Stock Terms

over-the-counter (OTC) market

Most day traders do not trade in the OTC market, it's a specific market used to trade in such items as currencies, bond and interest rates.

Float

The number of shares in a particular company available for trading, for example, June 2020, Apple Inc. had 4.33 billion shares available

Trade plan

The plan you develop before you actually enter a trade, it takes hard work to develop a solid trade plan and to then practice sufficient self-discipline to stick with the plan

Blue Chip Stocks

- The stocks behind large, industry-leading companies. - Blue chip stocks offer a stable record of significant dividend payments and have a reputation of sound fiscal management.

Bullish Candlestick

A candlestick with a large body toward the upside, it tells you that the buyers are in control of the price and will likely keep pushing the price up

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.

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 since you could have just invested in an index fund and saved time by not trading frequently. - Examples are the Dow Jones Industrial Average and Standard & Poor's 500.

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. - Some traders prefer to trade in a specific sector, such as energy, because they know the industry well and can better predict stock price fluctuations.

High

- A high 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.

Margin

- A margin account lets a person borrow money (take out a loan, essentially) from a broker to purchase an investment. - The difference between the amount of the loan and the price of the securities is called the margin. - Trading on margin can be dangerous because, if you're wrong about the direction in which the stock will go, you can lose significant cash.

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.

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.

Dividend

- A portion of a company's earnings that is paid to shareholders, or people that own that company's stock, on a quarterly or annual basis. - Not all companies pay dividends. For instance, if you trade penny stocks, you're likely not after dividends.

Rally

- A rapid increase in the general price level of the market or of the price of a stock is known as a rally. - Depending on the overall environment, it might be called a bull rally or a bear rally. - In a bear market, upward trends of as little as 10 percent can qualify as a rally.

Annual Report

- 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. - When you read an annual report, you're judging the company's solvency and financial situation

Stock Symbol

- A stock symbol is a one- to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange.

Moving Average

- A stock's average price-per-share during a specific period of time is called its moving average. - Some common time frames to study in terms of a stock's moving average include 50- and 200-day moving averages.

Initial Public Offering (IPO)

- An IPO is the first sale or offering of a stock by a company to the public. - t happens when a company decides to go public rather than remain solely owned by private or inside investors. - The Securities Exchange Commission (SEC) has strict rules that companies must follow before issuing an IPO.

Order

- An investor's bid to buy or sell a certain amount of stock or option contracts constitutes an order. - You have to put an order in to buy or sell 100 shares of stock, for instance.

Share Market

- Any market in which shares of a particular company are bought and sold. - The stock market is an example — and probably the most significant example — of a share market.

Haircut

- In its most simplest stock market terms, a haircut is an extremely thin spread between the bid and ask prices of a given stock. - It can also refer to a situation in which a stock price gets reduced by a specific percentage for margin trades or other purposes.

Open

- In the United States, the stock market opens at 9:30 a.m. Eastern time every day. It's based on the trading hours of the Nasdaq and NYSE. - Essentially, open refers to the time at which people can begin trading on a particular exchange. - Pre-market trading hours begin at 4:30 a.m. Eastern, but most traders don't begin paying attention until about 8 a.m.

Quote

- Information on a stock's latest trading price tells you its quote. - This is sometimes delayed by 20 minutes unless you're using an actual broker trading platform.

Low

- Low is the opposite of high. It represents a lower price point for a stock or index.

Yield

- Often refers to the measure of the return on an investment that is received from the payment of a dividend. - This is determined by dividing the annual dividend amount by the price paid for the stock. - If you bought stock XYZ for $40 per share and it pays a $1.00-per-year dividend, you have a "yield" of 2.5 percent.

Bourse

- Technically, it's just another name for the stock market and originates from a house in which wealthy men gathered to trade shares. - However, when you hear it in today's conversations about the stock market, it usually either refers to the Paris stock exchange or to a non-U.S. stock exchange.

Close

- The NYSE and Nasdaq close at 4 p.m., with after-hours trading continuing until 8 p.m. - The close simply refers to the time at which a stock exchange closes to trading.

Bid

- The bid is the amount of money a trader is willing to pay per share for a given stock. - It's balanced against the ask price, which is what a seller wants per share of that same stock, and the spread is the difference between those two prices.

Volume

- The number of shares of stock traded during a particular time period, normally measured in average daily trading volume. - Volume can also mean the number of shares you purchase of a given stock. - For instance, buying 2,000 shares of a company is a higher-volume purchase than buying 20 shares.

Day Trading

- The practice of buying and selling within the same trading day, before the close of the markets on that day - Traders who participate in day trading are often called "active traders" or "day traders."

Volatility

- The price movements of a stock or the stock market as a whole. - Highly volatile stocks are those with extreme daily up and down movements and wide intraday trading ranges. - This is often common with stocks that are thinly traded or have low trading volumes.

Pink Sheet Stocks

- The term "pink sheets" refers most commonly to penny stocks, which are traded at $5 per share or less. - They're also called over-the-counter stocks because that's how they are traded. - You won't find them on the Nasdaq or NYSE, or any other major exchange, and they're often smaller companies.

Spread

- This is the difference between the bid and the ask prices of a stock, or the amount for which someone is willing to buy it and the amount for which someone is willing to sell it. - For instance, if a trader is willing to trade XYZ stock for $10 and a buyer is willing to pay $9 for it, the spread is $1.

Bear Market

- Trading talk for the stock market being in a downward trend, or a period of falling stock prices. - This is the opposite of a bull market. If a stock price plummets, it's very bearish.

Averaging Down

- When an investor buys more of a stock as the price goes down. - This makes it so your average purchase price decreases. - You might use this strategy if you believe that the general consensus about a company is wrong, so you expect the stock price to rebound later.

Execution

- When an order to buy or sell has been completed, the trader has executed the transaction. - If you put in an order to sell 100 shares, this means that all 100 shares have been sold.

Bull Market

- When the stock market as a whole is in a prolonged period of increasing stock prices. - It's the opposite of a bear market. A single stock can be bullish or bearish too, as can a sector, which I'll describe later on.

Short Selling

- When you short-sell a stock, you borrow shares from someone else with the promise to return them at a point down the road. You then sell the stock for a profit. - It's a way to take advantage of a stock that you believe will decrease in price. - After you sell short, you can buy back the shares at the lower price point and take the difference in price as your profit.

Leverage

- When you use leverage, you borrow shares in a stock from your broker with the goal of increasing your profit. - If you borrow shares and sell them all at a higher price point, you return the shares and keep the difference. It's a dangerous game that I urge you to avoid playing.

Arbitrage

- refers to buying and selling the same security on different markets and at different price points. - For instance, if stock XYZ is trading at $10 on one market and $10.50 on another, the trader could buy X shares for $10 and sell them for $10.50 on the other market, pocketing the difference

Standard Lot

100 shares

Late-Morning

10:30am to 12:00pm, the market is slower but there is still good volatility in the Stocks in Play, this is one of the easiest times of the day for new traders, there is less volume compared to the Open but also less unexpected volatility

Mid-day

12:00pm to 3:00pm, the market is generally slwo at this time with less volume and liquidity, it's the most dangerous time of the day to be trading

Alpha Stock

A Stock in Play, a stock that is moving independently of both the overall market and its sector, the market is not able to control it, these are the stocks traders look at

Market Maker

A broker-dealer that offers shares for sale or purchase on the Exchange, the firm holds a certain number of shares of a particular stock in order to facilitate the trading of that stock at the Exchange

Bull

A buyer of stock, if you hear the market is bull it means the entire stock market is gaining value because the buyers are purchasing stocks, in other words, the buyers are in control

Bearish Candlestick

A candlestick with a big filled body demonstrating that the open was at a high and the close was at a low, it tells you that the sellers are in control of the price and it is not a good time to buy

Market Cap

A company's market cap is the total dollar value of its float (all of their shares available for trading on the stock market), for example, if a company's shares are worth $10 each and there are 3 millions shares available for trading (a 3 million share float), that company's market cap is $30 million.

Options

A different type of trading, it's trading in contracts that give person a right, but not a duty or requirement, to buy or sell a stock at a certain price by a specific date.

Leading Indicator

A feature of Nasdaq Level 2, it provides you with information on the activity taking place on a stock before the trade happens

Simple Moving Average (SMA)

A form of moving average that is calculated by adding up the closing price of a stock for a number of time periods and then dividing that figure by the actual number of time periods.

Exponential Moving Average (EMA)

A form of moving average where more weight is given to the most currently available data, it accordingly reflects the latest fluctuations in the price of a stock more than the other moving averages do

Broker

A person who buys or sells an investment for you in exchange for a fee (a commission).

Pattern Day Trade Rule

A regulation in the United States that requires day traders in the United States to have at least $25,000 in their account unless they use a non-U.S.-based broker.

Short Selling Restriction (SSR)

A restriction is placed on a stock when it is down 10% or more from the previous day's closing price. When a stock is in SSR mode, you are still allowed to sell short the stock, but you can only short when the price is going higher, not lower, intraday.

Margin Call

A serious warning from your broker that you must avoid getting, your broker will issue you a margin call if you are using leverage and losing money, it means your loss is equal to the original amount of money in your account, you must either add more money to your account or your broker will freeze it

Illiquid Stock

A stock that does not have sufficient volume traded during the day, these stocks are hard to sell and buy without a significant slippage in price

Mega Cap Stock

A stock with a huge supply of shares, for example, Apple Inc. had 4.33 billion shares available in June 2020, their stock prices are generally not volatile because they require significant volume and money to be traded, day traders avoid these types of stocks

Low Float Stock

A stock with a low supply of shares which means that a large demand for shares will easily move the stock's price, the stock's price is very volatile and can move fast, most low float stocks are under $20, day traders love low float stocks, they can also be called micro-cap stocks or small cap stocks

Micro-Cap Stock

A stock with a low supply of shares which means that a large demand for shares will easily move the stock's price, the stock's price is very volatile and can move fast, most micro-cap stocks are under $10, day traders love mico-cap stocks, they can also be called low float stocks or small cap stocks.

Small Cap Stock

A stock with a low supply of shares which means that a large demand for shares will easily move the stock's price, the stock's price is very volatile and can move fast, most of these stocks are under $10, some day traders love these stocks but do note that they can be really risky, they can also be called low float stocks or micro-cap stocks.

Medium Float Stock

A stock with a medium float of between 20 million and 500 million shares, I mostly look for medium float stocks in the range of $10 to $100 to trade

Relative Strength Index (RSI)

A technical indicator that compares the magnitude of recent gains and losses in the price of stocks over a period of time to measure the speed and change of price movement, your scanner software or platform will automatically calculate the RSI for you. RSI values range from 0 to 100, an extreme RSI below 10 or above 90 will definitely catch interest.

Warrant

A tool used to purchase shares in the future at a set price

Bull Flag

A type of candlestick pattern that resembles a flag on a pole, you will see several large candles going up and a series of small candles moving sideways, which day traders call consolidating, you will usually miss the first bull flag but your scanner will alert you to it and you can be ready for the second Bull Flag

Indecision Candlestick

A type of candlestick that has similarly sized high wicks and low wicks that are usually larger than the body, they can also be called spinning tops or Dojis and they indicate that the buyers and sellers have equal power and are fighting between themselves, it's important to recognize an indecisions candlestick because it may very well indicate a pending price change

Spinning Top

A type of candlestick that has similarly sized high wicks and low wicks that are usually larger than the body, they can be called indecision candlesticks and they indicate that the buyers and sellers have equal power and are fighting between themselves, it's important to recognize this pattern because it may very well indicate a pending price change.

Hotkey

A virtual necessity for day traders, key commands that your program to automatically send instructions to your broker by touching a combination of keys on your keyboard, they eliminate the need for a mouse or any sort of manual entry, high-speed trading requires Hotkeys and you should practice using them in real time in a simulator before risking your real money

Doji

An important candlestick pattern that comes in various shapes or forms but are all characterized by having either no body or a very small body, a Doji indicates indecisions and means that a fight is underway between the buyers and the sellers

Limit Order

An instruction you give to your broker to buy or sell a specific stock at or better than a set price specified by you, there is a chance the limit order will never be filled if the price moves too quickly after you send your instructions

Market Order

An instruction you give to your broker to immediately buy or sell a specific stock at whatever the current price is at that very moment, however the price might be suddenly changed in the time since you gave your instructions to your broker

Marketable Limit Order

An instruction you give to your broker to immediately buy or sell a specific stock within a range of prices that you specify, I use marketable limit orders when day trading, I generally buy at "ask+5cents" and sell at "bid-5 cents"

Exchange-Traded Fund (ETF)

An investment fund traded on the Exchange and composed of assets such as stocks or bonds

Profit Target

As a day trader, you should have a daily profit target and once you reach it, don't be greedy and risk it, you can turn off your computer and enjoy the rest of your day. Also have a specific profit target for each trade.

Exit Point

As you plan your trade, you decide your entry point, where you will enter the trade, and where you will exit the trade, if you do not exit properly you will turn a winning trade into a losing trade, whatever you do, don't be stubborn, if a trade goes against you, exit gracefully and accept a loss, don't risk even more money just to prove a point, markets can be unpredictable

If-Then Statement

Before the market opens and before you do an actual trade, you should create a series of if-then statements to guide you in your trade, for example, if the price does not go higher than ABC, then I will do DEF

Gappers Watchlist

Before the market opens, you can tell which stocks are gapping up or down in price, you then search for the fundamental catalysts that explain these price swings, and you build a list of stocks that you will monitor that day for specific day trading opportunities, the final version of your watchlist generally has only two, three or four stocks on it that you will be carefully monitoring when the market opens, also called simply your watchlist

Watchlist

Before the market opens, you can tell which stocks are gapping up or down in price, you then search for the fundamental catalysts that explain these price swings, and you build a list of stocks that you will monitor that day for specific day trading opportunities, the final version of your watchlist generally has only two, three or four stocks on it that you will be carefully monitoring when the market opens, also called your Gappers watchlist.

Buying Long

Buying a stock in the hope that its price will go higher

Social Distancing

For traders, social distancing means staying far away from anyone who thinks the stock market is a get-rich-quick scheme

Futures

Futures trading is when you trade a contract for an asset or commodity (such as oil, lumber, wheat, currencies, interest rates) with a price set today but for the product to not be delivered and purchased until a future date, you can earn a profit if a you can correctly predict the direction the price of a certain item will be on a future date, day traders do not trade in Futures

Average True Range (ATR)

How large of a range in price a particular stock has on average each day, I look for an ATR of at leas 50 cents, which means the price of the stock will move at least 50 cents most days.

Average Relative Volume

How much of the stock is trading compared to its normal volume, I don't trade stocks with an average relative volume of less than 1.5, which means the stock is trading at least 1.5 times its normal daily volume

Retail Trader

Individual traders like you. Traders that don't work for a firm and do not manage other people's money

Short Squeeze

Occurs when the short sellers panic and are scrambling to return their borrowed shares to their brokers, their actions cause price to increase quickly and dangerously.

Risk Management

One of the most important skills that a successful day trader must master, you must find low-risk trading setups with a high reward potential, each trading day you are managing your risk.

Position Sizing

Refers to how large of a position you can take per trade, it's a technique and skill that new trades must develop. NEVER RISK MORE THAN 2% of your account on any trade.

Ticker

Short abbreviations of usually one to five letters that represent the stock at the Exchange. All stocks have these symbols.

Choppy Price Action

Stocks trading with very high frequency and small movements of price, day traders avoid stocks with choppy price action, they are being controlled by the institutional traders of Wall Street

Liquidity

Successful day traders need liquidity, there must be both a sufficient volume of stock being traded in a particular company and a sufficient number of orders being sent to the Exchanges for filling to ensure you can easily get in and out of a trade, you want plenty of buyers and plenty of sellers all eying the same stock

Level 2

Successful day trading requires access to the real time Nasdaq TotalView Level 2 data feed, it provides you with the leading indicators and information on the activity taking place on a stock before the trade happens as well as important insight into a stock's price action, what type of traders are buying or selling the stock and where the stock is likely to head in the near term

Average Daily Volume

The average number of shares traded each day in a particular stock, I don't trade stocks with an average daily volume of less than 500,000 shares, as a day trader you need sufficient liquidity to be able to get in and out of the stock without difficulty

Buying Power

The capital (money) in your account with your broker plus the leverage they provide you, for example, if your broker gives you a leverage of 4:1 and you have $25,000 in your account, you can actually trade up to $100,000

Trading Framework

The core of your trading business plan, it is what you will execute during market hours, it consists of your money and risk management principles, the strategies and patterns you trade, your trade management rules, and an outline of how you are accountable for any actions which deviate from your framework.

Bid-ask spread

The difference between what people are willing to pay to purchase a particular stock and what other people are demanding in order to sell that stock at any given moment, it can change throughout the trading day.

Forex

The global Foreign Exchange Market where traders - but not day traders - trade currencies

Profit-to-loss ratio

The key to successful day trading is finding stocks that have excellent profile-to-loss ratios, these are the stocks with a low-risk entry and a high reward potential. For example, a 3:1 ratio means you will risk $100 but have the potential to earn $300.

Win:Lose Ratio

The key to successful day trading is finding stocks that have excellent win:lose ratios, these are the stocks with a low-risk entry and a high reward potential, for example, a 3:1 ratio means that you will risk $100 but have potential to earn $300, a 2:1 ratio is the minimum I will ever trade, also called a profit to loss ratio or risk/reward ratio.

Volume Weighted Average Price (VWAP)

The most important technical indicator for day traders, your trading platform should have VWAP built right into it, VWAP is a moving average that takes into account the volume of the shares being traded at any given price, while other moving averages are calculated based only on the price of the stock on the chart, VWAP considers the number of shares in the stock being traded at each price, VWAP lets you know if the buyers or the sellers are in control of the price action.

Price Action

The movement in price of a stock, I prefer using candlesticks to chart the price action of a stock, capturing its highs and lows and the relationship between the open and close.

Stop Loss

The price level when you must accept a loss and get out of the trade, the maximum amount you should ever risk on a trade is 2% of your account, for example, if your account has $20,000 in it, then you should never risk more than $400 on a single trade, once you calculate the maximum amount of money you can risk on a trade, you can then calculate your maximum risk per share, in dollars, from your entry point. This should always be at a reasonable technical level and you must honor this and do not change it in the middle of a trade because you will lose money.

Ask

The price sellers are demanding in order to sell their stock, it's always higher than the bid price

Short Interest

The quantity of stock shares that investors have sold short but not yet covered or closed out.

Penny Stock

The shares of small companies that can trade at very low prices, the price can be very easily manipulated and follow no pattern or rule whatsoever, fraud is rampant in penny stock trading, day traders do not trade penny stocks.

"Black Box"

The top secret hidden computer programs, formulas and systems that large Wall Street firms use to manipulate the stock market

High Frequency Trading (HFT)

The type of trading the computer programmers on Wall Street work away at, creating algorithms and secret formulas to try to manipulate the market, although HFT should be respected, there's no need for day traders to fear it

Lagging Indicator

These are indicators that provide you information on the activity taking place on a stock AFTER the trade happens

Size

This column on your Level 2 will indicate how many standard lots of share (100 shares = 1 standard lot) are being offered for sale or purchase, a "4" for example means 400 shares.

Consolidation Period

This happens when the traders who bought stocks at a lower price are selling and taking their profits while at the same time the price of the stock is not sharply decreasing because buyers are still entering into trades and the sellers are not yet in control of the price

Support or Resistance Level

This is the level that the price of a specific stock usually does not go higher than or lower than. Stocks often bounce and change the direction of their price when they reach these levels. As a day trader you want to monitor these levels because if your timing is correct you can profit from that rapid change in price direction.

Fundamental Catalyst

This is what you as a day trader are looking for, some positive or negative news associated with a stock such as an FDA approval or disapproval, a restructuring a merger or an acquisition, something significant that will impact its price during the trading day

Stock in Play

This is what you as a day trader are looking for, this is a stock that offers excellent risk/reward opportunities, it will move higher or lower in price during the course of the trading day and it will move in a way that is predictable, stocks with fundamental catalysts are often called this.

R

Traders often refer to the amount of money risked in a trade as this. A trade where you lose this risked money is called a -1R trade, a trade where you make twice as much as you risk would be a 2R trade.

Intraday

Trading all within the same day, between 9:30 a.m. and 4 p.m. New York time.

Guerrilla Trading

What day traders do, it's like guerrilla warfare, you wait for an opportunity to move in and out of the financial battlefield in a short period of time to generate quick profits while keeping your risk to a minimum

High Relative Volume

What day traders look for in Stocks in Play stocks that are trading at a volume above their average and above their sector, they are acting independently of their sector and the overall market

Trade Management

What you do with your position when you enter a trade and before you exit it, you don't just sit patiently in front of your computer screen with your fingers crossed for good luck and watch what happens, as you monitor and process the information that is changing in front of you, you must adjust and fine tune the trade you are in, you must be actively engaged in your trade, the only practical way to gain experience in this is in a simulator, using the share volume and actual amounts of money you will one day be trading with live.

Opening Range

When the market opens, Stocks in Play will often experience what I call violent price action, heavy trading will impact the price of the stock and you should be able to determine what direction the price is heading toward and whether the buyers or sellers are winning.

Entry Point

When you recognize a pattern developing on your charts, your entry point is where you enter the trade

Chasing the Stock

Wise day traders never chase stocks, you chase a stock when you try to purchase shares while the price is increasing significantly, successful day traders aim to enter trades during the quiet times and take their profits during the wild times, when you see a stock surging up, you patiently wait for the consolidation period

Net Equity Curve

Your profit and loss after deducting your broker's commission and fees

Swing Trading

the serious business of trading stocks that you hold for a period of time, generally from one day to a few weeks, swing trading is a completely different business than day trading is.