Day Trading Basic Terms • AH - After Hours - Trading that occurs from 4 pm EST to 8 pm EST. • PM - Pre-Market - Trading that occurs from 4 am EST to 9:30 am EST. • Catalyst - News or event (earnings) that can make a security trade extra volatile with increased volume compared to its average trading volatility and volume. • DCB - Dead Cat Bounce - Upwards bounce in a stock price after a drastic fall. The downward trend then continues after the temporary bounce. • DD - Due Diligence - This is the term used for doing proper research before deciding on buying a position into an asset. • EOD - End of day • EOW - End of week • Float - Refers to the number of shares that are available for trading to the public. • Low Float - Refers to the number of shares that are available for trading to the public. These stocks tend to see more volatility as the supply of stock is low. • FOMO - Fear of Missing Out - This can manipulate traders' emotions and lead to irrational decisions under normal circumstances. • Halt - Trade halted. Stocks will get halted on very volatile moves or sudden dramatic news. The stock will stop trading for a short period of time and be stuck at a price till it is unhalted. • IPO - Initial Public Offering - This is when a company goes public on the stock market. • HOD - High of the day • LOD - Low of the day • R/S - Reverse Split - This is a reduction in the number of a company's traded shares that results in an increase in the par value or earnings per share. • PDT – Pattern Day Trader - If your trading account has less than $25,000 in value then you are limited to 3-day trades during a 5-day trading period. If you perform more than the 3-day trades, then you are marked as a “Pattern Day Trader” where you risk your brokerage or broker freezing your account and its transactions. If you have more than $25,000 then you can perform as many trades as you desire. Most brokerages will prevent you from breaking this rule, but not all will automatically prevent you. • Runner - Tickers that are moving up very rapidly. • Scaling (in or out) - Buying and selling positions in increments. • Sympathy - Tickers that move with another company in its industry when it is volatile (usually a larger company in the industry). • Lock - Book profit. • In - Took a new position. • Out - Exit from the position. • Cut - Reduce loss or sell the position with loss. • SL - Stop Loss - Where you would sell to minimize losses. • UT - Uptrend • DT - Downtrend • R/R - Reward to Risk Ratio • PT - Price Target - Where you would sell your position when in profit. • ER - Earnings Result • S/R - Support/Resistance • SMA - Simple Moving Average • EMA - Exponential Moving Average • DMA - Daily Moving Average • P/E - Price to Earnings Ratio - Used to determine if a stock is over or undervalued. • P/S - Price to Sales Ratio - Used to determine a stock’s valuation by comparing a company’s stock price to its revenue. Usually used in cases where a company is not profitable and therefore does not have a P/E. • ROE - Return on Equity - The amount that a company raises its assets in one year. • YOY - Year over year • FCF - Free Cash Flow - The amount of money a company generates after considering expenditure and maintenance. • Book Value - The value of a company’s assets. • Moat - The advantages that a company has over its competitors (i.e., the degree of difficulty that another company would face if they were to challenge them for market share). • R&D - Research and Development • Growth Stock - A stock that is expected to outperform the market due to the company’s growth potential. • Value Stock - A stock that is valued under what it should be worth. • Market Capitalization - The value of the company as priced by the market. Calculated by [number of shares] x [stock price]. • Margin - The percentage of a company’s revenue that becomes profit after taking out expenses. • Strike Price - This is the price that you can buy or sell the stock if you want to exercise your right to the buying or selling of your shares. • ITM - In the Money - A call option whose strike price is less than the stock price, or a put option whose strike price is more than the stock price. • Call - An options contract that allows the owner to have the right, but not the obligation, to purchase shares of a stock at a given price within the expiration. • Put - An options contract that allows the owner to have the right, but not the obligation, to sell shares of a stock at a given price within the expiration. • Expiration Date - The date that an options contract expires; this sets up a timeframe for when the contract is valid. You can choose how long the contract is valid for. Usually the longer the time frame, the higher the premium. • Premium - This is the price per share you pay for an options contract. A contract is typically made up of 100 shares. • Intrinsic Value - This is the value that the stock is intrinsically worth. You can find this by subtracting the current stock price by the strike price. • Time Value - The value of a contract based on the days until the contract expires. The further out a contract, the more chance the stock has of reaching the strike price, so thus the longer the time the more it is worth. • Value - Your intrinsic value must grow faster than the time value decreases. As the time frame gets closer to expiration, time value is lost due to a Greek known as theta. • Theta - How much value you will lose overnight holding that option. • Delta - How much the option contract will move per dollar movement in the underlying stock. • Gamma - represents the change in Delta relative to the change in price in the underlying stock. • Vega - How sensitive options change is to a change in volatility. If implied volatility goes up 1% the call gains $0.19, if implied volatility goes down 1% the call loses $0.19. • IV - Implied Volatility - Technically not a Greek but operates like one. IV tells you how expensive a contract is. IV increases whenever there is uncertainty surrounding a stock. IV is typically highest after major news or ERs. If an IV is too high, you must be weary of IV crush. As the situation becomes more certain, the IV will get “crushed” and the IV crush will as the name implies crush your premium. • Bid - This is the price the buyer is willing to pay for a contract. • Ask - This is the price the seller is willing to sell for the contract. • Last - This was the last price paid for that option. • Previous Close - The price of the contract at the close of the last trading day. • Volume - The number of contracts being traded each day. • OI - Open Interest - The number of contracts currently being held. • RHO - Represents how sensitive the price of an option is relative to interest rates. • BTO - Buy to Open - When you buy a call / put to open a position in the stock. • STO - Sell to Open - When you write (sell) a call / put to open a position in the stock. • BTC - Buy to Close - When you buy a call / put to close a written contract. • STC - Sell to Close - When you sell a call / put to close a BTO contract. • Breakout - A breakout occurs when the stock breaks a support or resistance line, or after a period of consolidation is broken by a large move in the stock. A stock can break up or break down. A break up is when it crosses a resistance line in an upwards direction and a breakdown is when it crosses the support in a downwards direction. • Candlestick - A box and whisker graph. Each box represents the price movement for the time interval selected. If your chart has 5-minute intervals set, then the candle will represent the price movement during those 5 minutes. • Consolidation Period - When people who bought the shares at an earlier price are selling shares of a stock to secure profits, but the stock is not going down because there are still buyers who want to purchase it. • Gap - When there is a gap between the two candles on a chart due to a large price movement with little to no trading in between the gap. • Gap Down - When a stock opens at a lower level than the previous candle’s lowest level. • Gap Up - When a stock opens at a higher level than the previous candle’s highest level. • Resistance - The price at where the stock is going to see pressure due to an increased number of sellers and the stock risks going down. • Support - The price at where the stock is going to see assistance due to an increased number of buyers who want to buy the dip in price or believe it is a good spot to enter.
