Your first step in conquering the financial markets is to understand the industry’s everyday lingo. Even if you’ve only been trading for a couple of weeks, chances are excellent you’ve come across most of these buzzwords. While this article doesn’t guarantee you’ll be rubbing shoulders with the financial elite anytime soon, it’ll help you understand their lingo.
ARG: “Aggressive revenue growth” is a phrase used commonly in the stock world.
Bearish: To believe the market will go lower. Also described as a bear market.
Black Box: A computer algorithm designed to trade the market (these are more common than you think).
Black Monday: Originally used to describe the stock market crash of October 19, 1987, “Black Monday” also refers to the crash of August 24, 2015.
Bottom Fishing: The period after a market sell-off provides good opportunity for selecting oversold stocks. This is called bottom fishing.
Bullish: To believe the market will go higher. Also described as a bull market.
Buy and Hold: Buying a security and holding it indefinitely. This isn’t always wise. In fact, you should rarely hold anything “indefinitely.”
Candlestick: One of the most common charting methods, a candlesticks consist of a line (shadow/wick) that show the high and low of a financial asset and a body that shows the opening and closing price.
Capital Flight: The unfortunate situation where assets and/or money rapidly flow out of a country due to a major event or other consequence.
Choppy: A market is considered “choppy” when price moves up and down very rapidly without any real trend.
Crash: This term should be used sparingly because it refers to a large sell-off of 10% or more in a single day.
Day Trading: Financial traders who close out all their positions before the end of the day.
Dead Cat Bounce: An asset or market that bounces moderately after a substantial sell-off is called a dead cat bounce.
Dovish: Central banks that reduce interest rates or imply they are going down are dovish. This is the opposite of hawkish.
Elliott Wave Theory: A trading strategy developed by Ralph Nelson Elliott that teaches traders how to identify a repetitive pattern of waves. Proponents of this theory are fairly vocal, so you’ll probably hear quite a bit about the Elliott Wave.
Fear Index: This refers to the VIX Volatility Index, which tracks implied volatility in the US stock market.
Field Bet: Buying a group of securities in the same industry in the hope that one or more may survive the odds and enjoy a large price increase.
Gap: A gap occurs when an asset opens at a price other than its previous close.
Halloween Strategy: An investment strategy in which a trader buys securities on October 31 and sells on May 1. It is based on the premise that most market gains are made in the six months beginning on Halloween. Also referred to as “Sell in May and walk away.”
Hawkish: Central banks that raise interest rates or imply they are going up are hawkish. This is the opposite of dovish.
Hedge: A strategy that protects your investment. Think of it as a trade that offsets or counterbalances an existing investment.
HOD: High of Day (HOD) refers to the highest price a security reached on a given day.
Insider Trading: While there is a form of legal insider trading, you need to be aware of the illegal form. In that case, insider trading is a transaction that is based on inside information that the public is not privy to.
Laggard: Any sector or asset that underperforms the broader market is called a laggard.
Limit Order: An order to buy or sell an asset at a fixed price.
LOD: Low of Day (LOD) refers to the lowest price a security reached on a given day.
Long: Buying or owning an asset.
Misery Index: Made famous by former US President Jimmy Carter, this terms refers to the unemployment rate and inflation rate added together.
Opening Bell: When trading begins on the New York Stock Exchange, a bell is rung to kick start the day.
Overbought: A technical indicator showing that a security’s price is too high and is bound to fall.
Oversold: A technical indicator showing that a security’s price is too low and is bound to rise.
P/E: A Price/Earnings Ratio is an easy way for traders to compare stocks. The P/E ratio shows the price of the stock divided by the company’s earnings per share.
Resistance: A technical or psychological level that a security is unable to exceed because of too much supply. This often leads to a downward reversal.
Shimming: Market makers who steal a few pennies from investors’ trades.
Short: Selling an asset.
Stagflation: An economy experiencing the combination of high unemployment and high inflation. This is usually caused by large deficit spending.
Summer Doldrums: The summer months are usually less active in the financial markets. Many describe this period as the summer doldrums.
Support: A technical or psychological level whereby a security faces too much demand. This often leads to an upward reversal.
Thin Market: A market with less liquidity, which means there are fewer bids and offers.
Unicorn: Fast-growing companies that wait for favourable market conditions before going public. For investors, companies that fit these criteria are rare and “mythical.” That’s why they’re described as unicorns.
Whipsaw: When a security’s price moves in one direction before quickly moving in the opposite direction.