Day Trading Terms
52-week high/low – When a stock hits a yearly high or low
5 Min Inside BO JPM - An entry signal in JPM on the 5 minute chart. The entry signal is an inside candlestick. For a long the entry is above the 5 minute inside candlestick. (reverse for shorts)
After Hours – Trading done after the market closes
Ask – The price a seller is willing to sell for or the advertisement to sell stock. (The lowest ask price is most commonly referenced)
Example - XYZ stock quote: Bid $50.25 X Ask $50.30.
Bear or Bearish - 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.
Bull or Bullish - 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.
Bid – The price a buyer is willing to buy for or an advertisement to buy stock. (The highest bid price is most commonly referenced).
Example - XYZ stock quote: Bid $50.25 X Ask $50.30.
Breakouts – When a stock “breaks out” above it’s previous resistance level
Candlesticks – A type of chart where each candle represents the high, low, open & close for a given period
Covering – Buying back the shares that were sold short
ETF – An exchange traded fund comprised of a set of equities
Earnings Reports (E/R) – A company’s quarterly/annual report of their financials
Filing – A document filed with the SEC regarding company updates
Float – The amount of shares available for public trading
Fundamental Analysis – Analyzing a company & its industry (financials, filings, sector, etc.)
Gap Up/Down – When a stock opens above or below its previous closing price
High/Low of Day (HOD/LOD) – A stock’s highest or lowest price for the day
Hard-to-borrow – A stock that is not readily available to short. Brokers will often charge an additional fee to those trying to short hard to borrow stocks.
Liquidity – The ease with which a stock can be bought or sold without drastically affecting the stock’s price
Long – Buying a stock with intentions of selling at a higher price
Low Float – A stock with a low amount of publicly traded shares, often times experiencing higher volatility
Market makers – The firms responsible for facilitating buy & sell orders and maintaining liquidity in the markets.
Market Cap – The total dollar value of a company based on the stock’s price and outstanding shares.
ORB - Open Range Breakout (or Breakdown) - is just that: a break from the opening range. Depending on your timeframe and testing, you will define the opening range differently. Traditionally, when the strategy became popular in the 1990s, the opening range is the first hour of trading after the open.
Open Price - The first traded price in that time frame. This could be monthly or 5 minute candle. The most commonly watched open price for us is the daily open price and the hourly.
Orders - The most common types of orders are market orders, limit orders and stop-loss orders.
See more on this below.
Outstanding Shares – The total amount of shares issued, including both the float and institutional ownership
Pre-Market – Trading done before the market opens
Price Average - the average price of the stock that you paid. Meaning if the stock was first bought at $10 then rises to $11 and you double your position, you will have a cost average of $10.50.
Profits & Losses (P&L) – A portfolio’s gains/losses for a given period
Pattern Day Trader Rule (PDT) – An SEC rule limiting traders with under $25,000 in their accounts to a maximum of four day trades in five days.
PR – A press release issued by a company
Red-to-Green & Green-to-Red – When a stock goes from being up on the day to down on the day (or vice versa)
Resistance – A price level at which sellers repeatedly overpower buyers, making it difficult for the stock to increase in price.
Risk/Reward – How much money you plan to risk on a trade compared to how much you expect to gain
Scalp – Taking advantage of very small price changes
Short Selling – Selling shares of a stock that you do not own in hopes of buying the shares back at a lower price (the opposite of going long)
See more on this below.
Spread – The price difference between the bid and the ask
Stop Orders - an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the “stop”).
See more on this below.
Support – A price level at which buyers repeatedly overwhelm sellers, making it difficult for the stock to drop lower in price.
Technical Analysis – Analyzing a stock’s historical price action (using charts and technical indicators) to predict future movement.
Trend – The general direction of a stock’s price movement. A stock can be in an uptrend or downtrend.
Volatility - A measure of the stocks stability and is usually calculated as the standard deviation over a given period of time.
Volume – The amount of shares a stock trades for a given time period
Well-Bid - higher highs and higher lows.
Well-Offered - lower highs and lower lows.
Orders
The most common types of orders are market orders, limit orders and stop-loss orders.
- A market order is an order to buy or sell immediately. This type of order guarantees that the order will be executed, but does not guarantee the execution price. A market order generally will execute at or near the current bid (for a sell order) or ask (for a buy order) price. It is important to remember that the last-traded price is not necessarily the price at which a market order will be executed.
- A limit order is an order to buy or sell at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.
- A stop order, also referred to as a stop-loss order is an order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
- A buy stop order is entered at a stop price above the current market price. Generally a buy stop order is used to limit a loss or protect a profit on a stock that has sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or protect a profit on a stock they own.
When should I use stop orders?
Because stop orders result in the submission of a market order, the same execution and eligibility characteristics apply:
- Stop orders will only trigger during the standard market session, 9:30 a.m. to 4:00 p.m. ET. Stop orders will not execute during extended-hours sessions, such as pre-market or after-hours sessions, or take effect when the stock is not trading (e.g., during stock halts or on weekends or market holidays).
- Although stop orders only trigger during the standard market session, traders can decide whether the stop should only be effective for the current market session or carry over to future market sessions. Stop orders designated as day orders expire at the end of the current market session, if not yet triggered. Good-till-canceled (GTC) stop orders carry over to future standard sessions if they haven’t been triggered. At Schwab, GTC remain in force for up to 60 calendar days unless canceled.
What are the risks of using stop orders?
Stop orders submit a market order when triggered, generally guaranteeing execution unless trading is halted or closed. However, guaranteed execution comes with some trade-offs so it’s important to understand the risks you face.
- Gaps – Stop orders are vulnerable to pricing gaps, which can sometimes occur between trading sessions or during pauses in trading, such as trading halts. The execution price can be higher or lower than the stop’s trigger price, which only denotes when the order should be submitted.
- Fast markets – How fast prices move can also affect the execution price. When the market fluctuates, particularly during periods of high trading volume, the price at which your order executes may not be the same as the price you saw at the time the order was routed for execution.
- Liquidity – You could receive different prices for parts of your order, especially for orders that involve large numbers of shares.
- No market for the security – If there’s no “market” for the stock (meaning that there’s no bid or no ask available) or if the stock itself is not open for trading, the market order triggered by your stop can’t execute.
Bottom line: Stop orders can be a useful tool if your priority is immediate execution when the stock reaches a designated price and you’re willing to accept the risk of a trade price that is away from your stop value. You should understand how market hours, liquidity, and market speed can affect the execution and pricing of a stop order.
Selling Short (Short Sale)
When you believe a stock is going lower, you initiate a 'short sale' by selling stock that you 'borrow' from your broker. To exit a short sale, you must buy the stock back. The correct term for exiting a short sale is 'cover'.
There are two ways you can exit a stock when you initiate a short sale.
- You can passively advertise a limit order to cover (buy) on the bid. Another trader would need to sell it to you. They would be 'hitting the bid'.
- You can actively buy from other traders advertising to sell on the offer. This is known as 'taking the offer'.
Long Side Trading
When traders are 'long', they are buying shares. This means they have a 'long' position and expect the stock to go up. Traders will profit when the stock goes up or will lose money when the stock goes down. They also have a 'bullish' position. To exit a long side or bullish position, a trader may 'scale out' or sell their shares in small positions.
When you buy a stock, you are 'long'. To exit a long you 'sell'.
You can advertise to buy on the bid, or you can 'pay up' and buy stock on the ask. When you actively buy stock on the ask you are 'taking the offer'.
- If you buy on the bid you are passively advertising, so another trader would need to sell it to you.
- If you buy on the ask, you are actively buying shares from another trader who is advertising to sell.
There are two ways you can exit a stock you bought.
- You can passively advertise a limit order on the offer. Another trader would need to buy it from you. This would be 'taking the offer'.
- You can actively sell to other traders advertising to sell on the bid. This would be 'hitting the bid'.
The bid is always a lower price than the offer. So when you choose to enter or exit a trade actively, you are "paying the spread," and not getting the best price. As your trading skills improve, you become better at knowing when to advertise to exit a trade. (to get better prices)