Terminology
Top Trading Terms Every Trader Should Know!
Day Trading Terminology Every Trader MUST Understand
Day trading terminology is something every trader will need to understand. We’re going to start with basic terms that most day traders will already be familiar with. Then we’ll jump into the more advanced terms that you may still have questions about.
Remember, to quickly search for a term you can search this page using search bar at the top! If you have any questions as you are reading these definitions please don’t hesitate to reach out by contacting us on discord. Remember, as part of our Student Courses we will explain each of these terms & how we use them in our day-to-day career as traders.
Basic Day Trading Terminology
Professional Day Trader
A professional day trader can informally be considered somebody who day trades for a living, but from a regulatory perspective, it refers to a trader who is licensed with either their Series 6, 7, 63, 65, or 66. Traders who are licensed pay higher fees for market data. That’s why when you open an account you have to tell them if you are a professional (licensed) trader. Day traders are not required to be licensed if they are trading their own money.
Pattern Day Trader Rules
The Pattern Day Trader (PDT) Rule states that if a trader takes 3 or more day trades in a 5 day period, they are a day trader and they must maintain a minimum account balance of $25,000 USD. Many traders who are unable to maintain that balance will trade at either a Prop Firm (see below), or at Suretrader / Tradezero.
Swing Trading
Swing Trading, in contrast to Day Trading, requires overnight hold times. Swing traders will hold stocks for at least 1 night, but perhaps many nights. These are very short-term investments.
Stock Market Hours
The market is open from 9:30am -4pm EST Monday –Friday. There are holidays when the market is closed or closes at 1pm. Pre-market and after-hours trading is available but liquidity is often very low because there aren’t a lot of buyers or sellers trading after hours.
Bull or Bullish
This term refers to a strong market of stocks moving up. This can even be used to reference a specific position the trader is taking. If they are bullish, they expect the stock to go up.
Bear or Bearish
This term refers to a weak market. This means traders think the price of stocks or a specific stock will be going down. If they are bearish, they may sell their bullish positions or even take short positions.
Initial Public Offering (IPO)
When a company does an IPO, they sell a fixed number of shares onto the open market to raise money. This could be, for example, 10 million shares. If those shares are priced at $10/share, they will raise $100 million from the IPO. This money gets invested into the company for future growth (building factories, strategic investments, etc).
Float
Float refers to the number of outstanding shares available to trade. When the company did the initial IPO, they released shares. That number is typically the float, although there are 3 ways the number of shares can change. The Float is equal to the supply level. Stocks with limited supply and high demand are the ones that move up or down the fastest.
Share Buy Back
A Share Buy Back program is when a company buys back shares that were sold during the IPO. By doing this they are reducing the number of shares available to trade and everyone holding shares of the company will see their shares increase in value. Share Buy Backs will decrease the float.
Secondary Offering
A secondary offering is an offering that is given after the Initial Public Offering. Even if a company performs multiple secondary offerings, they are always called secondary (not third, fourth, etc). A secondary offering will raise money for the company by selling more shares. This increases the supply of shares on the market and decreases the value of those shares. This is generally not something long term investors like to see.
Stock Splits
Stock Split can change the price of a stock. Apple did a 7:1 stock split. The $700 stock multiplied all shares x 7 to reduce the price of the stock to $100. This means if you held 1,000 shares at $700, you now own 7,000 at $100. This increased the float. Some companies will perform a REVERSE stock split. A 10:1 reverse stock split will take a stock trading at $1.00 and turn it into $10.00. If you were previously holding 1,000 shares at $1.00, you would only be holding 100 shares at $10 after the split.
After Hours Trading
After hours trading is done through electronic communication networks (ECNs) that are programmed to match buyers and sellers automatically and is done outside of normal market hours (930AM -4PM EST)
Day Trade
When a trader places an opening and closing trade on the same stock, on the same day, they are making a day trade and are subject to special rules.
Beta
Beta is a numeric value that is used to measure the fluctuation of a stock against changes happening in the stock market.
High Frequency Trading
High Frequency Trading (HFT) is when a trader or institution utilizes powerful computers to automate trading and execute large orders an very high speeds.
Freeriding
Freeriding describes an instance where an investor purchases a security and sells it before settling the original purchase.
Lagging Indicator
A lagging indicator are technical factors known to trail the price action of an underlying security.
Leading Indicator
Leading Indicator refers to measurable factors of economic performance that shifts ahead of the economic cycle before it begins to follow a specific pattern.
Crossed Market
A crossed market refers to a temporary situation where bid prices associated with a particular asset or security is higher than the asking price.
Dividend
A dividend is money paid out to shareholders who hold shares of the company through the ex-dividend date as a way of sharing the company’s success.
Divergence
Divergence is a trading concept that forms when a stock’s price diverges from a momentum oscillator which typically indicates a reversal.
Earnings Per Share
Earnings Per Share (EPS) definition is a portion of a company’s profit allocated to a person’s share of the stock and is a major metric for analysts.
Market Cap
Market Capitalization is a measurement used to classify a company’s size, which can be categorized between small, medium or large cap, and is based on the market value of the total shares outstanding.
NYSE Tick Index
The NYSE Tick Index is calculated by taking all the stocks on NYSE that have had an uptick minus all the stocks that had a down tick and then the result is displayed on a chart.
Merger
Merger are deals that unite two separate companies into a single new company. There are a number of different types of mergers.
Penny Stocks
According to the SEC, penny stocks are considered to be any stock trading below $5 per share and can be a listed security or trade Over The Counter (OTC).
Profit/Loss Ratio
A profit/loss ratio is a measure of the ability of a particular trading system to generate profit instead of loss and is based on a percentage basis.
Regulation T
Regulation T is a collection of protocols formulated by the Federal Reserve Board that governs investors margin and cash accounts.
Return on Investment (ROI)
Return on investment (ROI) refers to a metric that measures profit or loss generated by an investment in relation to the invested funds.
Shares Outstanding
Shares outstanding refers to the stock of a company that is currently held by all shareholders including restricted shares and institutional shares.
Market Trend
Market trend represents the general direction in a market or a security over a given period time, which can last from a couple days to many months or years.
Volatility
Volatility is a measure of the security’s stability and is usually calculated as the standard deviation derived over a given period of time.
Support Level
A support level is the price level whereby demand of a security is strong enough that it prevents the decline in price past it.
Resistance Level
A resistance level is the price level at which selling of a security is deemed strong enough to eliminate the increase in price.
Stock
Stock is a type of asset that gives you ownership in a company, allowing you a claim on the company’s assets and earnings.
Price Target
A price target is the projected price of a financial instrument as provided by an analyst and is used determining under and overvalued stocks.
Pump and Dump
Pump and dump is an investment scheme where untrue statements are made public about a stock with the purpose of artificially increasing the stock price.
Recession
A recession refers to the moment when a country’s economy experiences decline as a result of different factors over a specific period of time.
OTC Market
The OTC market allows for the trading of assets without the formal structure of an official exchange and is considered a risky area to invest.
Mutual Fund
A mutual fund an investment vehicle whereby funds are pooled together with the goal of investing into securities like stocks and bonds among others.
Hard To Borrow
Hard to borrow list refers to an inventory of securities the brokerage firm is unable to provide for short selling and would only be available for buying.
Cryptocurrency
Cryptocurrency is a digital currency that utilizes cryptography for security and can be sent from one person to another anywhere around the world.
Derivative
Derivatives are securities with prices that are dependent on, or derived from, one or more separate underlying assets such as options or future contracts.
Equity
Equity refers to the ownership of assets after liabilities and debts have been settled or it can refer to stock or ownership of shares in a public company.
ETF
An exchange traded fund, or ETF, is a marketable security tracking bonds, commodities or other baskets of assets, such as an index fund.
Ex-Dividend
Ex-Dividend is one of the most important dates to pay attention to once a company announces a dividend because that is the date that you have to own the stock before in order to be eligible to receive the dividend.
Blue Chip
Blue chip stocks are companies that are often worth billions of dollars, pay dividends and have a long history of reliable operations.
Bond
A bond is a debt investment where investors loan funds to a corporate or government for a particular period of time and at a variable or fixed interest.
Capital Gains
Capital Gains is a taxable event that occurs when an asset like a stock or option is sold for more than the original purchase price.
Day Trading Terminology: Bulls vs. Bears
Long Side Trading
When traders are “long” a stock, they are buying shares. This means they have a “long” position and expect the stock to go up. These traders will profit when the stock moves up, or will lose money when the stock moves down. They also have a “bullish” position. To exit a bullish or long side position, a trader may “scale out,” or sell their shares in small portions.
Scaling In or Scaling Out
To enter or to exit a position a trader may “scale.” This technique, when used to scale in, means buying a partial position at 5.50, and adding (or scaling) with a 2nd position at 6.00. Due to scaling in with equal sizes, the trader has a cost average of 5.75.
Price Average
Price average is the average price of the stock that you paid. Meaning if the stock was first bought at 10.00, then rises to 11 and you double your position, you will have a cost average of 10.50.
Dollar Cost Averaging
Dollar Cost Averaging is a strategy many investors use, although it’s not used as much by day traders. This means that if every month you add $1,000 of stock even though you were adding at various prices throughout the year, you will have a dollar cost average that helps balance out the big ups and big downs that may have been occurring when you were taking positions.
Averaging Down or Averaging Up
This is essentially the same process as scaling, except that averaging down isn’t something many trader do. It’s generally not considered a smart trading style. Averaging down is when you buy a stock at 10, the price drops to 8.00, so you add more shares and bring your average cost down to 9.00. If you add 2x or even 3x the size to 8.00, you could bring your cost average down as low as 8.50. The risk is that you are adding to a position that you are already losing money on, and some traders say this is throwing good money at bad money.
Short Side Trading
Traders who are “short” on a stock are short selling shares and creating a negative share balance. This means they will be holding -1,000 shares. As soon as they sell the shares they turn a profit from the sale, BUT, they must buy back the shares. The shares have been borrowed from the broker to sell in advance, with the intention of buying the shares back in a short period of time.
Borrowing
You must borrow shares from your broker in order to short. If your broker doesn’t have shares available to borrow, you can’t short the stock. IPO’s are never shortable since brokers won’t have shares available yet to borrow.
Covering
To close a short position a trader must “cover” their position. This is buying stocks to cover the shares they borrowed from their broker. Like a long-sided trader, they can scale out of the short position in small increments.
Days to Cover
Brokers will give traders who borrow shares a certain number of days to cover. This could be 7 days, 14 days, etc. By the end of this period if the trader has not covered their position, the broker can do it manually and will charge the trader a liquidation fee.
Short Interest
Short interest refers to the number of shares all traders around the world are currently holding as a short position against the stock. If a company has outstanding shares (float) of 10 mil shares, and 1 mil of those shares are short, the short interest is 10%. When stocks have short interest 30% or higher, there is potential for short squeezes.
Short Squeeze
This is when a stock suddenly starts moving up, and traders who are holding short positions start buying to cover their position, or their broker covers their position for them because they’ve hit a max loss on their account. This creates an extreme buy/sell imbalance and can lead stocks to making 50-100% moves intraday.
Short Sale Restriction
Short Sale Restriction (SSR) occurs when a stock drops 10% or more in a single day. Once a stock has SSR traders cannot take short positions except when the stock is moving up. Positions can only be taken on “upticks”. In other words, when stocks are moving up. That means traders short at the Ask Price, and have to wait for a buyer to buy the shares they are trying to sell short.
Day Trading Terminology - Account Types
Cash Account
When you trade in cash account, the amount of money in the account is exactly the same as how much you deposited. When you take a trade, you have to wait T+2 (Transaction + 2 days to settle). Stocks take 2 days for transactions to settle. It’s like waiting for a check to clear. There is nothing you can do while you wait. Options trades are T+1 and take only 1 day to settle, which means you can trade with the cash the next day.
Margin Accounts
A margin account requires a margin agreement. With a margin account trades still take T+2, but instead of requiring you to wait 2 days before you can trade with that money, the broker gives you credit to trade with the money as soon as the trade has been completed. This is what allows day traders to take 10+ trades in a single morning. We can trade the same cash 1000x times a day if we’d like. All we need is a margin account.
Proprietary Firm Accounts
Proprietary trading firms originally were regulated trading firms. These firms will hire traders, require them to get licensed to trade (Series 6,7,63,65,66, etc), and allow them to trade with the firms own money. These firms may require traders to deposit up to $10k of their own money, but once they have passed their license, they can get 10x leverage or more. Some of the best traders could have 10mil or more in cash available to trade.
Binary Options Accounts
Binary Options are a way of betting against a stocks price. These are highly unregulated and illegal in many countries. You make a bet that the stock will be over/under a certain price by a certain time. Instead of trading, you are simply placing bets on value of stocks.
CFD Accounts
A Contract-For-Difference account is illegal in the United States. These are offered by international brokers and for non-US residents. When you buy a CFD, you aren’t actually buying shares of a stock. You are buying a contract to buy x number of shares of a stock. You can then sell back the contract as the price goes up. Instead of buying actual shares, you buy contracts to buy shares. The advantage is that in theory you could buy a contract to buy 1mil shares, even if there were only 100k shares available to buy at that price at the time.
Retirement Accounts
Trading a 401k or an IRA account is fairly common. This is often where traders have already amassed a reasonable amount of capital. Many firms will allow you to trade a retirement account but there are some restrictions. 1. No Shorting 2. No Leverage 3. Margin is only for trades to settle immediately, not for trading borrowed $ 4. You cannot access the profits until retirement age, without penalty. 5. Growth is tax free, which is huge advantage
Margin
When a trader opens a broker account they are given Margin. In addition to allow you to trade on borrowed money, they also extend a line of credit to your account for trading. Brokers in the US will always give you 4x Leverage which which means if you deposit $100k, you will have $400k in total buying power with $300k Margin being borrowed money from the broker. There are no fees for trading on Margin during the day, but holding with margin overnight is subject to interest rate fees. This is called the Margin Rate.
Leverage Rate
The rate that your cash deposit will be multiplied to give you total buying power. All US Brokers are 4x leverage. Suretrader is 6x leverage. Prop Firms can be 10x leverage or higher. CFD accounts can offer leverage up to 50x which can quickly magnify losses.
Overnight Leverage
Most brokers reduce overnight leverage to only 2x cash balance.
Buying Power
Your buying power is your cash balance plus your margin. In the case of 4x leverage with a $100k cash balance, you have $400k in buying power. If you take a trade for $250k, you will have $150k in remaining buying power
Margin Rate
The percentage a trader has to pay their broker in exchange for borrowing money.
Traditional IRA
A Traditional IRA is a retirement account where individuals are allowed to direct pre-tax income which grows tax-deferred.
Roth IRA
A Roth IRA is a retirement account funded by a taxpayer using his or her post tax-income and features tax free gains even when you withdraw.
401(k)
A 401(k) is an employer sponsored retirement plan that is eligible to employees where they can make salary reduction contributions on a pre/post-tax basis.
Custodial Account
A custodial account is an account type that is for minors and all contributions to the account will be theirs when they turn 18.
Joint Account
A Joint Account is a type of brokerage account shared between two or more people who include relatives, business partners and couples.
Margin Call
Traders who are issued a margin call are in debt to their broker. The broker will require you to repay the debt and can force you to sell other assets to come up with the money.
Day Trading Terminology - Placing Orders
Bid Price
The Bid Price is the price traders are currently bidding a stock at. Every stock has a bid. Lets say traders are bidding 10.00. Traders can put an order to buy at 10.00, and they will have to wait for a seller to come sell them shares. Alternatively, they can simply buy from a seller who is sitting on the ask at 10.02.
Ask Price
The Ask price is the price traders are currently asking to sell the stock at. Every stock has an ask. Lets say traders are asking 10.02. Traders can put an order to sell at 10.02, and they will have to wait for a buyer to come buy shares from them. Alternatively, they can simply sell to a buyer who is sitting on the bid at 10.00.
Level 1
Level 1 is the Current Bid Price vs the Current Ask Price. In the above example, 10.00 x 10.02
Spread
The Spread is the difference between the Bid price and the Ask price. In the above example we have a 2 cent spread.
Market Makers
Market Makers create the spread. They are large institutional banks that are both buyers and sellers of a stock. They will post a Bid, and Post and Ask. They create the spread, and the profit by selling shares between the spread. The larger the spreads, the more the market makers can profit
ECNs
Electronic Communication Networks. If you think of the stock market as an island, there are many bridges we can take to get to the island. These bridges are called ECNs or Market Makers and they charge “tolls”, or fees, to use their networks.
Routes
Market Makers offer a route that connects individual traders to the market. When traders choose to use specific market makers or ECNs, they are direct routing. The advantage is that this can increase the order speed. Returning to the idea of an island, ARCA (short for archipelago), is a popular route. Other popular routes include NYSE, EDGX, JPCC, POST, INET.
Smart Routing
Most brokers offer smart routing. Instead of asking you to direct route your order, they will choose the route they feel is best. If they have arranged a discounted rate with a certain broker, they may use that route as a preferred route. They may also see if they have shares available from traders inside the firm before routing your order out to the “island”. This may not always be in the best interest of the trader. For that reason, I choose to not use smart routing, and instead direct route my orders.
Time & Sales
Next to the Level 2 Window is typically a Time & Sales Window. This will show every transaction that occurs and will list the price, the shares, the route, and the time. This transactions will appear red if they occur at the bid price, green if they occur at the ask price, and white if they occur in between the spread. Remember that the market is a closed system, every buyer has a seller, and every seller has a buyer. We consider transactions “sales” or “buys” based on the whether the transaction goes through at the bid price or the ask price.
Level 2
In addition to understanding Level 1 and the bid/ask, day traders need to understand Level 2. Lets start by talking about the Bid. If the bid is 10.00, there is a buyer sitting waiting to buy shares at 10.00. But are there other buyers also lined up? By using Level 2 data, we can see buyers at 9.99, 9.98, 9.97, and so on. We may see bids stacked tightly on the Level 2, or we may see them spaced apart such as 9.95, 9.89, 9.74, 9.64. When we see full market depth on both the Bid side and the Ask side we are seeing complete level 2. Although Level 2 is shown with Bids on the Left and Ask on the Right, some software choose to show it as a long line going left to right, with the current price being in the middle. In addition to seeing the prices where orders are listed, Level 2 also shows the number of shares for each order, and the market maker or ECN (electronic communications network) that is routing the order.
Dark Pools of Liquidity
Dark Pools of Liquidity are like ports the “island” that are holding shares, but nobody can see them. Sometimes these shares are being held by firms or institutions and they trade internally out of this pool of shares. This has a disadvantage for retail traders because if you want to buy 10k shares, you will not have access to the dark pool where 10k may be available. As a result, you pay a higher price. Using Dark Pool Routing, you can now ping the dark pools to see if they have shares available.
Volume
Volume is a measure for the number of shares traded. A stock that trades 1 million shares in a day has a volume of 1 million. Some stocks trade tens of millions in volume each day while others trade just a few hundred thousand shares or less. As we watch the Time and Sales, we are able to see volume.
Relative Volume
Relative volume is one of the most important indicators day traders need to know. It shows how much volume a stock has compared to it’s average volume for the same period. It acts as a gauge indicating how in play a stock is and the more in play it is, the more likely setups with follow through.
A Thin Market
A thin market means not many traders actively trade a particular stock. It may also mean not many market makers are actively “making the market” for those stocks by providing a reasonable bid/ask spread. Thinly traded stocks can have 20-30 cent spreads which makes it very difficult to trade. These stocks often have a low float (few shares available to trade). When they experience strong demand, these stocks can quickly move 50-100%. They are worth watching for day trade opportunities.
A Thick Market
Thickly traded markets and stocks will be crowded with traders. Many times these stocks have very large floats, are very well capitalized, and trade slowly. This makes them great vehicles for long term and lower risk investment. At the same time, that makes them unattractive for day traders. Even with high demand they rarely move that quickly.
Circuit Breaker Halts
Stocks can be halted and paused from trading for several reasons. During circuit breaker halts traders cannot trade the stock in any way. Halts can last from 5 minutes to hours or days. We have written extensively on Circuit Breaker Halts since there are several important points to understand.
Market Orders
A market orders tells the broker to get you shares at current market prices. If you send the order to buy 1,000 shares at 5.00, the broker will get you 1,000 shares, but since you haven’t said the most you are willing to pay, they may give you shares at a higher price. If you accidentally type in 100,000 shares, you may get filled at 5.50 or higher.
Slippage
Slippage is the difference between the price you thought you would trade at, and the price the trade actually went through. This is the result of fast moving markets, volatile stocks, and spreads.
Limit Orders
A limit order is when you ask your broker to buy you shares and state the most you are willing to pay. A limit order of 1,000 at 5.05 will not fill higher than that price. That means if the price moves quickly, you may not get 1,000 shares.
Stop Orders
Stop orders are a versatile order that can be great for getting in and out of trades. When you place a stop order you are saying that you want to get in or out of a trade when prices hit your stop price and once they do, it turns into a market order and will execute at the next available price. Stop orders are mainly used for protecting long or short positions once you get into a trade.
FOK Order
This is Fill or Kill. This means either you get your entire order filled or the order won’t fill at all. This prevent partial orders, but I don’t like using it.
GTC Order
This is a Good Till Cancelled. That means the order will stay on the brokers servers until you cancel it.the order is automatically sent. Stop orders can be sent as both market orders or limit orders.
Fill Price or Getting Filled
This is the price the trades are executing at with your broker. This becomes your average cost.
Stop Limit Order
A stop limit order refers to an order placed with a broker and combines the features of both stop and limit orders making a more technical order.
Time In Force
Time In Force refers to a special directive implemented by traders or investors when placing a trade and is submitted when entering a trade.
Trailing Stop
A trailing stop order is a stop order that allows the setting of the value as a percentage usually below the market price and will move as prices move.
One Triggers Other
One triggers other is a contingent order where a primary and secondary order are placed and when one order is triggered, the other order is triggered.
Good Till Canceled
A Good Till Canceled (GTC) order refers to a buy or sell request designed to last until the request is executed or canceled by the trader or broker.
One Cancels Other
A one cancels other order is where two orders are made and if one of the orders is executed, the other is cancelled automatically.
Partial Fill
This is when you have a limit order that is too tight and you only fill part of your entire order. The remaining order needs to either be cancelled or you have to keep waiting to see if the price comes back to give you the rest of your fill.
Day Trading Terminology - Fundamental & Technical Analysis
Fundamental Analysis
Fundamental Analysis is when a trader (or more often an investor), looks at the fundamental metrics of a company. This includes their Annual and Quarterly Earnings per share, Their Book Value (total value of company assets), the strength of their sector, and the potential for growth. This is a complex analysis based on many factors. In the end, a trader will have a long bias or a short bias on a stock.
Technical Analysis
Technical Analysis, in contrast to fundamental analysis, does not focus on the fundamental metrics of a company, but instead, focuses solely on the price of the stock. Technical analysis requires a complex understanding of chart patterns and technical indicators. This is the type of trading most day traders will practice.
Line Charts
Line charts are the most simple type of chart. These charts simply plot a line. This can give a good understanding of price action over long periods of time, but for shorter time periods it doesn’t provide necessary insight that traders require.
Bar Charts
Like Line Charts, bar charts provide very little information that active trades will want. They show the open price and the close price for any given period, but that’s it. If the chart is a daily chart you will see that each bar represents a single day in time.
Candlestick Charts
Candlestick charts are what most active day traders will use to help them establish a basis for taking a trade. A candle stick includes 4 pieces of information. The open price, the close price, the high of the period price, an the low of the period price. When these 4 pieces of information come together, candle sticks can take shapes that communicate market sentiment. For instance, a candle that opened at 10.00, had a high of 10.50, closed at 9.90, and had a low of 9.90, will appear very weak or bearish. The stock spiked up but was unable to hold those levels and sold off. A simple line chart or bar chart would have not been able to communicate the same meaning to us.
Doji Candle Sticks
A doji candle stick has a long upper wick or lower wick. The wick refers to the high or low of day. The body of a doji is smaller than the candle win, meaning the open and close price were fairly close together. This candles are considered candles 0f indecision.
Hammer Candle
A hammer candle occurs at the bottom of a long down trend and looks like a hammer. It has a long lower wick (like a doji), that forms the handle. The small body on the top is the hammer that swings down. This is considered a stock hammering out it’s base. That’s because the candle wick shows that even though the price dropped it surged back up quickly.
Inverted Hammer Candle
An inverted hammer is an upside hammer that occurs at the top of a bullish run. Like the regular Hammer Formation, this candle shows the stock squeezed up but was unable to hold those high prices and sold off. Indicating a reversal may be in store.
Multiple Candle Stick Patterns
When multiple candle sticks are lined up next to each other they can form patterns including Flat Top Breakouts, Bull Flags or Bear Flags.
Chart Time Frames
Trades can choose to use a multitude of time frames. I personally use the 5min time frame and have found this one is the most commonly used among day traders. I also use the 1min time frame for quick entries, and the daily time frame to understand the overall history of a stock.
Gaps
Gaps on a daily chart occur when a stock opens higher or lower, than it closed the previous day. This happens when there is news or some type of catalyst overnight.
Technical Indicators
Technical indicators, or studies, help us interpret current price action. These lag slightly behind the price action, so Candle Stick Patterns will almost always be more valuable than technical indicators.
Moving Averages
Moving averages are a technical indicator that tell us the average price of a stock over a period of time. They can be either Simple Moving Averages, or Exponential Moving Averages. An Exponential Moving Average weighs recent price action heavier than older price action. This means the moving average will move faster in response to recent moves.
Relative Strength Index
Relative Strength Index (RSI), is an oscillating indicator that moves between 0 and 100. A stock with an RSI of 0 has been oversold and may be due for a bounce. A stock with an RSI of 100 is extremely overbought and may be due for a reversal. When combined with candle stick patterns this can be a helpful indicator.
MACD
Moving Average Convergence Divergence (MACD) indicator is another oscillating indicator. This measures the distance between moving averages. If the moving averages are moving apart a stock is moving quickly, if they are coming close together, a stock has changed directions and is returning to balance. If they are close together, the stock isn’t moving in much of any direction.
Bollinger Bands
These are moving averages that are offset by a standard deviation. This means 95% of all price action will take place in between the top and bottom bands. Some traders look for stocks trading outside their Bollinger Bands as that indicates an extreme situation (5% status). The idea here is that these stocks are very extended and are due to reverse. In combination with RSI and candle stick patterns, this can help us find good stocks for reversal strategies.
Average True Range (ATR)
The Average True Range is a trading term used to the measure the volatility of a stock or index and tells us the average price range a stock typically trades in.
Head and Shoulders
The head and shoulder formation has three peaks where middle is highest and symbolizes the head while other peaks signify both right and left shoulders.
Cup and Handle
The cup and handle strategy is a trading strategy that is based on a familiar pattern in technical analysis which looks like a cup and handle.
Flag & Pennant
Pennant and flag pattern are chart formations that indicate a continuation in the trend for that time period especially if there is volume on the breakout.
Dead Cat Bounce
In trading, dead cat bounce refers to a temporary recovery that happens after a long decline which is usually followed by a downtrend.
Death Cross
Perhaps one of the scariest sounding terms on Wall Street is the “death cross” which is a name used when major moving averages cross paths.
Gravestone Doji
The Gravestone Doji is formed when the opening and closing price trends for underlying assets are essentially equal, but also occur at the daily low end.
Fibonacci
Fibonacci retracement is a technical analysis term referring to support or resistance areas that is used by both active and long-term traders.
Floor Pivots
Floor trader pivots are one of the more popular pivot levels for active traders and are commonly used by floor traders in the trading pits.
Oscillators
An oscillator is a technical indicator that is used to help determine overbought/sold conditions or to confirm the strength of a trend
Parabolic Indicator
The parabolic indicator refers to a technical analysis strategy that utilizes trailing stop and reverse method in order to determine entry and exit points.
VWAP
Volume Weighted Average Price, VWAP, is a trading tool calculated by taking the number of shares bought times the share price and dividing by total shares.
Simple Moving Average
Simple Moving Average (SMA) is an average price calculation on the closing price of a security over a period of time and divided by the amount of periods.
Volume Profile
The volume profile refers to an advanced charting study used to show trading activity where volume is displayed at prices instead of over a certain time.
Stochastic
Stochastic Oscillator is a momentum indicator that helps to show the current location of a security closing price relative to its high/low range.
Alligator Indicator
The Alligator Indicator was first introduced by Bill Williams in the 1990s with the idea that markets trend a small portion of the time while remaining in a sideways range for most of the time.
Unicorn
A unicorn refers to a start-up company that has attained a $ 1 billion market value as valuated by either a private or public investment firm.
Triple Bottom
Triple Top
The triple top pattern can be described as a bearish reversal pattern used by traders and investors to predict a potential reversal in the current trend.
Simple Moving Average
Simple Moving Average (SMA) is an average price calculation on the closing price of a security over a period of time and divided by the amount of periods.
Standard Deviation
Standard deviation is a statistical measure that represents the rate of divergence from the mean in a data set and is used a lot in trading.
On Balance Volume
On Balance Volume a momentum indicator that helps to measure the buying and selling pressure in a stock or any other financial security with volume.
Opening Range Breakout
An opening range breakout is a fairly simple strategy that involves taking a position when a price breaks above or below the previous candle high or low.
Ichimoku Cloud
The Ichimoku Cloud identifies support and resistance levels, gauges momentum, identifies the direction of trends and provides trading signals.
Keltner Channel
The Keltner Channel is a technical indicator that shows a central line for a moving average and channel lines below and above.
Gap and Go
Gap and Go strategy is a momentum based day trading strategy which involves a gapping stock that continues in that direction with strong volume at the open.
Channel Pattern
Channel Pattern is described as a price movement which utilizes support and resistance to form a channel where prices will remain for long periods of time.
Average Directional Index (ADX)
Average Directional Index is a technical indicator that is used to signify the strength of a trend and works best when a stock is trending.
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