Definitions of Day Trading Terms
Every field has its own jargon and language. Here are some terms that will help you to understand the world of the trader.
The market trades twenty four hours a day. From Asia, to Europe, to the United States the global market is always open and offering opportunity.
Charting program based off of a program written by Tom Joseph who is well known in the trading community for his market timing strategies. GET stands for GAN Elliott Trader and combines elements of the work of W.D. Gann and R.N. Elliott. This suite of indicators is offered exclusively by eSignal who bought Tom Joseph's company. Advanced GET gives you an edge in the market helping you determine your entry and exit prices.
American Stock Exchange located in New York City. It is the home to over 100 exchange traded funds such as the SPDR; also know as the SPYDER, which is based on the 500 stocks that make up the S&P 500. There are also other common stocks and options that trade there. The stocks that trade on the AMEX are not the typical IBMs and Yahoos of America; they are stocks such as BGO, which is the Bema Gold Corp, or IBX, IBAX Corporation, which is a pharmaceutical corporation.
Also known as ATR. This is the average movement of a stock or futures contract on any given day. It can be an average of 7 days, 14 days or whatever number the trader desires. For example, if the Dow opens at 10500 and it has an average range of 100 points per day, then you can expect to see either 10400 to the downside or 10600 to the upside.
A bear market is a market that is going down; it can be a short-term bear market which can last from several hours to several days. The year can be defined as a bear market if the major indexes close lower than their yearly opening. For example, if the S&P opens on January 2nd at 1562.00 and closes on December 31st at 1530.00, then the S&P is said to have lost for the year and therefore was bearish.
One who has become an expert is one who has learned to profit in the markets through trial and error. In order to become an expert a person must educate themselves in all markets and practice trading prior to using their real money. Repetition is the mother of skill here. It requires learning small bits of a method and practicing them until you know them cold and can learn other aspects of that method. Eventually left brain repetition will build right brain recognition and skill.
Black box is a proprietary software program which generates trading signals for the user but does not disclose its inherent logic.
Created by John Bollinger in the early 1980's. This technical indicator is designed to find a relative definition of the high and the low in a given market throughout the trading day. This "indicator" can aid in rigorous pattern recognition. You can buy this indicator in most all charting/data packages through all of the major data suppliers.
The brokerage is the place that clears your transactions from trading. They are like the bank. They take your money and hold it on deposit; if you make money in a day they make a deposit; if you lose money then the brokerage takes money from your account and you in essence "lose" that money. They charge transaction fees known as commission. They assist the trader with opening accounts, opening trading platform accounts and send regular statements based on activity caused by the trader. You can receive these statements by mail or by e-mail.
Confidence is built by adherence to tested methods and rules. After practicing (using) a method/rule many times, you realize that "I can do this". You also realize that you can handle anything that comes up in the market therefore your confidence grows with each repetition of a trading technique.
A market in which securities prices are trending up. See bear market for more.
A purchase or sell of a security triggered by an established rule set or indicator pattern.
Chicago Board of Trade located in Chicago, IL. One of the largest futures exchanges in the US and home of the original Treasury bond contract. Grain contracts like soybeans are traded there as are the newer Dow Jones Futures contracts.
The use of candlestick charts, bar charts, line charts, point and figure charts, or swing charts to track market action.
Charts are used by "chartists" to track market action. Chartists believe that prior action of the security's price as denoted on the chart gives useful clues as to the future price performance.
A method is a structured set of rules used by traders to organize data for analysis. A clean and concise method is one that reduces an excessive number of variables to a smaller set that can be effectively understand and manipulated by a trader.
Unambiguous and does not leave room for confusion or widely differing interpretation for the trader.
Chicago Mercantile Exchange located in Chicago, IL. The home of the original large S&P Futures contract which opened for traded in April 1982. Also the location where foreign currency contracts trade. Also houses the largest trading pit which is where the Euro currency trades. There are also other large commodities that trade there such as cattle and pork bellies. The CME was an innovator in electronic trading and launched the S&P eMini and the NASDAQ Emini and the birth of the electronic stock index trading revolution. In July of 2007, the CME and the Chicago Board of Trade merged and are now collectively named "CME Group."
The markets "internal" language. An experienced trader learns to "read" the market so as to profit from its fluctuations.
Commodity Exchange located in NY. This is where the precious metals, namely gold and silver, copper and palladium trade. The COMEX became notorious for changing the margins on the silver contracts and bankrupting the billionaire Hunt Brothers from Texas when they tried to corner the silver market in 1980.
Physical products that are traded under the following general classes: agricultural, metal, petroleum, and financial. One example of an agricultural commodity is corn. An example of a metal is gold. An example of petroleum is crude oil and an example of financial contract would be the S&P 500 Index contract.
Confidence is built in a trader over the course of time, trial and error, and also has to do with the belief in the method you are trading. You have to believe that you have a method that gives you a positive edge. (Comes by attending the DTI Platinum program and learning from the masters!)
An event where liquidity is lost and the market plunges in price. This loss of liquidity is caused because all of the participants turn to the sell side and there are not enough buyers to balance out the equation. As a result prices seemingly melt and go lower and lower as traders panic throwing out their stocks or futures regardless of price in an effort to convert all of their holdings to cash.
Futures contract that trades on the eurex exchange in Frankfurt Germany, it is the German equivalent to the US Dow Jones. DTI trains students with a proprietary method on trading the dax in the US morning.
Electronic access directly to the point of execution for a stock or futures order. Bypasses the traditional phone loop of having your order taken by a broker or phone clerk.
One of the largest US media companies and publisher of the Wall Street Journal. Has licensed the name "DOW JONES" for use in the Dow Jones Industrial Average, an index of 30 large US capitalization stocks. It is a price weighted index versus the S&P which is capitalization weighted.
Based on the original work of A.J. Frost and R.N. Elliot. More recently popularized by Robert Prechter, a theory that all market movements subdivide into 5 waves that can be counted so as to give a trader the equivalent of markings along the road of market meanderings.
Started trading in 1997 at the Globex division of the Chicago Mercantile Exchange. Contract size is one-fifth the size of the large S&P. Therefore each full point movement in the e-mini is worth $50.00 per point, the underlying value of the securities in the emini are worth approx $60,000.00 per contract at today's prices.
There are now e-mini contracts on numerous stock indexes including the S&P 500 (E-mini), NASDAQ 100 (e-mini NASDAQ), and Dow Jones (mini Dow), Russell 2000 Index (e-mini Russell). A mini is essentially a smaller size version of the large contract. It is often but not always one-fifth the size of the larger contract.
Stands for Foreign Exchange, primarily a bank --to-bank traded market where most of the world's currencies trade. The most active currencies, like the US Dollar, the Euro, Japanese Yen, and Canadian Dollar, are often traded in pairs, one against the other.
A contract traded on a regulated commodity exchange which calls for future delivery of either a product or its cash equivalent value at the end of the term of said futures contract. Contracts generally run in length from 3 months to 6 months on out to as much as 24 months in some areas of trade. A futures contract, unlike an option, is a commitment to buy, sell or deliver, the underlying product in the future, therefore it is possible to lose more than the initial good faith deposit which was put up to trade the contract, unlike options where the risk is limited to the option premium paid.
The difference in price between the near month delivery (say 3 months from now) and a further out delivery month (say one year from now). Sometimes this spread is positive and future delivery cost more than today's delivery while at other times a one year delivery is cheaper than today's price if the market fears that there will be an oversupply of the product in the future.
The futures contract that trades on the Eurex exchange in Frankfurt Germany. It is based on the underlying index, the German Xetra Dax, which is essential the Dow Jones Industrials of Germany.
to achieve a positive rate of return on an amount of capital over a designated period of time. The smoother the rate of growth the less stress. The faster the rate of growth the more profitable. As Ben Franklin once said, "If you grow your capital long enough, you will own the world." ;)
Make a series of well chosen trades of more winners than losers causing your account to grow over a period of time.
Insiders are defined as corporate officers and directors who have knowledge of the companies affairs not generally avail to the public on a daily basis. These Insiders are regulated by numerous securities laws which prohibit them from selling stock in front of news announcements and engaging in any other actions that would be seen as defrauding the public.
Live trading can refer to a demonstration of trading performed in real time with real money by an instructor or mentor like Tom Busby. This trading can be done physically in front of others in the forum of a trade show; it cal also be done on the internet through a chat room. Live trading can also refer to that phase of a student's career when they start trading with real money rather than doing simulated trades that involve an imaginary account.
To purchase a security and be the holder of the said security with the belief that it will go up and be liquidated at a higher price at a future time. Buy low, sell high -- in that order
MACD Moving Average Convergence Divergence
Invented by Gerald Appel -- essentially the MACD is the difference between a shorter term moving average and a longer term moving average of the price of a security. The theory is that when the spread between the shorter term moving average and longer term moving average widens there is more BUY pressure in the market. The converse would be true in the case of a falling security where if the shorter term moving average was below the longer term moving average it would indicate increasing urgency on the part of sellers to get out. The MACD is one of the best known measures of momentum.
Use techniques to automatically get out of losing trades quickly so as to protect the bulk of ones capital account. At DTI we not only use price based stops but uniquely, we also use time-based stops to protect capital.
Market language and terminology
Specific language used to describe markets, securities, trading patterns and techniques.
Can be a dealer in an over the counter market like the NASDAQ or a specialist on a stock exchange like the NYSE or the AMEX. Specialists have a responsibility to "maintain an orderly market" -- this means that when there is an excess of buy orders they are expected to sell short to meet the demand and when there are an excess of short orders they are expected to execute to soften the decline.
This phrase can refer to an active stock that stimulates the whole market like a Google or an Apple on a strong day which can be like a bell-weather that drags the mark up in its wake. On the downside a bell-weather might be like Wal-Mart which may miss an earnings estimate or be downgraded thus pressuring the market towards the down side for a period of time.
One of the five investment banking broker-dealer companies, known as "Mother Merrill", founded by Charles Merrill. The first stock brokerage firm to bring stocks to the broad investing public in the United States.
The use of techniques to expose ones capital to as little downside fluctuation as possible. This can include being patient, waiting for excellent entries (fat pitches), using stop-loss orders and exiting positions after a short period of time if they are not showing immediate profitability.
The use of techniques to control risk and grow capital faster.
New York Mercantile Exchange. The Petroleum complex including crude oil and natural gas are traded there.
New York Stock Exchange -- the oldest and largest recognized securities exchange in the US> home to the majority of the old-line blue chip companies like General Electric and IBM.
The price where the first trade of the day takes place. In DTI's view, like the 50 yard line, the bulls will try to push it up from there to take the market higher and the bears will try to push it down.
Options are securities which give the holder the right, but NOT the obligation to purchase or sell a specific security at some point in the future. A call option entitles the holder to BUY a security by "calling it" away from its original owner. A "put" gives the holder the right to sell a security by "putting" it to someone who is obligated to buy it at a specific price, namely the strike price.
Takes place generally during the day, but not if you are trading the night market in futures. It is the actual price fluctuation in the market place.
A measure of price like an index price for an average of stocks or an economic price gauge like the Consumer Price Index.
Defined as the rate of return per unit of capital invested.
Can be the return on an individual stock or future position; can be the return on a totally portfolio; r can be the return of a non-marketable item which could be the return on trading education like DTI
The normal amount risked for a particular type of trade. This is hard to define because different trading setups require a varying amount of risk. Some of our setups at DTI require very small amounts of initial risk and that risk is further reduced within the first several minutes of being in the trade.
Manage risk -- see above
How many units of pain do you have to expose yourself to experience a certain units of pleasure or reward. The less u have to risk per dollar of your gain the better the trading setup or method is for gain/
No risk involved. Very hard to find anywhere even US Savings Bonds Series E are not risk free, because by the time you get your return the value has diminished.
DTI Proprietary software in its 7th generation of development. Displays market data in an easy-to-understand-and-analyze-format. This software helps the trader make fast, informed decisions about the trend of the market. It also helps them with the entries, exits and protective stop placements thru the capturing of key numbers.
An index of 2000 stocks generally the best known of the "small capitalization" indexes.
Selling the market at a given price with expectation of buying it back at a lower price.
A company that has various indexes consisting of fortune 500 companies and specializing in various sectors of the markets such as transportation, energy and utilities.
A measure of momentum invented by George Lane, stochastics is a data series which oscillates between 20 "oversold" and 80 "overbought" --- many traders use stochastics to try to pin-point long or short entries into markets. Caution: in a strongly trending market it will give multiple buy or sell signals even though a trend is in place and continuing. It is best used in arrange bound market -- or a market that can't break out of a defined set of numbers.
A market sometimes centralized like the New York SE, and sometimes a dispersed dealer market like the NASDAQ, where securities are bought and sold by investors in many locations.
The study of price, volume, momentum and other measures to determine where securities prices are headed.
The different major markets or proprietary indicators that are used when technical analysis is your form of reading and trading in the market.
Measure on the NYSE of the number of stocks whose last sale was at a price either higher or lower than the preceding transaction. A positive tick figure of +1000 would mean that almost all of the recently traded stocks were trading on PLUS tockls which is an indication of heavy program buying indication and is often a sign of climax of a short-term move. The reverse would be true for the reverse of a move.
A forum of traders and investors who trade different strategies and ideas about how to make money in the markets. They come together to discuss these topics to educate themselves and learn new ideas and tactics for making money.
Located in Chicago at exchanges like the CBOT and the CME -- octagon shaped and looking a bit like Greek or Roman amphitheaters. The most active months are traded from the top of the pit -- the trader use hand signals to conduct their business.
One of the key factors in success or failure at trading. The ability to control fear and greed will determine a trader's long-term success. Traders who are too greedy will overtrade and make many mistakes. Traders who are too fearful will have "analysis/paralysis" always seeking perfect answers and afraid to pull triggers on their trades.
A tool used by traders to identify the trend -- some include charts, technical indicators or proprietary "black box" indications that the market is going higher or lower.
A direction that the market is headed in where it appears that all major market indicators are moving in the right direction.
Located in New York City in the financial district where the New York Stock Exchange and the American Stock Exchange. Wall Street also includes all of the major investment banking firms and brokerage houses.
Techniques used to manage total portfolio valuations over any given period of time. Some investors use traditional brokerage firms to "manage their wealth" but the new millennium has brought forth more experienced and educated investors who are managing their own money.
The DTI Green Circle is synonymous with "winning" in the markets. Which means they end the day with more money than the account started with -- therefore is in the "green" and not in the "red".
