "long position" means to hold the shares with the expectation that the price will rise. |
| Margin | Margin refers to a brokerage firm's extension of a line of credit to the trader. In addition to providing credit to instantly settle transactions, U.S. brokers will give you 4x leverage on your account deposit. For example, if $50k is deposited, the brokerage will extend an additional $150k in credit for use in trading, giving you $200k in buying power. Using "margin funds" during the day is interest-free, but shares purchased with margin funds and held overnight will be subject to interest fees ("rollover interest" at the "Margin Rate"). |
| Margin Accounts | A Margin Account provides the trader with funds on credit for use in trading. Like with a Cash Account, a Margin Account also settles stock transactions in "T+2" (trasnsaction + 2 days), meaning the trader will need to wait 2 days to receive the funds from their transaction. However, a Margin Account provides the trader with the funds immediately via credit without having to wait for the settlement process to complete, enabling the trader to use those funds for additional trades throughout the day. A Margin Account is governed by an agreement between the brokerage and the trader, and can also provide "leverage" (i.e. extend additional funds on credit to the trader for use in trading). |
| Margin Call | When margin funds are extended (lent) to the trader, at some point they will need to be repaid. The broker will issue a "margin call" to require the trader to repay the debt. |
| Margin Rate | Margin Rate refers to the interest rate the brokerage charges for funds extended to the trader via a line of credit. |
| Market Cap | Market Capitalization (Market Cap) is a measure of a company's size based on the total market value of all the outstanding shares. For example, a company with 200 million shares at a price of $10 per share will have a Market Cap of $2 billion. A company may be classified as micro-cap ($50 million to $300 million), small-cap ($300 million to $2 billion), mid-cap ($2 billion to $10 billion), large-cap ($10 billion to $200 billion), or mega-cap (over $200 billion). |
| Market Makers | Market Makers are individuals or (predominantly) institutional firms that are both buyers and sellers of a stock. A Market Maker posts bid and ask prices for the stock, thus creating the "spread". |
| Market Order | A "market order" is the most basic and simple-to-execute type of order to buy or sell a security. A market order initiates the purchase of a stock at the best asking price, or the sale of a stock at the best bid price. In other words, this type of order is filling the order at a price dictated by the market. It's most suitable for large-float, high-volume securities with small bid-ask price spreads. A market order is not well suited to transactions involving thinly-traded, low-float, low-volume stocks with a relatively wide bid-ask spread, since the market order for these types of transactions may get filled slowly and often at unexpected prices. In this case, a "limit order" is more useful. |
| Market Trend | A Market Trend is found by evaluating the direction of a security or a market over a specific period of time. Success or failure of a trading strategy depends on accurate recognition of the direction of the market (or a particular security in the market). Factors that can influence market trends include governmental action, international transactions, speculation, and supply & demand. |
| Minimum Guaranteed Fill (MGF) | "Minimum Guaranteed Fill" orders (MGF) can apply to both market orders and limit orders, and provide a means of filling smaller orders for a set number of shares at the best posted bid or ask price. MGF is a service provided by market makers to support a marketplace where smaller investors can participate. Each stock has an MGF quantity; to be eligible for an MGF order, the order size must be less than or equal to the declared MGF quantity. |
| Mutual Fund | A mutual fund consists of a pool of funds used for investing in securities. |
| One Cancels Other (OCO) | One Cancels Other (OCO) is a conditional type of order where the execution of one other cancels another. OCO is useful for trading volatile stocks with wide price ranges. |
| Order Sends Order (OSO) | Order Sends Order (OSO) -- also known as One Triggers Other -- is a conditional type of order where the execution of one order triggers the execution of another. |
| OTC Market | The OTC market (Over-the-Counter) refers to the means of trading securities via a broker-dealer network rather than through a formal stock exchange (like NYSE or NASDAQ). The OTC market is considered high-risk. |
| Overnight Leverage | Many brokerage firms reduce the amount of leverage they provide for positions held overnight to 2x. |
| Partial Fill | If the conditions of a limit order are not maintained during the period of time the order is left open, the order may be only partially filled. |
| Pattern Day Trader Rule | The "Pattern Day Trader Rule" (PDT) is triggered when a trader makes 3 or more day trades in a 5 day period, and requires that a minimum balance of $25,000 USD be maintained in the trading account. Workarounds to this rule involve opening multiple accounts with brokerages and cycling through them when executing trades to avoid exceeding the 3-trade limit within a 5-day period. Also see "Prop Firm" (below) as another workaround. |
| Penny Stocks | Stocks trading below $5 per share are considered "Penny Stocks". |
| Price Average | Price Average is the average price paid for all shares over the course of a trade. For example, if you purchased 100 shares at $10 and an additional 100 shares at $12, the Price Average would be $11 per share. |
| Price Target | A price target is a projected future price, determined by an analyst using any number of factors. The price target can vary depending on the methods used to evaluate the security. An analyst's price target represents what the analyst considers to be the fair valuation. |
| Professional Day Trader | Very simply, a "Professional" Day Trader makes a living day trading financial instruments. It's not necessary to be licensed to be considered a "professional" day trader as long as you're trading your own money. However, some professionals trade other peoples' money and therefore are required to be licensed with the Series 6, 7, 63, 65, or 66. When a trading account is opened with a brokerage, you must declare whether you are a licensed professional trader (as opposed to unlicensed). |
| Profit/Loss Ratio | Also known as the "Profit Factor", the Profit/Loss Ratio reports the performance of your trading strategy by telling you how many dollars you will win for every dollar you lose. It's calculated by taking the strategy's average gross profit on winning trades divided by the strategy's total loss on losing trades. A Profit/Loss ratio of 1.5 or higher is considered good, but of course, the higher the ratio the better. |
| Pump and Dump | Pump and Dump is an illegal scheme where misleading, exaggerated or outright false statements are made public in an effort to boost the price of a stock (pump), at which point the perpetrators sell their stock (dump). |
| Recession | A recession is typically defined by two consecutive quarters of economic decline, as seen by a drop in real GDP (Gross Domestic Product), a rise in unemployment, a drop in industrial production, and a decline in retail sales. |
| Regulation T | Regulation T (or Reg T) was formulated by the Federal Reserve Board to provide rules for brokerage firms when extending loans to investors for use in trading (buying "on margin"). Investors that apply for a loan from their broker to purchase securities can borrow no more than 50% of the purchase price and must pay the remaining balance in cash. |
| Relative Volume | Relative Volume shows the volume of a stock (over a period of time) compared to its average volume (for the same time period). This gives a good indication of the level of interest in the stock, and thus, the likelihood of price movement. |
| Resistance | Resistance refers to the price level a security has difficulty rising above, indicating that the security can be sold without concerns that its price is likely to continue to rise. |
| Retirement Accounts | Most brokerage firms will allow funds from a 401k or IRA to be used for trading, but with restrictions: (1) Shorting is not permitted with the funds, (2) A Margin Account established with the funds will cover immediate transaction settlement but won't provide "leverage" funds, (3) profits (which are tax free) cannot be accessed until retirement age without penalty. |
| Return on Investment (ROI) | Return on Investment (ROI) is a popular metric to determine the profitability of an investment. It's calculated by taking the difference between the current value of the investment and the cost of the investment and dividing that figure by the cost of the investment. Naturally, a positive ROI is desirable while a negative ROI is not. But be careful when comparing ROIs between investments, since the ROI metric does not consider the timeframe during which the investment took place. For example, an ROI of 50% over a 2 year period for "Investment A" is less desirable than a 50% ROI over a 1 year period for "Investment B", since Investment A took twice as much time to reach the same profitability as Investment B. For this reason, ROI is often evaluated alongside profitability metrics that consider the timeframe, like Real Rate of Return which takes into account inflation and the value of money over time. |
| Scale In | To "scale in" is a trading strategy where the trader purchases shares incrementally in multiple orders as the price dips below the target price and continues to buy until the price stops falling. Ideally, this reduces the average purchase price of the total block of shares. For example, if the objective is to buy 100 shares at a target price of $10 per share, rather than buying all 100 shares when the price dips to the target price, the trader might buy 50 shares at $10 per share and wait for the price to drop further to purchase more at a lower price. If the share price then dropped to $8 per share and the trader purchased the remaining 50 shares, then the average purchase price is $9 rather than $10 as it would be if all 100 shares were purchased at the target price of $10. |
| Scale Out | To "scale out" is the opposite of "scale in". "Scaling out" is a trading strategy where the trader sells shares in portions over multiple sell orders as the price rises. The objective is to maximize profits by taking some profit initially, then waiting for the share price to continue rising to take advantage of the additional profit that can be gained by selling more of the block of shares at an even higher price. |
| Secondary Offering | IPOs are not the only way companies raise money from the open market for operations, acquisitions, product development etc. Occasionally one or more Secondary Offering(s) will raise additional money by selling newly -issued shares on the market. The opposite of a Share Buy Back, a Secondary Offering will increase the supply of shares outstanding (the "Float") and thus will have the effect of lowering share price unless demand for those shares increases considerably. |
| Share Buy Back | Companies will occasionally buy back some or all of the shares they issued in an IPO. This reduces the number of shares outstanding and available to trade (the "Float"), and will typically result in an increase in the price of the shares still outstanding. |
| Shares Outstanding | Shares outstanding refers to a company's total number of shares currently being held by all shareholders, including shares held by institutional investors and restricted shares held by the company's officers or insiders. |
| Short | To trade "short" is the opposite of a "long" trade in many respects. First, the objective of a "short position" is to capitalize on price declines; in a "long position" the objective is to gain from price increases. in a "long" trade, the trader purchases the shares; in a "short" trade, the trader is actually "borrowing" the shares "on margin" through the broker. Here, the "seller" is the broker, which is obligated to buy back the shares at the price at which they were originally sold. First the trader "borrows" the shares at the original price. Then, when the price drops below the purchase price, the trader will close out the short position by actually buying the shares at the lower price, immediately obligating the broker to buy them back at the original price. The trader pockets the difference. |
| Short Interest | Short Interest measures the percentage of the shares of a particular stock that traders are holding in a short position. If 30% or more of the shares are being held in a short position by traders, there is a possibility the trader will encounter a "short squeeze" situation (see definition). |
| Short Selling Restrictions | In 2010 the SEC adopted Rule 201 ("alternative uptick rule") designed to restrict short selling from further driving down the price of a stock after it has dropped more than 10% from its previous day's close. Once triggered from such a price drop, the rule prevents traders from entering a short position until long-position shareholders have sold their shares, i.e. when the price has exceeded the current national best bid. |
| Short Squeeze | A "short squeeze" situation can occur when a stock's price is increasing while a large percentage of traders are holding short positions (a high "short interest"). In this scenario, short traders will be eagerly covering their position by buying their shorted shares, which in-turn can SIGNIFICANTLY drive prices up further. When this happens, it's important that short traders close their positions immediately as the rising price can translate into considerable losses for the short trader. |
| Slippage | During the delay between when the order to buy or sell a security is initiated and the time the order is filled, the price of the security may change. This change is called "slippage". Market prices can change quickly, up or down, so slippage can be "positive" or "negative". Negative slippage can be prevented by using a limit order, but there is the risk the trade will not be executed if the defined limit is exceeded. This can happen when there is high trading activity and prices are changing quickly. |
| Spread | The "spread" (also called buy-ask or buy-sell) is the difference between the bid price (the price being offered to buy the stock) and the ask price (the price being offered to sell the stock). When the spread is close, the stock is considered to be relatively liquid (especially when there is considerable volume of trades), i.e. easily bought and sold without much effect on the price. When the spread is wide, this usually indicates a relatively illiquid stock (particularly when there is low volume). |
| Stock Market Hours | This is surprisingly not so easily defined! In the US, the market is open from 9:30am to 4pm EST Monday through Friday. Exceptions occur on holidays, where the market is closed for the entire day, or in some "early closure days" at 1pm or 2pm. In certain circumstances, the market may close early on days before or after a major holiday -- for example, closing at 1pm on Christmas Eve if the day falls on a weekday, or closing at 1pm on July 3rd if July 4th is a weekday. You're encouraged to conduct a Google search to find a complete calendar of closing times for the market, as these times will vary from year to year. Note there is also afterhours trading (see definition). |
| Stock Splits | A stock split occurs when the company converts a single share into multiple shares, usually for the purpose of bringing the share price within the buying range of retail investors. For example, if a share has a price of $100 and a 5:1 split occurs, that single share will convert into 5 shares, each priced at $20. A split may occur in reverse as well, where multiple shares are converted into a single share. An example of a reverse split would be where five $20 shares are converted into a single $100 share. |
| Stop Order | A "stop order" (or "stop") is a type of order that occurs when the price moves past a predefined "entry" (buy) or "exit" (sell) point. It's useful for locking-in a profit or limiting a loss. Once the entry or exit point is exceeded, a market order is automatically placed to execute the trade. |
| Stop-Limit Order | A "stop-limit order" combines a stop with a limit order to minimize "slippage". It also gives the trader control over when the order should be executed, but like a limit order, it's not guaranteed to be filled unless the conditions of the order align with the market. To execute a stop-limit order, the trader sets a timeframe within which the order must execute, along with two price points: (1) the stop price (the price at which the limit order is triggered) and (2) the limit order price -- the highest price at which to buy, or the lowest price at which the sell. |
| Support | Support refers to the price level a security has difficulty falling below, indicating that the demand is strong enough to prevent the price from dropping further. |
| Swing Trading | Like Day Trading, Swing Trading also intends to capitalize on short-term trades. Unlike Day Trading in which all buying and selling occurs in the same day (intraday trading), swing trades involve holding the shares purchased overnight for 1 or more nights, with the intention of selling them in 1 to 4 days typically. |
| Technical Analysis (TA) | Technical Analysis (TA) is a method for identifying trading opportunities by applying various statistical assessments against historical price and volume data, and by using charts to identify trends and patterns that indicate good trade conditions. Technical Analysis, rather than Fundamental Analysis, is more commonly used for identifying short-term opportunities. |
| Thick Market | A "thick market" for a stock means the market for the stock is crowded with traders. Unlike stocks with a "thin market", these stocks typically have large floats (number of shares available to trade) and they trade slowly, making them less attractive to day traders. However, these stocks are attractive to long-term traders and those looking for lower risk investments. |
| Thin Market | A "thin market" for a stock means the stock is not being actively traded. These stocks may attractive to day traders as they can have a low float (low number of shares available to trade), which means that if demand were to increase, prices will move significantly and do so quickly. |
| Tick Index | The Tick Index compares the number of stocks on the New York Stock Exchange (NYSE) with rising prices against the number of NYSE stocks with falling prices. Although it is a short-term indicator and only relevant for a few minutes at a time, a positive tick index suggests overall market optimism, whereas a negative tick index indicates the opposite. As a short-term indicator, it's most useful for Day Traders rather than long-term investors. A tick index reading above 1,000 or below -1,000 is considered extreme and can mean a security is overbought (above 1,000) or oversold (below -1,000). |
| Time In Force | Time In Force is a special instruction when placing a trade order which defines the time period during which the order must either be executed or expire. |
| Trailing Stop | A "trailing stop" is a type of order where the stop price is not fixed but instead is set as a percentage above/below the market price and moves as the price moves. It can be effectively used in combination with a stop-loss order to enhance the effectiveness of the stop-loss order. |
| Volatility | Volatility is a measurement of how much the price of a security, index or derivative fluxuates over time. A security that exhibits big swings up or down is considered volatile (and risky). A market that rises or falls more than one percent over a period of time is considered volatile. While there are various ways to measure volatility -- such as Beta for a stock or the VIX (Volatility Index) for the market -- it's most commonly represented by the standard deviation derived over a period of time. |
| Volume | Volume refers to the number of shares being traded, giving insight into the level of interest in a security. Day traders will check the current and relative prior volume to gauge the level of interest. |