Learn the terminology
Stock Market Terminology
Advanced Computerized Execution System (ACES)- This is the service offered by NASDAQ to broker-dealers to automatically perform internal transactions and process the records appropriately.
After Hours Trading- Trading on normal currencies after normal trading hours.
Arbitrage- This is transacting to profit between two or more market by taking advantage of the difference in prices in the similar markets.
Ask- This is the price which a trader can buy a currency offered for sale.
Attain ECN (ATTN) - This is a broker-dealer that specializes on direct access electronic trading.
Auction Market- This is the market where buyers and sellers compete to buy and sell currencies respectively.
Back testing- This means analyzing the history of the investment opportunity provided and comparing with the present trends to see how successful (if successful) the investment would be.
Bear Market- This is the period when the declines in prices of individual securities or assets have fallen for a long time.
Best Ask- This is the lowest price of a security or asset which a seller can accept at a particular time.
Best Bid- This is the highest price of a security or asset which a buyer can give at a particular time.
Beta- This term is used to note how volatile or how risky an investment on a security might be when compared to the overall market.
Bid- This is the price one is offering on stocks or commodities.
Big Board- This is the major indigenous stock exchange company in the US, responsible for overseeing the activities in the stock exchange operations.
Block Trade- This is the transaction of a very large amount of shares (typically 10,000 or more) worth at least $200,000.
Blue Chip- These are stocks that are seen as less volatile. Their investments are considered to be more profitable.
Broker-Dealer- This is an individual or a company that trades on securities. The individual or company can also perform the actions of a broker or a dealer.
BRUT ECN- An Electronic Communications Network owned by Brut.
Bull market- This is a market where prices of securities have risen for a long time without returning to the normal prices.
Circuit Breakers- This refers to the procedures/measures that are employed to halt trading on all US stock markets for a particular period of time.
Close Position- This means buying back a stock to prevent a reversal of price trend which may have been observed in the stock market.
Consolidated Quote System (CQS) - This is the service delivered by NASDAQ informing its subscribers on quotations of stocks traded on the regional stock exchanges in the US.
Common Stock- This is the security owned by investors to seal their participation in owning a company.
Crossed Market- This is the case when the bid price of an asset or stock is greater than the ask price.
CUSIP- Committee on Uniform Security Identification Procedures.
Day Order- An order, if not transacted on the day it was placed would get expired.
Day Trading- This refers to the transactions that are made and within the same trading day before close of trade for the day.
Depth of Market- This is the amount of assets or commodities that can be transacted without a large difference in price change at the end of trading.
Derivative- This is an asset/commodity that gets its value from another asset/commodity.
Diversification- This is the method of spreading investments within a portfolio to reduce the risk of losing within a portfolio.
Dividend- This refers to the profits issued by companies to their share holders.
Dollar Cost Averaging- This means buying stocks bit by bit over a long period of time.
Downtick- This is normally experienced when a current transaction price falls below the initial transaction price.
Dow Theory- This theory states that the market appreciates if one of its averages goes above a previous important high.
ECN- It is designed to facilitate trading of stocks and currencies.
Fill or Kill (FOK) - This is an order made on a large amount of stocks. It is either that the transaction to be made ill be made completely or it will not be made at all.
Firm Quote- This is a non negotiable price of a security made by a market maker on not more than 100 shares.
Floor- This is the medium whereby bids and offers are made by traders.
Floor Trader- This is a registered competitive trader who understands the rules of a stock/commodities exchange for his own account.
Front Running- This happens when a broker trades based on the information obtained from the analyst department before the clients (of the broker) receives the information.
Fundamental Analysis- This means understanding the overall state of a business company. Factors that may be looked into are earnings and productions made by the company.
Gap- This simply refers to the break between prices.
Good-'Til-Cancelled Order (GTC) - This is an order to invest in a security which does not close until the conditions/requirements for executing the order are met.
Hedging- This is the method of buying or selling the same amount of securities, almost at the same time, in two different markets.
Imbalance of Orders- This is used to describe the event when buy orders exceed sell orders.
Initial Public Offering (IPO) - This is the first sales of stock by a private company that want to become publicly owned, so that they can expand.
Inside Market- This is the market maker spread. It shows the highest bid quoted and the lowest price offered.
Instinet ECN (INCA) - This is the first medium brokerages had to display bid and ask prices for most stocks in North America.
Joint Account- This is any an account that is operated by more than one person.
Level I- This is beginner trader who does not trade with real money.
Level II- This is an advanced beginner. He trades with real money but at a minimum risk.
Level III- This is a competent trader. He can trade on a more professional level.
Limit Order- A price set by an individual to buy or sell a stock. Above or below this price, the trader is neither willing to buy nor sell securities or stocks.
Liquidity- This is the ability of a trader to convert his assets to cash in a fast way.
Margin- This is a collateral willing to be issued by a trader to a broker when he wants to borrow funds.
Margin Account- This is the account a trader must own in order to qualify for borrowing funds.
Margin Call- This is the call made by a broker to his clients when he observes that the securities bought from the borrowed funds have decreased in value. This call is normally made to tell the trader to add more money to his account.
Market Maker- This is a broker-dealer firm that facilitates the trade of a particular security by dealing on a large amount of them.
Market Order- This is also called unrestricted order. It is the order that guarantees the execution of a trade.
Market Timing- This is the process of predicting future price movements of stocks or securities.
Momentum Investing- This means buying stocks that have been profitable around 3-12 months ago and selling off stocks that have not been profitable around the same time period (3-12 months ago).
Nasdaq- This is the largest electronic screen based securities trading market in the US.
New York Stock Exchange (NYSE-) This is the largest equities-based exchange in the world.
Odd Lot- This refers to stock that is less than 100.
Odd Lot Theory- This states that if odd lot investors are selling, it is likely that buying such stocks at that time will be a profitable venture.
OptiMark- This is a company that owns patents and intellectual properties and also hs its own securities exchanges.
Overbought- This means that the price of an asset has risen to a very high value within a short period of time.
Oversold- This means that the price of an asset has fallen to a very high value within a short period of time
Paper Trading- This is the practice made by potential investors when they start learning how to trade stocks.
Pink Sheets- This is another way of referring to over the counter trading.
Preferred Stock- These are stocks owned by those higher than the ordinary share holders of a company.
Program Trading- This is the method used to take advantage of arbitrage possibilities. It occurs automatically when created.
Qualitative Analysis- This means understanding the qualities of a company.
Quantitative Analysis- This means measuring the strength of financial instruments and institutions.
Random Walk Theory- This states that the prices of stocks in the market cannot be predicted.
Regulation T- This is the regulation done by a Federal Reserve Board to control customer cash accounts and the issuance of credit to customers by brokers to purchase securities.
Round Lot- This is 100 shares of stock.
SEC Fee- This is an additional fee implemented by the Securities Exchange Act of 1934 for stock traders. They are paid to into the brokers’ account from where the sum is collected and remitted to the US treasury.
SEC Order Handling Rules- This consists of the limit order display rule and the quote rule.
Sell-side- This refers to a firm that sells securities and offers investment services.
Settlement Date- This is an agreed date between the buyer and the seller when transactions must be made complete by effecting payments for securities bought.
Sharpe Ratio- This is the value of the excess return per unit of risk in any trade or investment.
Short Sale- This means selling borrowed stocks from a broker to take advantage of the falling prices of the stocks in the market.
Short Squeeze- This is an upward price of stocks caused y lack of supply and over demand of stocks in the market.
Specialist- This is a person who tries to narrow the gap that may be experienced when the market maker is not available.
Spiders (SPDR)- SPDR means Standard and Poor’s Depositary and receipt. They are traded under the symbol SPY just like other American stock exchanges.
Spread- This is the difference in value between the bid and the ask price of a commodity/stock.
Stock Symbol- This refers to letters used to represent stocks for trading purposes.. The numbers of the letters vary among different stock exchanges. These letters are used for security purposes.
SuperDot- This is an electronic system used on the New York Stock Exchange to place orders of listed stocks.
Systematic Risk- This is the risk possessed on an individual which cannot be reduced by diversification.
Technical Analysis- This means understanding the price movement of securities in the market.
Trading Halt- This refers to the period when trading is stopped. Its normal duration is around 30 minutes.
Trin- This is a tool used to indicate the presence of volume in the market.
Triple Witching Hour- This is the final trading hours on the third Fridays of March, June, Septmber and December.
Uptick- This is the case when the current transaction price is above the initial transaction price.
Volatility- This is the measure of the daily changes in the price of securities.
Volume- This is the number of shares that are available o be traded in the market at a particular period and time.
Wash Sale Rule- It states that an investor should not claim a capital loss for tax purposes as long as the capital was repurchased within 30 days.
Zero-Sum Game- This is the case when someone only gains when another investor losses.
Learn the basics of the stock market and how it works
Click through the table of contents
Learn the basics of futures trading
Click through the table of contents
Decide on a strategy that you will apply to trading, there are plenty out there but it comes down to 2 main schools: Trend trading vs. Counter-trend trading
Most beginner traders try to catch tops and bottoms in the market, not even trying to trade the (intra-day) trends. I, like many other traders first starting attempted to do the same thing. Most traders feel that by trying to catch the top or bottom is really where the real money is. I on the other hand disagree completely. Catching just a little piece of a trend (and sometimes larger than a little piece) adds up, not to mention easier (higher percentages) to do than trying to catch a top or bottom in the market.
Let me first start out by saying that 90% of all your trades should be those trading with the TREND. The other 10% could potentially constitute COUNTER TREND (CT) trades. I would highly suggest concentrating more on the Trend trades as opposed to trying to pick tops and bottoms (CT trades). By not only teaching, but by speaking with students, especially beginners, I find that most traders just try to pick tops and bottoms as opposed to trying to enter the market with the Trend. I will go as far as to say you probably will not make any money by trying to pick tops and bottoms when you first start off trading. Counter-Trend (CT) trading takes a lot more experience. Believe me when I say that you will not only find trading less stressful, but much more rewarding and profitable if you simply stick to trading with the trends. Look to make the small consistent profits with the trends, and of course you will occasionally catch the bigger move.
(No research to support the following claim, this is another traders opinion, not mine, Tim )Of the 10% of trades that are COUNTER TREND (CT) trades, 90% of those trades should be BUYS. Why Buys? Simply put, because I have found that BOTTOMS are much easier to pick than tops. If you think about it, the psychology of most traders are more biased to buying the market as opposed to selling the market as a whole. Traders in general (obviously not all the time) seem to be more optimistic rather than pessimistic on the overall market. Believe it or not I have spoken to many futures traders that have told me that they feel more comfortable buying the market as opposed to selling it. I know that sounds ridiculous (especially in futures trading), and I agree, but a lot of traders, feel this way. That is one of the reasons why bottoms are easier to pick than tops – traders are more prone to buy than they are to sell, in general. Think about it, how many stock traders do you know that actually sell a stock short? Not many, most stock traders buy stocks in anticipation of higher prices. When the market gets extremely oversold and drops to levels where the big money comes in to Buy the market (oftentimes at a 5%, 10% & 15% overall market corrections), you will oftentimes see the market move higher (spike up) and continue the overall uptrend.
When the market is in a downtrend, the market not only drops three times quicker than it rises (making it much more volatile), but bottoms are put in place much quicker. This is evident in many charts you may look at. On the other hand, when the market is trending up, the market generally moves much slower and much more gradual in nature. Therefore, trying to find market tops are much more difficult to do, at least that has been my own personal experience. So, when attempting to BUY on a Retest of a Low (important), the market is generally in a Downtrend, and when attempting to SELL on a Retest of a High (important), the market is generally in an Uptrend. By knowing these two simple rules will help make Counter-Trend trading much more predictable in nature, rather than trying to BUY when the market is in a free-fall, or trying to SELL when the market is going to the moon. At most, these rules will prevent a trader from jumping in front of a freight train. Therefore, I suggest waiting for a RETEST OF A HIGH before looking to go Short. Conversely, always wait for a RETEST OF A LOW before looking to go Long. Remember, Counter-Trend Trades Should Only Constitute As Roughly 10% Of Your overall Trades. As mentioned before, CT trades are definitely more difficult than trading with the trends.
A General Rule Of Thumb: When a market is Trending Up, the market tends to be a lot less volatile than when a market is Trending Down. Therefore, generally speaking a Down Trending market is much more volatile than when a market is trending up. A market falls roughly three times quicker than it rises.
• 90% Of All Your Trades Should Be With The Trend
• The Other 10% Of Your Trades Should Be Counter-Trend (CT) Trades
I suggest NOT trading Counter-Trend (CT) trades until you have more experience trading the markets and become quick with your decision making skills.
Follow financial news / keep up with current events moving the markets
Daily financial news and market updates:
Economic events calendar:
Develop or learn a trading system and establish rules for your system
Once you get to this point, let me know and I will show you my trading system and the rules that I have established for it. It would also be beneficial to google the subject to get other perspectives.
Once you are ready, paper trade [trade a simulated/demo account (fake money)] until you consistently make money
I recommend the Ninjatrader platform with the CQG data feed, link above.
Once you are at this point, let me know and I will help you set it up. This is completely free and you receive real-time price data! You can try trading risk free and trade the simulated account until you are confident trading live money.
Once you are consistently profitable, open a live trading account
Covert your simulated account into a live account with the broker.
I recommend starting the smallest leverage possible
1 micro Euro/USD futures contract.
Once you are consistently profitable in your live account and have earned a “buffer” of profits
Increase your leverage / move to a higher leveraged instrument. I suggest the Nasdaq emini.
