Fundamental Analysis (Fundamentals) = Judging an asset (Companies, Currencies, Commodities, etc.) on its underlying value. This can be determined by many different things.
- Profits/Losses = The positive or negative result from a company/corporation after all expenses and obligations. (Revenues - Expenses = P/L)
- P/E Ratio = Used to determine the value of the company. Divide earnings from the stock price.
- Earnings Per Share (EPS) = This helps in determining the potential dividends of a stock. It can also be good indicator of whether you should hold a lot of a stock long term.
- Revenues = The amount of money received by a company from their services or products.
Technical Analysis (Technicals) = Judging an asset purely on its price action, patterns, candlesticks, or indicators. Long term investors rarely use this aside from entry points. Short term traders tend to trade exclusively with technical's. Technical analysis is anything that has to with reading charts.
Candlesticks = This type of chart has become the definitive way to read charts. It's a chart type that represents price change and time in the form of "candles". Candlesticks give you a three dimensional view into the market and allow you too see exactly how proce is moving. For more checkout Candlesticks
- Patterns = There are many different types of patterns observed in the financial markets, this will be expanded upon throughout the following modules. The following patterns occur, Candle stick, Chart patterns, Harmonic, Elliot Wave and Timing patterns.
- Indicators = Indicators are a great way to determine various aspects of how the market is acting. Indicators can help you predict potential support and resistance, the speed and momentum of price, volume, moving averages and much more. There are hundreds of indicators but only a few are really useful.
- Breakouts/ Breakdowns = A breakout represents a break in either support or resistance. It can be a sign of major buying or selling pressure and potentially a new or continued trend.
Support = Support is a price point where the asset cannot decrease anymore in price. Support can be caused by many things including, round whole numbers, Fibonacci levels, pivot points, Bollinger bands, and much more. Price can either bounce off of support and head up, or break down and continue to fall with pressure.
Resistance = The inverse of support. Here price loses buying pressure and meets reistance and a certain price point during an uptrend. Price can either bounce off or break out to create higher highs, and higher lows.
Supply/Demand = Supply and demand has a few meanings.
- Supply = The amount of an asset available. If there is more supply, prices will fall because there is a lot of the asset, it is not in demand, so prices will continue lower until buyers arrive (Demand)
- Demand = Demand represent buying pressure. The more demand there is the higher prices will rise as people are willing to pay more and more for an asset. This causes supply to decrease because everyone is buying.
- The Study of Supply and Demand = I like to refer to supply and demand as advanced support and resistance. It allows us to draw on charts where supply and demand occurs. Check back for a book entirely dedicated to supply and demand.
Stock = One share of a Company.
DOW = Dow Industrial Average, 100 Top companies average.
S&P 500 = Standard and Poor's 500, 500 Top companies average.
Forex = Foreign Exchange Market. International marketplace for the buying and selling of currency pairs.
Buy = To buy an asset, hoping for a rise in price.
Sell = To sell an asset, hoping it will fall in value.
Short Sell =To sell an asset that you don't own. You believe price will fall so you borrow the asset from a broker and sell the asset, similar to a loan. The broker lends you the shares, you profit the difference of what you buy it back at. For a deep explanation of how shorting works check out our other blog posts.
Buy to Cover = The act of buying back the shares that you have short sold. The object of short selling is to obviously short sell high and to cover low.
Commodities = Different Goods like (Gold, Oil, Corn, Orange Juice).
Indices = Indexes of Markets (Dow, S&P 500, Nikkei).
ETF = Exchange Traded Fund.
Long = Buying.
Short = Selling.
Asset = Any Stock, currency, commodity, index, etc.
Market Bottom = Prices have reached the lowest they will go.
Market Top = Prices have reached the highest level they will go.
PIPS = Percentage in Points (1/100th of cent).
Points = A change in value of an asset by $1.
Correlation = Similarity or Difference between two asset prices.
Bid = The price an asset is being bought at.
Ask = The price an asset is being sold at.
Spread = The difference between the bid and ask. Spreads can widen during volatility so be careful.
Up tick/Down tick = One unit of price. Can be either a cent, pip, or dollar. Depending on the time frame of the chart you're looking at an uptick or down tick can vary in size.
Volatility = Volatility is how we determine how quickly price is moving. High volatility means prices are moving very sharply, and very quickly. This typically occurs after a major news event, economic release or product unveiling. Low volatility is the opposite where price is barely moving at all because there are not many people in the market.
Liquidity = Liquidity is basically the determining factor on whether you should take a trade. Liquidity is more or less how simple and efficiently you can either buy or sell an asset. If liquidity is high it means there is a lot of buyers and sellers in the market and you will be able to get rid of the asset quickly. However if liquidity is low it can make it very hard to get out of a trade or investment. Getting caught in a stock with low liquidity can turn into a nightmare. If price drops you likely wont be able to get out of the stock until it's too late. Always check the amount of volume and trade during high liquidity market hours.
Signals = This is basically a scam. Most signal services have no idea what they are talking about. This is not too say all signal services are bad, however a majority of the time they are. Do your own analysis and your own trading, don't rely on anyone.
Market Valuation = Also known as a market cap, Number of total assets available x asset price
Floaters = This is the number of shares publicly traded and available to be traded.
Restricted Shares = Shares of a company bought privately or by insiders. Cannot be traded for a certain amount of time. Usually two years or more.
Unrestricted Shares = Shares that have no restriction and can be traded at anytime.
Broker = Firm or person acting as middle man, bringing together
buyers and sellers typically for a commission or fee.
Balance = The value of your account not including open positions.
Equity = The value of your account including open positions.
Position = Owning an asset.
Stop Loss = A preset order to exit a trade after losing a certain amount.
Limit Order = A preset order to buy or sell at a certain price.
(Useful for initial order and For profit taking)
Market Order = Your order is filled at the price the asset is currently trading at (Though OK in Forex, NEVER do this in the Stock Market).
Diversification = Having Positions in different asset classes to minimize risk.
Capital = The amount of money you have to trade that you don't need to cover other necessity's.
Trailing Stop = a stop loss order that moves with price as it moves in your favor, for each tick price moves your stop moves up. If price goes back against you how ever the stop will stay in place till it moves back in your favored direction. Designed to trail behind price and act as a way to lessen risk and allow for profit to be taken after price goes against you too much.
Heikin Ashi = These are a type of candlestick chart used to smooth candlestick price action and can help confirm reversals.
Risk = The total amount of money you are risking or willing to lose in order to see if the trade will be a successful one.
Reward = The potential money you can make from a single trade.
Risk/Reward = The ratio that shows how much you are risking compared to the potential reward. A ratio of 1:2 or better is preferred.