When you’re trading, you should know the lingo. Traders have their own stock trading terms, and if you don’t know and understand them, things could get lost in translation. When you’re just starting to learn how to trade, you need to understand the basics before expanding your knowledge. I use some stock trading lingo, and the trading community understands what I’m talking about when I use these terms. That said, every trader should know these stock trading terms, especially if they want to potentially be a successful trader.
Every trader should know these stock trading terms and definitions.
What Are Stock Trading Terms and Definitions to Know?
- blown out: you lose more than risk management plan allows
- bottom ticking: buying back at the lows
- catch a falling knife: trying to buy a stock that’s free-falling
- cover your position: you short a stock and you’re on the bid
- dead: stock or market is barely moving
- floating shares: the number of shares available to trade
- good for a scalp: trying to make a couple pennies on the trade
- hit piece: negative research report
- hits the tape: stock news
- market chatter: rumor or vague report
- offering out: trying to sell a stock at a limit price
- on the bid: trying to buy a stock at limit price
- resistance level: the price at which selling or short selling is prevalent and there’s not enough demand for the stock for it to break through
- scale in: slowly enter a long or short position, with the idea of adding
- short interest: the amount of shares all market participants are currently holding as a short position
- squeezing: the stock has a high short interest and its shares are moving higher
- summer doldrums: trading is slow during the summer
- support level: the price level where there’s high demand; the stock has a tough time breaking below and tends to rebound off of these levels
- top tick: sell at the highs of the day
When a stock’s price is running up:
- Ripping higher
- Going Parabolic
Now, if the stock has a high short interest and its shares are moving higher, we say that it’s squeezing.
For example, if a stock has a short interest of over 15% and a low number of floating shares, it could squeeze the shorts out if it runs higher.
Now, the number of floating shares is simply the number of shares available to trade. The number of floating shares could be thought of as the supply. If a stock has a low number of floating shares and high demand, they tend to have large moves quickly.
Short interest is the amount of shares all market participants are currently holding as a short position. For example, if there are 1M shares short, and the stock has 10M shares floating, the short interest would be 10%, or 1M / 10M.
Conversely, when shares are selling off, traders might say the stock is:
- Getting crushed
- Getting hammered
Traders who are trying to buy a stock that’s free falling are trying to catch a falling knife. You see, buying a stock as its selling off can be just as painful as trying to catch a falling knife. Chances are you’ll get bloodied up.
Now, if a stock or the market is barely moving, we say that it’s dead. Moreover, if it’s slow in the summer, traders would refer to that as the summer doldrums.
Stock Trading Terms: Execution
Let’s talk about execution-related and other stock trading terms.
When you’re buying stock and looking to sell, your perfect situation is to top tick, that’s when you get out at the highs of the day. When you’re shorting stock you dream of buying back at the lows, or bottom ticking the stock.
If you’re trying to buy a stock at limit price, you’re on the bid. On the other hand, if you’re trying to sell a stock at a limit price, you’re offering out.
If you short a stock and you’re on the bid, you’re trying to cover your position. Once you close the position, you can say that you’re out.
How about when you’re entering a position?
You can scale in, this is when you slowly enter a long or short position, with the idea of adding at some point. You may even wait to double down before entering. Usually you do that when you’re down on a position, you decide to double down and get a better average price. Hopefully, the stock will start moving in your direction, and if it doesn’t, you’ll probably call it a turd.
If doubling down doesn’t work… you may be in a position where you get blown out. This is when you lose more than risk management plan allows. In turn, you’re forced to exit the trade for a large loss. The bleeding will stop, but not without leaving a bad taste in your mouth.
Ever see a good opportunity, but for whatever reason you fail to pull the trigger? It’s OK, these things happen. It’s better to be patient and sit on your hands. You don’t want to be one of those people who chase and end up going on tilt.
That said, there will be tons of news that hits the tape. There could be a negative research report, known as a hit piece or short report. On the other hand, it could be a rumor or vague market chatter.
These types of trades could be good for a scalp, that is when you’re just trying to make a couple pennies on the trade. However, swing traders are looking for points. Another word for point is stick. For example, if Microsoft (MSFT) shares are trading $1 higher, we can also say that it’s up a stick.
Of course, if you’re someone who relies on chart patterns to make decisions you’ll come across some funny names like: double-top, cup and handle, head and shoulders, rising and falling wedge, just to name a few.
Stock Trading Terms: Technicals
If you’re using charts to trade, you need to understand some basic technical stock trading terms.
Now, if you’re buying in an area where you’ve seen market participants also buy stock… you’re buying in area of support. A support level is the price level where there’s a high level of demand so the stock has a tough time breaking below and tends to rebound off of these levels.
For example, on this chart, the black line is the support area, and when Facebook (FB) touched the support and reversed, it bounced or rebounded off of that level.
If the stock is having a hard time breaking through a specific level, we call that resistance. A resistance level is the price at which selling or short selling is prevalent and there’s not enough demand for the stock for it to break through.
For example, BABA has some strong resistance here:
Make no mistake about it… trading can be very challenging. We are all trying to beat the machines and algos.
However, that doesn’t mean you can’t have fun and learn while trying to make money along the way. These are just a few of the stock trading terms you’ll come across as you begin your journey into the trading world.
Now, that you’re ready to talk the walk… it’s time to walk the walk.
Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.