STOP BUY: Price set above current market price and used for a short position
STOP SELL: price below current price, and sued to protect profit/loss on stock already owned. i.e; you have stock @ $30/share "stop order/sell stop" @ $29, broker will sell at $29 (AKA: stop loss order).
TRAILING STOP: Flows up.down and stops behind/before with a set percentage ready to buy/sell.
LIMIT ORDER: Order to buy/sell at a specific price.
STOP LIMIT ORDER: Combination of both aforementioned trading apparatuses, but only takes effect after stock reaches a certain price. It's a good way to soften losses. i.e; buy at $30, set "sell 30 limit 29," meaning, if your stock falls to $30, broker starts selling, but if falls below $29, broker stops. So if market price plumets to $10, at least you've saved some of your money from loss.
ORDER CANCELS ORDER: Used with limit & stop, helps protect in volatile market & overides the previous order.
ORDER SENDS OTHER: When one is executed another kicks into effect.
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SWING TRADING: Holding a position for a few days.
POSITION TRADING: Holding for several weeks/months.
CLICHE: But on the rumor, sell on the news (of course you could sell on the rumor when price starts elevating, too).
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LIQUIDITY: Ability to buy/sell without affecting the market (or MARKET LIQUIDITY).
LEVERAGE: Borrowing money to improve your return.
VOLUME: Amount of security traded over a given period.
-High volume without change in price = equal match of buying/selling.
-High volume with rising price means buyers ounumber sellers.
-High volume with falling prices means sellers outnumber buyers.
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TRADING IN THE SPOT MARKET: Trading currencies directly at exchange rates.
COMMODITIES: are basic, interchangeable goods sold in bulk, and used to make other goods. i.e; oil, gold, wheat, lumber. Good hedge against inflation.
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FIGURING PROBABILITY OF LOSS: Multiply expected return by lilihood and add together (%80x$11)+(%20x$0)=$8.80 -if contract is $10, you would pass.
Share at $10, %90 chance of getting $11, and %10 chance of $6 = (%90x$11)+(%10x$6)=$10.50
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LIMITED LIABILITY: Only risk loosing amount you put in (while returns are infinite).
STANDARD DEVIATION: Math used for calculating volatility.
OPPORTUNITY COSTS: The return you could get doing something else.
RISK-RETURN TRADE-OFF (or COST RISK): The greater potential reward, the greater risk you're expected to take (in gaining it / to get it).
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TOP-DOWN RESEARCH:
Drawing tread-lines, follow the trend from lowest point to the highest point, revealing your support resistance.
PIVOT POINT: Average high, low, & close for the day.
-If the day's price closes above the pivot point, that sets new support level. If below, new resistance.
MOVING AVERAGE: Calculated by adding average of new days while dropping the oldest.
CROSSOVER: When price crosses moving average line.
M.A. is a lagging indicator, because it's an average.
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ACCUMULATION: Where traders get excited and change their position.
MAIN PHASE (AKA CONTINUATION): Line moves along nicely with no usual price action.
CONSOLIDATION (AKA CONGESTION): Stays within trend without hitting higher highs/lows. Stay within trading range. Good for scalpers who make large volume of trades in search o very small profits.
RETRACEMENT (CORRECTION AND PULLBACK): A secondary trend, a short term pullback away from the main trend to the support level.
DISTRIBUTION: Where traders don't think the security can go up in price anymore, so they start selling.
REVERSAL: When trend changes, erecting buy/sell points.
MOMENTUM: To calculate momentum take today's closing price and divided by price 10 days ago, and multiply by 100 = momentum indicator. If it's above 100, it's up. If it's below 100, it's down.
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FLAGS & PENNANTS: Show retracements, short term deviations from the main trend. In a pennant, support lines will converge. In a flag, support lines run almost parallel.
-usually found in the middle of the main phase of a trend, and last about two weeks before going back.
-almost always accompanied by volume.
-if trade volume isn't falling, possibly starting a reversal (a change in trend).
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HEAD & SHOULDERS
When right shoulder formation reaches price plunges down.
-an upside down head & shoulders could signify a rise in price at the end.
-a cup handle forms when those who bought at the old high and felt burned fake take their money and get out.
GAP: Causes and adjustment in price & volume.
-a gap up or down may be signaling a trend in either direction.
FIBONACCI: 0,1,1,2,3,5, 8,13,21, 34. -all the way until "The Golden Proportion," or 618.
JAPANESE CANDLESTICKS: The body shows how volatile a security is, green is up, red is down. The body is the wax part, the wick at the top is the day's high; the bottom is the day's low.
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Momentum is measured with momentum oscillators.
-when positive, overbought
-when negative, oversold.
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TRADING ON THE TICK/TRIN (TRIN = Trading Indicators): Adding all upticks and downticks for difference.
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FORCE INDEX: Volume x (today's moving average - yesterday's moving average).
-gives a sense as to strength of a trend. Basically, if today's closing price is higher than day before's, that's positive.
-force index scales the moving average moentum oscillator for the amount of volume that accompanies that price change. That way trader has a sense of just how overbought or oversold the security is on any given day.
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ON-BALANCE VOLUME: Running total of the amount of trading in a security.
-to calculate: look at today's closing price relative to yesterday's and then do one of the following:
-if higher than, add today's volume to yesterday's on-balance volume.
-if today's closing price less than yesterday's, subtract today's volume form yesterday's total.
-if today's close is same as yesterday's, do nothing!
-reason to track it signals change in demand
-gauge smart money behavior, institutional buying.
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OPENING INTEREST: Number of buy orders submitted before market opens. When open interest high, people like to add shares, meaning stock should rise.
-if open interest is falling, will signal drop in price.
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AVERAGE TRUE RANGE: Way to measure volatility, or how much occurred in one day.
-the higher the average is, the more volatile a security is.
calculated by:
1) the current high less current low.
2) the absolute value of the current low less the previous close.
3) calculate 3 numbers then average the highest of them with true range for the past 14 days.
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BETA: Beta is convariance (the statistical measure of how much two variables move together) of a stock with the rest of the market (deprived from CAP INDEX PRICING MODEL).
-a beta of one means a security is moving faster than that of the market.
-less one, slower than the market.
-a negative means that the security is moving in opposite direction of the market.
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THE VIX: stands for Chicago Board Options Exchange Volatility Index. The vis is based on the implied volatility of options on stocks included in the S&P500 index.
-often called the fear index, used to gauge amount of negative sentiment investors have.
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VOLATILITY RATIO: Used to determine whether security is expected to be more or less volatile right now than it has been in the past.
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MEASURING MONEY FLOW: Money flow can show which way the money's going.
-calculated by change in price X number of shares traded.
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ACCUMULATION/DISTRIBUTION (buying/selling):
accumulation (close-low) - (high - close)
distribution (high - low) X (period's volume)
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MONEY FLOW RATIO & MONEY FLOW INDEX:
MONEY FLOW: Closing price X flow of shares traded
MONEY FLOW RATIO: Total money flow for days when up from prior days (with positive money flow days) / by total money flow for those days where prices were down from the prior day.
MONEY FLOW INDEX: A single indicator or tracked relative to prices for a given period of time. MFI = 100 - 100
I + money ratio
-if MFI over 80, usually considered over bought.
-if less than 20, considered oversold.
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-money brokerage firms maintain "dark pools" (or dark books, dark liquidity) for large clients. order will be held so as not to affect the overall stock price.
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SOME STANDARD STRATEGIES
-Many traders develop their own systems after they've been trading for awhile, but they often start with something standardized.
RANGE TRADING (aka CHANNEL TRADING): Starts with recent history of a security. Looking at charts to identify typical highs and lows including price. Trader simply buys low and sells high. When security dips in price the order to buy is placed; when it rises, the order rises, order to sell goes in.
-in a bear market, you may want your trading strategy to range pattern; in a bull market a contrarian, or momentum one.
-most range traders use stop limits to keep their trading in line with what they see. a stop limits the loss if the security keeps dropping below your entry point, and the limit order gets you out at a profit if the security moves to the top of the range.
CONTRARIAN TRADING: A contrarian trader looks for assets that have been rising in price and sells them; prefers to buy things that have been falling. The goal is to sell what seems to be over priced and buy what seems to be a bargain.
-may be quick to spot when a trend ends; for example, they may buy on a rumor and sell on the news; jumping right out when everyone else is ready to jump in.
-contrarian traders believe nothing rises forever, and nothing falls forever.
MOMENTUM TRADING: Buy securities when prices are rising and sell when prices are falling. Momentum trading works best in a bull market.
NEWS TRADING: Is possibly the most traditional form of day trading.
-doesn't pay much attention to charts; but waits for information that will drive prices.
-this could be: company announcements, general economic announcements, about interests rates or unemployment, or rumors.
-the disadvantage is that good events may be few due to the nature of the media and often the hype is already built into the price before you hear about it.
-difficult to automate; can't place a limit order to buy when a price limit is hit.
PAIRS TRADING: Look for two related assets and goes long on the stronger one and short on the weaker one.
-many traders look for stocks in same industry using this method, like the dollar and the euro, for example.
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When looking at charts, if you have three moving lines, you have three moving averages representing different quantity of days. For example, 5, 10, 15.
A momentum indicator above 100, is expected to keep moving up.
Momentum indicator is a good indicator of a trend.
BREAKOUTS: When prices passes through resistance or support lines sometimes causing new support and resistance levels. One-time break out may just be an anomoly, or flase breakout.
-pay attention to two or more breakouts.
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Trading on margin can be benefit to day traders in that they close out their accounts daily, both minimizing risk and loss and avoiding interest.
The Financial Industries REgulatory Association defines Pattern Day Traders, as one with a margin account holding at least $25,000, and buys and sells, or sells short then buys the same security on the same day at least four or more times in 5 business days. # of day trades should be more than %6 of the customer's total trading activity for that same 5 day period.
SHORT SELLING: Borrowing securities and selling them in hopes of repaying a loan, by the shares by buying back cheaper shares later one.
-can't borrow shares if everone already / too many people already short-sold a particular stock.
-wats until shares are lower in price, then buys at bargain. Return shares to broker to pay the loan, and pockets the difference (between what you sold and bought, less itnerest).
-due to "uptick rules" short sell when the last trade was a move up. You can't sell when a stock is moving down.
-must be careful of short squeeze -some good news that drives the stock up.
-some people dislike short-selling, or even blame them, because many are suspected to spread rumors or negativity in order to bring stock cost down.
In the forex trading on margin for leverage is endless. That's because in the lending industry buy/sell profits are net-neutral. Meaning if you borrow %100 of your worth to buy Euros, the firm/lender sells Euros to buy dollars.
ARBITRAGE: Looks to make profits from small discrepancies in security prices. True arbitrage involves buying and selling the same security, and many day traders use arbitrage as their primary investment strategy; they may use high levels of leverage to boost returns.
-you sell as much of the high priced asset in the high-priced market as you can, borrowing shares if you need to, and then turn around and buy the low-priced asset in the low-priced market.
SCALPING: Takes advantage of temporary spread between the bid and ask price.
