Day Trading Terminology


As a new trader, it is easy to become overwhelmed with all of the trading terms and terminology.

Every trader will need to know these terms at some point in their trading career, so I have composed a list of these terms for you to review as you grow as a stock trader.

We will start with the basic terms that most traders will already know, then we will dive into more of the advanced terms that you may want to learn about!

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1.Day Trading – A day trader is a type of trader who executes a relatively large volume of short and long trades to capitalize on intraday market price action. The goal is to profit from very short-term price movements. Day traders can also use leverage to amplify returns, which can also amplify losses.

2.Swing Trading – Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities. Swing traders may utilize fundamental analysis in addition to analyzing price trends and patterns.

3.Volume – Volume is the amount of an asset or security that changes hands over some period of time, often over the course of a day. For instance, stock trading volume would refer to the number of shares of a security traded between its daily open and close. Trading volume, and changes to volume over the course of time, are important inputs for technical traders.

4.Relative Volume – Relative Volume (or RVOL) is a volume indicator, meaning it helps measure investor interest in a stock. RVOL compares a stock’s current volume to its prior volume over a specific period. It’s expressed as a ratio. For example, if a stock has an RVOL of 5, it’s trading at five times its normal volume.

5.Float – A stock float is the total number of shares that are available for public investors to buy and sell. It may be expressed as an absolute figure such as 10 million shares, or it may sometimes be expressed as a percentage of the company’s total outstanding shares.

6.Wicks – A shadow, or a wick, is a line found on a candle in a candlestick chart that is used to indicate where the price of a stock has fluctuated relative to the opening and closing prices. Essentially, these shadows illustrate the highest and lowest prices at which a security has traded over a specific time period.

7.Candles – A candlestick is a type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period.

8.Bid – The term “bid” refers to the highest price a buyer will pay to buy a specified number of shares of a stock at any given time.

9.Ask – The term ask refers to the lowest price at which a seller will sell the stock.

10. Level 2 – Level II is essentially the order book for Nasdaq stocks. When orders are placed, they are placed through many different market makers and other market participants. Level II will show you a ranked list of the best bid and ask prices from each of these participants, giving you detailed insight into the price action.

11.Resistance – Resistance, or a resistance level, is the price at which the price of an asset meets pressure on its way up by the emergence of a growing number of sellers who wish to sell at that price. Resistance levels can be short-lived if new information comes to light that changes the overall market’s attitude toward the asset, or they can be long-lasting. In terms of technical analysis, the simple resistance level can be charted by drawing a line along the highest highs for the time period being considered.

12.RSI – The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.

13.Investing – Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavors, such as using money to start a business, or in assets, such as purchasing real estate in hopes of reselling it later at a higher price.

14.Bull Flag – Bullish flag formations are found in stocks with strong uptrends and are considered good continuation patterns. They are called bull flags because the pattern resembles a flag on a pole. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation. The flag can be a horizontal rectangle but is also often angled down away from the prevailing trend.

15.Support – Support, or a support level, refers to the price level that an asset does not fall below for a period of time. An asset’s support level is created by buyers entering the market whenever the asset dips to a lower price. In technical analysis, the simple support level can be charted by drawing a line along the lowest lows for the time period being considered. The support line can be flat or slanted up or down with the overall price trend.

16.Edge – A trading edge is a technique, observation or approach that creates a cash advantage over other market players. It doesn’t have to be elaborate to fulfill its purpose; anything that adds a few points to the winning side of an equation builds an edge that lasts a lifetime.

17.Times and Sales – Time and sales, or T&S, show volume, price, direction, date, and time data for each trade that is executed on an exchange. Time and sales information is often provided as a real-time data feed of trade orders for a security.

18.Level 2 Spread

This is the difference from the bid to the ask in the order book at any given moment. Smaller the spread the better.  

19.Market Order – A market order is an instruction by an investor to a broker to buy or sell stock shares, bonds, or other assets at the best available price in the current financial market.

20.Limit Order – A buy limit order is an order to purchase an asset at or below a specified price, allowing traders to control how much they pay. By using a limit order to make a purchase, the investor is guaranteed to pay that price or less.

21.Stop Limit Order – A stop-limit order is a conditional trade over a set time frame that combines the features of stop with those of a limit order and is used to mitigate risk. It is related to other order types, including limit orders (an order to either buy or sell a specified number of shares at a given price or better) and stop-on-quote orders (an order to either buy or sell a security after its price has surpassed a specified point).

22.VWAP – Volume-weighted average price (VWAP) and moving volume-weighted average price (MVWAP) are trading tools that can be used by all traders to ensure they are getting the best price. However, these tools are used most frequently by short-term traders and in algorithm-based trading programs.

23.EMA – An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average.

24. SMA – A simple moving average (SMA) calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range.

25. Time Frames

The time frame you use is entirely up to you and your personality as a trader. If you have very little time to look at charts you should use the higher timeframe, if you can be at your computer while the trade is taking place then you should use a smaller time frame.

26.Trendlines –   Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data’s best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment’s value might move.

27.Scaling In 

Investopedia –  Scaling in is a trading strategy that involves buying shares as the price decreases. To scale in (or scaling in) means to set a target price and then invest in volumes as the stock falls below that price. This buying continues until the price stops falling or the intended trade size is reached.

28.Scaling Out

Investopedia – To scale out is the process of selling off portions of the total held shares while the price increases. To scale out (or scaling out) means to get out of a position (e.g., to sell) in increments as the price climbs.

29. Entries 

Investopedia – An entry point refers to the price at which an investor initiates a position in a security.  A trade entry can be initiated with either a buy order for a long position, or sell order for a short position.

30. Divergences 

Corporatefinanceinstitute – Divergence is when the asset price moves in the direction opposite to what a technical indicator indicates. When a stock is diverging, it signals weaker price trends and the beginning of a reversal. The two types of divergence are: Positive: A positive divergence is a sign of higher price movement in the asset.

31. Risk – In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision.  In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.

32. Stopping Volume

Tradingsetupsreview – Stopping volume is a concept in volume spread analysis (VSA). It refers to a dramatic increase in volume that stops the market from falling further. While you might not find frequent signals, they are highly reliable indicators that will strengthen your market analysis.

33. PDT Rule – A pattern day trader (PDT) is a regulatory designation for those traders or investors that execute four or more day trades over the span of five business days using a margin account. The number of day trades must constitute more than 6% of the margin account’s total trade activity during that five-day window.

If this occurs, the trader’s account will be flagged as a PDT by their broker. The PDT designation places certain restrictions on further trading; this designation is put in place to discourage investors from trading excessively.

34. Bullish / Bearish – A bullish investor, also known as a bull, believes that the price of one or more securities will rise.  A bearish investor, also known as a bear, is one who believes prices will go down.

35.IPO – An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. An IPO allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors. Meanwhile, it also allows public investors to participate in the offering.

36.Long – Having a “long” position in a security means that you own the security. Investors maintain “long” security positions in the expectation that the stock will rise in value in the future. The opposite of a “long” position is a “short” position.

37.Short – A “short” position is generally the sale of a stock you do not own. Investors who sell short believe the price of the stock will decrease in value. If the price drops, you can buy the stock at the lower price and make a profit.

38. Dollar Cost Average – Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals.

39.Margin – In finance, the margin is the collateral that an investor has to deposit with their broker or exchange to cover the credit risk the holder poses for the broker or the exchange. An investor can create credit risk if they borrow cash from the broker to buy financial instruments, borrow financial instruments to sell them short, or enter into a derivative contract.

40. Short Squeeze – A short squeeze is an unusual condition that triggers rapidly rising prices in a stock or other tradable security. For a short squeeze to occur, the security must have an unusual degree of short sellers holding positions in it. The short squeeze begins when the price jumps higher unexpectedly. The condition plays out as a significant measure of the short sellers coincidentally decide to cut losses and exit their positions.

41.Cash Account – A cash account with a brokerage firm requires that any securities transactions be payable in full from funds in the account at the time of the settlement. Short selling and buying on margin are thus prohibited in this type of account. The Federal Reserve’s Regulation T governs cash accounts and the purchase of securities on margin. This regulation gives investors two business days to pay for security. It’s known as T+2.

42.Margin Account – A “margin account” is a type of brokerage account in which the broker-dealer lends the investor cash, using the account as collateral, to purchase securities.  Margin increases investors’ purchasing power, but also exposes investors to the potential for larger losses.

43. Dark Pools – A dark pool is a privately organized financial forum or exchange for trading securities. Dark pools allow institutional investors to trade without exposure until after the trade has been executed and reported. Dark pools are a type of alternative trading system (ATS) that give certain investors the opportunity to place large orders and make trades without publicly revealing their intentions during the search for a buyer or seller.

44. Volatility – Volatility is the rate at which the price of a stock increases or decreases over a particular period. Higher stock price volatility often means higher risk and helps an investor to estimate the fluctuations that may happen in the future.

45.Gaps – A gap is an area discontinuity in a security’s chart where its price either rises or falls from the previous day’s close with no trading occurring in between. Gaps are common when news causes market fundamentals to change during hours when markets are typically closed, for instance an earnings call after-hours.

46.ATR – Average True Range (ATR) is the average of true ranges over the specified period. ATR measures volatility, taking into account any gaps in the price movement. Typically, the ATR calculation is based on 14 periods, which can be intraday, daily, weekly, or monthly.

47. Halts – A trading halt is a temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges. Trading halts are typically enacted in anticipation of a news announcement, to correct an order imbalance, as a result of a technical glitch, or due to regulatory concerns. When a trading halt is in effect, open orders may be canceled and options still may be exercised.

48. Dips – “Buy the dips” means purchasing an asset after it has dropped in price. The belief here is that the new lower price represents a bargain as the “dip” is only a short-term blip and the asset, with time, is likely to bounce back and increase in value.

49.Reversals – A reversal is a change in the price direction of an asset. A reversal can occur to the upside or downside. Following an uptrend, a reversal would be to the downside. Following a downtrend, a reversal would be to the upside. Reversals are based on overall price direction and are not typically based on one or two periods/bars on a chart.

50. Red to Green move

Stockbrosresearch – So what is a red to green move? It is defined as a high-volume stock that has opened red, bottoms out in the morning after market open, which is then followed by a move higher to break the previous day’s closing price. This creates a “red to green” break-out move.

51. Fib Retracements – Fibonacci retracement levels—stemming from the Fibonacci sequence—are horizontal lines that indicate where support and resistance are likely to occur. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used. The indicator is useful because it can be drawn between any two significant price points, such as a high and a low. The indicator will then create the levels between those two points.

52. Doji

Investopedia – A doji candlestick forms when a security’s open and close are virtually equal for the given time period and generally signals a reversal pattern for technical analysts. In Japanese, “doji” means blunder or mistake, referring to the rarity of having the open and close price be exactly the same.

53.Shooting Star – A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the low of the day. It appears after an uptrend. Said differently, a shooting star is a type of candlestick that forms when a security opens, advances significantly, but then closes the day near the open again.

54. Hammer Candle – A hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies within the period to close near the opening price. This pattern forms a hammer-shaped candlestick, in which the lower shadow is at least twice the size of the real body. The body of the candlestick represents the difference between the open and closing prices, while the shadow shows the high and low prices for the period.

55. ABCD Pattern – As the name implies, the ABCD pattern is a four-step sequential behavior of a stock that’s evident in its charting. It’s comprised of three consecutive price swings (A, B, C) and a buy/sell action (D). This type of pattern can manifest over any period of time, in any market.

56 Buying Climax – A rapid rise in the price of a stock resulting from heavy buying, which usually creates the market condition for a rapid fall in the price.

57.Selling Climax – A selling climax is the culmination of a protracted period of selling of a stock, characterized by a sharp fall in price alongside increased volume. It is often the result of forced margin selling by individual investors. The climax is often followed by marked move higher once the selling is over.

58. Level 2 Stacking

Stockstotrade – If you see big orders stacking up in the bid column — and they’re close to the current bid — that means the stock is bullish.

59. Volume Profile – Volume Profile is an advanced charting study and indicator. It shows the traded volume amount of an asset over a specified period, at certain price levels. Volume Profile makes use of previous traded volume and all the strategies and plans are brought from historical data. Traders focus on the regions where a reversal could occur with volume profile. Some people believe that volume profile analysis provides traders with an “unfair” advantage as a result of market context and that institutions and banks use such strategies.

60. Liquidity – Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself.

61. Elliott Wave Theory – The Elliott Wave theory is a theory in technical analysis used to describe price movements in the financial market. The theory was developed by Ralph Nelson Elliott after he observed and identified recurring, fractal wave patterns. Waves can be identified in stock price movements and in consumer behavior.

62. MACD – Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.

63. Pivot lows – A pivot point is a technical analysis indicator, or calculations, used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the intraday high and low, and the closing price from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.

64.Pivot High – A pivot point is a technical analysis indicator, or calculations, used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the intraday high and low, and the closing price from the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.

65. Head and Shoulders – A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal.

66. DTB – A downtrend describes the movement of a stock towards a lower price from its previous state. It will exist as long as there is a continuation of lower highs and lower lows in the stock chart. The downtrend is reversed once the conditions are no longer met.

67. FOMO – A feeling of anxiety or insecurity over the possibility of missing out on something, as an event or an opportunity

68. Breakout

Investopedia – A breakout is a stock price moving outside a defined support or resistance level with increased volume. A breakout trader enters a long position after the stock price breaks above resistance or enters a short position after the stock breaks below support.

69. Channels – In the context of technical analysis, a channel occurs when the price of an asset is moving between two parallel trendlines. The upper trendline connects the swing highs in price, while the lower trendline connects the swing lows. The channel can slant upward, downward, or sideways on the chart.

70. Delta 

Investopedia – Delta expresses the amount of price change a derivative will see based on the price of the underlying security (e.g., stock). Delta can be positive or negative, being between 0 and 1 for a call option and negative 1 to 0 for a put option.

71. Theta – Theta tells you how much the price of an option should decrease each day as the option nears expiration, if all other factors remain the same. This kind of price erosion over time is known as time decay.

72. Options – A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise. Because it has shares of stock (or a stock index) as its underlying asset, stock options are a form of equity derivative and may be called equity options.

73. Implied Volatility – Implied volatility represents the expected volatility of a stock over the life of the option. As expectations change, option premiums react appropriately. Implied volatility is directly influenced by the supply and demand of the underlying options and by the market’s expectation of the share price’s direction.

74. Outstanding Shares – Shares outstanding refer to a company’s stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders. Outstanding shares are shown on a company’s balance sheet under the heading “Capital Stock.”

75. Up Gappers – The morning gappers is the concept where stocks and other assets open sharply higher or lower, thus forming a gap when the market opens.

76.Down Gappers

The top stocks that have been dropping  the most during after hours and premarket.

77. S&P 500 – The S&P 500 is a stock market index that is viewed as a measure of how well the stock market is performing overall. It includes around 500 of the largest U.S. companies.

77. DOW 30 – The stock market index was developed as a simple means of tracking U.S. stock market performance in an age when information flow was often limited. The combined stock price of these 30 large, publicly-traded companies determines the Dow Jones Industrial Average (DJIA).3 As some of the top stocks in the marketplace, the belief is that the Dow 30 represents a strong assessment of the market’s overall health and tendencies.

78. NASDAQ – Nasdaq is a global electronic marketplace for buying and selling securities. Originally an acronym for “National Association of Securities Dealers Automated Quotations”—it was a subsidiary of the National Association of Securities Dealers (NASD), now known as the Financial Industry Regulatory Authority (FINRA). Nasdaq was created as a site where investors could trade securities on a computerized, speedy, and transparent system.

79. Dividends – A dividend is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date.

80. Momentum – Simply put, momentum refers to the inertia of a price trend to continue either rising or falling for a particular length of time, usually taking into account both price and volume information.