Trading Terms

 

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A-1 Trade : A trade with a high probability of success and profit.

Abandoned Baby : A term used to describe a candlestick reversal pattern. Candlestick pattern details, applications and descriptions are covered in our Harnessing the Power of Candlesticks On-line class.

ABC Wave Pattern:  A term used to describe an Elliott wave pattern. The pattern ia a three wave counter trend price pattern, where A is the first price wave against the market trend, Wave B is a corrective wave to wave A and Wave C is the final price movement to complete the countertrend price action. Learn more about Elliott waves and technical analysis in our online trading classes.

Above Market Order: A limit order that is placed to buy or sell a financial  instrument for a price that is higher than the current market price. If the market does not reach the specified price, the order will not be filled.

Absolute Breadth Index (ABI): An index Developed by Norman Fosback, the ABI calculates  the absolute value of the difference between advancing issues and declining issues. It tells us how much activity and volatility are taking place on the New York Stock Exchange without regard for price direction.

Absolute Price Oscillator (APO): An indicator that is calculated based on the difference between two exponential moving averages (EMA). The APO is calculated by subtracting the longer term EMA from the shorter EMA. The calculated APO value is expressed in absolute terms. This is often referred to as the MACD indicator. MACD Indicators are thoroughly covered in our Technical Analysis On-line class.

Accredited Investor: A Term used by the Securities Exchange Commission (SEC) in Regulation D of private placements. Refer to regulation for details.

Accrued Interest: The amount of interest that is earned over a specific period of time. 

Accumulation: The act of buying (accumulating) a financial instrument without causing the price to increase significantly. After a steep decline price may start trade sideways at a base for an extended period of time. Traders and investors may seek to buy new positions or increase existing positions during this period. This is often referred to as accumulation.

Accumulation Distribution Line: A momentum indicator that relates price changes with volume.  It examines the closing price as it relates to the range of prices (High - Low). The closer the close is to the high, the more volume is added to the cumulative total. Learn more about using technical indicators, trading with indicators,  technical analysis and reliable trading chart patterns in our online trading classes.

Adjustment: The process of modifying a trading position by buying or selling instruments to minimize loss and increase profits. This is often associated with option trading strategies. Learn more about trading options, option trading strategies and trade risk management using options in our option classes.

Advance Decline Line  (AD Line) : The AD line is a widely used indicator that measures the breadth of a stock market advance or decline. The AD line tracks the net difference between advancing and declining issues.  When the AD line is compared to the market average and there is a  divergence from that average, this could be a signal of a possible trend reversal.

Advance Decline Ratio: The is the ratio of advancing issues divided by declining issues. Calculating the moving average of the AD ratio will help smooth it, so that it can be used as an overbought and oversold indicator.

Advancing Market:  This is a term used to describe a market stage when price is forming an uptrend.  Price is making higher highs and higher lows.

Advancing Declining Issues: This a market momentum indicator that uses  the advancing issues and the declining issues. It subtracts the declining issues from the advancing ones.  When smoothed it can be a good overbought oversold indictor.

Advanced Trading Strategies: Trading strategies used by floor traders, market makers, specialists and institutional traders and investors.

Adverse Excursion: A term to describe a loss that occurs when price moves against a position in a trade.

ADX: The Average Directional Index (ADX), is an  indicator that measures the strength of a trend and can be useful to determine if a trend is strong or weak. High readings indicate a strong trend and low readings indicate a weak trend.  Learn more about trading with ADX and trading with other technical indicators in our trading classes.

After Hours Market: The trading that takes place during a three hour period after the official close of the market. Learn more about after hours trading practices in our online trading courses.

Against Actuals: A financial transaction typically used by hedgers who want to exchange futures or cash positions.

Agricultural Commodities Index : A weighted average of the important agricultural commodity contracts as compiled by Goldman Sachs. The Commodities used for the index include Wheat, Red Wheat, Corn, Soybeans, Cotton, Sugar, Coffee, Cocoa, and Orange Juice.

All or None Order: A type of instruction associated with an order, the instruction is to fill the entire order completely or not at all. No partial fills are accepted.

All Ordinaries Index(ASX) : The major index of Australian stocks.

American Depository Receipt (ADR): Securities issued by commercial banks that represent the shares of a foreign company. ADRs trade just like normal stocks on various US stock exchanges. Their performance usually parallels that of the parent company on its domestic exchange.
American Style Option : An option contract that can be exercised at any time between the date of purchase and the expiration date.

American Stock Exchange (AMEX): A private, not for profit corporation, located in New York City that handles about 20% of all security trades within the United States.

AMEX Composite Index : A weighted index of the stocks listed on the American Stock Exchange. Market capitalization of each company is used to construct this index.

Amex Index Options: Put and call option contracts that are traded on the American Stock Exchange.  These options are based on a number of sectors, industries and international indices. These indices cannot be bought or sold like stocks, their price movements are simply used for trading options.

Amortization: The paying off of debt in regular installments over a period of time.

Annual earnings: the earnings made by a company during the year. Learn  more about fundamental  analysis for beginners in our online fundamental analysis  classes.

Annual earnings change: the earnings change between the most recently reported fiscal year earnings and the preceding year earnings. Usually, calculated as a percentage. Learn  more about fundamental  analysis in our online fundamental analysis  classes.

Annual Percentage Rate (APR): the cost of credit that a consumer pays, expressed as a simple annual percentage. Learn  more about fundamental  analysis in our online fundamental analysis  classes.

Annual rate of return: The simple rate of return earned by an investor for a one year period.

Analysis of Variance: A technique used to improve the analysis over regression techniques. It can be used for identifying relationships between predictor and criterion variables, whether the predictor variables are quantitative or qualitative in nature.

Analyst: A person who studies companies and evaluates their financial instruments.  Once their investment research is completed they make recommendations to institutional and retail investors to buy, sell, or hold. Most analysts specialize in a single industry or business sector.

Andrew's Pitchfork: A drawing tool developed by Alan Andrews,  it uses three parallel lines drawn from three points that are selected based on chart observations. The points selected to begin the pitchfork are usually three consecutive major peaks or troughs. The three parallel lines extending out to the right form a fork that is are used for identifying support and resistance points. Learn about Andrews Pitchfork  and other technical analysis tools in our online trading classes.

Announcement Date: A specified date on which a company publicly announces earnings or other major announcement such as an impending stock split. Learn about fundamental analysis techniques in our online fundamental analysis and trading classes.

Annual Report: The financial yearly report made by a company to its stockholders. Federal law requires all registered corporations to make such reports. They usually contain a balance sheet, an income statement, a list of changes in retained earnings, and how income of the corporation was used. Learn  more about fundamental  stock analysis in our online investment classes.

Annualized: Conversion of data for periods of less than a year into an annual rate for comparative purposes. To annualize quarterly figures, you simply multiply them by the number 4, since there are four quarters in a year.

Annuity: A series of constant payments at set time intervals.

Appreciation: The increase in value of an asset.

Arbitrage: The process of buying and/or selling in two or more different markets to profit and take advantage of price discrepancies. There are a variety of option Arbitrage strategies. Learn more about limited risk option trading strategies in our option classes.

Area Pattern: A chart pattern of sideways price movement that follows a stalled uptrend or downtrend of a stock or commodity. Some of these patterns (triangles, flags, wedges etc.) can be used as leading signals for impending price movements. Learn more about other technical analysis and reliable trading chart patterns in our online trading classes.

Arithmetic (Linear) Scaling: On an Arithmetic (Linear) scale chart, the spacing between each price point on the vertical chart scale is identical. The vertical distance between 20 and 30 is equal to the vertical distance between 40 and 50. Learn more about chart analysis and reading chart patterns in our online trading courses.

Arms Index (TRIN): The TRIN is an indicator that was developed by Richard Arms .  It is designed as a contrarian indicator to detect overbought and oversold conditions in the market.  It calculates the ratio between the average volume of declining stocks and the average volume of advancing stocks. The TRIN has an inverse relationship with the market. So if the TRIN is  rising the market is bearish, while a falling TRIN indicates a bullish market. Sometimes the scale of the TRIN is inverted to reflect this inverse relationship.  Learn more about using market internals for daytrading in our online daytrading courses.

Aroon: Aroon is an indicator system that was developed by Tushar Chande in 1995, it can be used to determine whether a stock is trending or not and show the strength of  the trend. "Aroon" means "Dawn's Early Light" in Sanskrit and Chande chose that name for this indicator since it is designed to reveal the beginning of a new trend. The Aroon Oscillator signals an upward trend when it rises above zero and a downward trend when it falls below zero. The farther away the oscillator is from the zero line, the stronger the trend. Learn more about properly using technical indicators and reliable trading chart patterns in our online trading classes.

Aroon Oscillator: the Aroon Oscillator is calculated by subtracting the Aroon(down) from the Aroon(up). Since Aroon(up) and Aroon(down) oscillate between 0 and +100, the Aroon Oscillator will oscillate between -100 and +100 with zero as the center crossover line. Learn more about powerful  trading indicators in our online trading classes.

Ascending Trend Channel: An ascending line that connects the bottoms of the down waves and is parallel to a trend line. The ascending channel line and the trend line form borders on an uptrend.

Ascending Triangle: A sideways price pattern with two converging trend lines, the top trend line is relatively flat (resistance), while the bottom trend line (support) is rising. This is typically recognized by traders as a bullish pattern. Learn more about other technical analysis and reliable trading chart patterns in our online trading classes.

Ask: A term used to describe an "offer" to sell, the price that the seller or market maker guarantees to fill a buy order. A buy order placed at the market will usually be filled at the current asking (offer) price.

Assets: Any items owned that have a cash market value.

Assignment: This occurs when the short option position is notified, that long position has decided to exercise. When the long position exercises, the short position is assigned. The long position has the right to exercise and the short option position has the obligation to oblige. Join our beginners option courses to learn how option trading strategies are made easy to understand.

Asymmetrical trading system or strategy: A trading system or strategy  where the sell signal is not the same as the buy signal.

At the Money: An option whose strike price is equal to the price of the underlying security.

Auction Market: A market where buyers enter competitive bids and sellers enter competitive offers at the same time.

Average Directional Index (ADX): The ADX is one of the elements of the Directional Movement Indicator system developed by J. Welles Wilder, the ADX line is based on the spread between the +DI and -DI lines.  Learn more about powerful  trading indicators, indicator  trading strategies and  technical analysis  in our online trading classes.

Average True Range (ATR): A  measure of a security's volatility. High ATR values indicate high volatility and may be an indication of panic selling or panic buying. Low ATR readings indicate sideway price movement by the stock. Learn more about technical analysis, trading using indicators and ATR in our technical analysis online classes.