You’ve got questions, we’ve got answers.
If you are new to the trading world, there is no doubt that you will have questions. We’ve all been there. It can be confusing when you are reading/listening to traders speak the trading lingo. In order to help you navigate the murky waters of trading, we’ve put together a list of common words/phrases/abbreviations that you may encounter.
If you’ve just started trading, you have probably noticed that knowing the lingo is important. These are brief definitions and you will likely need more in depth info on some. But, hopefully this helps all you new traders out there!
ATH: All time high (stock price is now higher than it’s ever been)
AH: After (Market) Hours. The market hours are 9:30am-4:00pm ET. AH refers to the hours that the market is open for trading after the market closes. This time varies by broker but is typically 4pm-8pm.
Averaging Down: You start with an original position size. As the stock drops in price, you add to your position in order to drop the cost basis. For instance, you buy AAPL at $117 per share. AAPL drops to $116 per share, so you add more. AAPL drops to $115 per share, so you add more. This is averaging down on your position. This technique can hold additional risk as you are adding to a losing position in the hope/anticipation that the stock will reverse and move higher.
Bear Market: Typically described as a market that has seen a 20%+ decline. Once a bear market starts, it can continue for an undetermined amount of time, but historically lasts about a year. A 20% incline from bottom indicates the bear market is over and a bull market has begun.
Bull Market: When prices of stocks continually run higher, with only small pullbacks in the duration. Bull markets can last years.
Correction: Typically described as a 10-19% drop in the market. Corrections are considered healthy and needed in order to continue a bull run. Anything more than a 19% drop indicated a Bear market has begun.
BID/ASK: Bid is the price that traders are willing to pay for a stock, Ask is the price that traders are willing to sell their stock. In between those two numbers is the spread, known as the bid/ask spread. If you wish to purchase a stock, the cost you are willing pay must be between this bid/ask spread before the trade will execute.
BTD: Buy the Dip! Stocks go up, stocks go down. When stock goes down and you purchase it, this is known as buying the dip.
Call Option: A call is an option contract that gives you the right to purchase a stock at an agreed price (but not the obligation to do so). If you believe that a stock price will go higher, but you don’t necessarily want to purchase the stock, you could purchase a call contract.
Put Option: A put is an option contract that gives you the right to sell shares of a stock at a certain agreed upon price (but not the obligation to do so). If you believe that a stock price will go lower, you could purchase a put contract.
Day Trade: If you are day trading a stock or option, it means you will get into the position and exit the position on the same day. You would not hold overnight.
Swing Trade: If you are swing trading a stock or option, it means you are buying it to hold for longer than a day. A swing trade can be overnight, a few days, a week, month, etc.
Short: Shorting references a stock trade. If you are shorting a stock, you believe the stock will decrease in value (go down). To short, you are selling a stock (borrowing from broker). To exit the position, you buy the stock back from the broker.
Stop-Loss: A stop-loss is a predetermined loss that you are willing to take if a trade does not go the way you planned. For instance, you enter AAPL at a price of $120/share with the intention that AAPL will go higher and you will sell for a profit. You decide that if AAPL does NOT go higher, you will cut your losses when AAPL hits $119/share. Therefore, your stop-loss for this trade is $119. Using a stop-loss limits the amount you can lose on a trade.
Long: If you are “long” a position, it means you believe the stock will increase in value (go up).
Leg: AKA “wave” – stocks typically don’t move in a straight line and each run between troughs and peaks are referred to as legs/waves.
ETB: Easy to Borrow – If you are trying to short a stock, this means there are plenty of shares available to borrow.
HTB: Hard to Borrow – If you are trying to short a stock, this means there are not many shares available to borrow. You may luck into some, but most likely you won’t be able to borrow at this time.
NTB: None to Borrow – If you are trying to short a stock, this means there are no shares available to borrow. You will not be able to short this stock, but you can buy puts, if options are tradeable on that particular ticker.
Scalp: A scalp trade is when you only expect to be in a trade for a short amount of time. This can be seconds or minutes, but usually not longer. Scalping is a technique that many traders use when a stock is expected to make a fast move (in either direction) – Many times, this is due to a news catalyst. Traders will usually take a larger position size and get in and out of the trade quickly.
Flush: When a stock or option “flushes”, it moves very fast to the downside.
Gap: A gap usually refers to the closing price of a stock vs. the opening price of a stock the next day. If spy closes at $300/share and opens at $320/share, there is a $20 gap. For swing traders, a gap can also be seen using a longer term chart such as a 1 hour chart.
Profit Taking: This can happen when a stock has had a substantial move to the upside over the course of hours, days, months. Those traders that have made gains during that time will decide to take profits. When many traders decide to take profits at once, this can cause the stock price to move downwards as traders sell their positions. As more traders notice the selling, they will begin to sell…. which causes more to sell and that is “profit taking”.
Wrecked: When profit taking becomes too extreme or there is a bad news catalyst, this can cause a stock to move rapidly down. Many times, the move down is so fast that traders have difficulty exiting their positions. When a stock moves down so much with very little recovery, you could say it was “wrecked”. If you were “all in” on one of those trades and didn’t exit fast enough, you could say your account is “wrecked”.
Rip: When a stock or option “rips”, it moves very fast to the upside.
Straddle: This is used in option trading. It is a technique used when you buy a put and and call (same strike and expiration) at the same time. You only use this technique when you believe a stock will have at least a 1-2% move.
Strangle: This is used in option trading. It is a technique used when you buy a OTM (Out of the money) put and and OTM call (different strike and same expiration) at the same time. You only use this technique when you believe a stock will have at least a 1-2% move.
VWAP: Volume weighted average price. This is a commonly used indicator on charts.
This is a brief look at the common terminology that can be seen and heard while trading. We encourage all new traders to use this list as a starting point and to seek additional clarification on the harder to understand concepts. As always, we are here to help with any questions! Feel free to reach out in the trade room, or Facebook, or Twitter if we can be of further help.
THIS POST AND ALL CONTENT ON THIS SITE REPRESENTS OPINIONS ONLY AND PROVIDED FOR EDUCATIONAL PURPOSES ONLY. CONTENT SHOULD NOT BE CONSIDERED ADVICE OR A RECOMMENDATION TO BUY OR SELL A SECURITY. PLEASE SEEK ADVICE FROM AN INVESTMENT PROFESSIONAL.