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Stock Trading Glossary

The words traders use, defined in plain English.

Plain-English definitions of the words traders use. Type to filter, or jump to a letter. Terms with a lesson link to the full explanation.

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A

Accumulation: Sustained buying of a stock by large investors such as mutual funds and pension funds, usually visible as up days on above-average volume.
Ascending base: A base made of three shallow pullbacks, each with a higher low than the one before, usually forming while the overall market is weak.
Ascending triangle: A chart pattern with a flat upper resistance line and rising lows. A close above the flat line is the breakout traders watch for. Learn more about Ascending triangle
Ask: The lowest price a seller is currently willing to accept for a stock. Also called the offer.
Average true range (ATR): A measure of how much a stock typically moves in a period, including gaps. Traders use it to size positions and place stops.

B

Base: A sideways or corrective price area where a stock pauses after an advance before (possibly) moving higher. Cups, flat bases and double bottoms are bases. Learn more about Base
Bear market: A broad, lasting decline in stock prices, often defined as a fall of 20% or more from a recent high in a major index.
Bid: The highest price a buyer is currently willing to pay for a stock.
Bid/ask spread: The difference between the bid and the ask. Narrow spreads usually mean a liquid stock; wide spreads add to the cost of every trade.
Blue chip: A large, well-established company with a long record of operating through good and bad economies.
Bollinger Bands: An indicator that draws bands a set number of standard deviations above and below a moving average, widening when volatility rises.
Breakout: A move above a resistance level or the top of a base, ideally on volume well above average. The point traders often use to enter.
Broker: A firm licensed to buy and sell securities for its customers. In the U.S., brokers are registered with the SEC and are FINRA members.
Bull market: A broad, lasting rise in stock prices.
Buy point: The price where a chart pattern is considered complete and a breakout begins, such as the top of a handle. Also called the pivot point. Learn more about Buy point

C

Candlestick: A chart symbol showing a period’s open, high, low and close. The body spans open to close; the wicks show the high and low.
Capital gain: The profit made when a stock is sold for more than its purchase price. A capital loss is the opposite.
Climax top: A late-stage, very fast run-up, often with the largest daily gain and volume of the advance, that can mark the end of a stock’s run.
Consolidation: A period when a stock trades sideways within a range, digesting a prior move. Learn more about Consolidation
Continuation pattern: A pattern that suggests the existing trend is likely to resume, such as a flag, pennant or cup with handle. Learn more about Continuation pattern
Correction: A decline in a stock or index, commonly described as 10% or more from a recent high, that is smaller than a bear market.
Cup with handle: A bullish base shaped like a rounded cup followed by a short, shallow pullback (the handle). The buy point is just above the handle’s high. Learn more about Cup with handle

D

Day trading: Buying and selling the same security within one trading day, closing all positions before the market closes. Learn more about Day trading
Distribution: Sustained selling by large investors, often visible as down days on above-average volume.
Diversification: Spreading money across different investments so that one loss does less damage to the whole portfolio.
Dividend: A payment a company makes to its shareholders, usually from profits.
Doji: A candlestick whose open and close are nearly equal, showing indecision between buyers and sellers.
Double bottom: A W-shaped base with two lows near the same level. The buy point is just above the middle peak of the W. Learn more about Double bottom
Double top: An M-shaped pattern with two peaks near the same level that can signal the end of an uptrend when price falls below the low between them. Learn more about Double top

E

Earnings per share (EPS): A company’s net profit divided by its number of shares. Growth stock investors watch EPS growth closely.
Engulfing pattern: A two-candle reversal pattern in which the second candle’s body completely covers the first candle’s body.
Exchange: A regulated marketplace where securities are listed and traded, such as the New York Stock Exchange or Nasdaq.

F

Failed breakout: A breakout that quickly reverses back into the base or below the buy point, often a sign to cut the position.
Flag: A short, tight pullback that slopes against a sharp prior advance (the flagpole). A move above the flag’s upper line is the breakout. Learn more about Flag
Flat base: A tight sideways base, often forming after a stock breaks out of a deeper base, with a correction from high to low of roughly 15% or less.
Fundamental analysis: Evaluating a company from its business and financial results: sales, earnings, margins, debt and competitive position.

G

Gap: A space on a chart where a stock opens above the prior high or below the prior low, leaving a price range with no trading.

H

Head and shoulders: A reversal pattern with three peaks, the middle one highest. A close below the neckline completes a top. Learn more about Head and shoulders

I

Index: A basket of stocks that measures a market or part of one, such as the S&P 500 or the Nasdaq Composite. Learn more about Index
Initial public offering (IPO): The first sale of a company’s shares to the public, after which the shares trade on an exchange. Learn more about Initial public offering (IPO)

L

Leading stock: A stock that rises earlier and further than the market and its peers, usually with strong relative strength.
Limit order: An order to buy or sell only at a specified price or better. It controls price but may not be filled.
Liquidity: How easily a stock can be bought or sold without moving its price. Heavily traded stocks are more liquid.
Long: Owning a stock, expecting its price to rise. Being short is the opposite.

M

MACD: Moving average convergence divergence: an indicator built from the difference between two exponential moving averages, plus a signal line.
Margin: Money borrowed from a broker to buy securities. Margin magnifies gains and losses and can lead to a margin call.
Market capitalization: A company’s share price times its number of shares outstanding: its total market value.
Market order: An order to buy or sell immediately at the best available price. It is filled quickly, but the price is not guaranteed.
Momentum: The tendency of stocks that have been rising strongly to keep rising for a time, and of laggards to keep lagging.
Moving average: The average closing price over a set number of periods, recalculated each period. The 50-day and 200-day lines are widely watched.

N

Neckline: The support or resistance line connecting the lows (or highs) between the peaks of a head and shoulders pattern. Learn more about Neckline

P

Pennant: A small symmetrical triangle that forms after a sharp move, similar to a flag but with converging lines. Learn more about Pennant
Pivot point: Another name for the buy point of a base: the price that, when cleared, completes the pattern. Learn more about Pivot point
Position sizing: Deciding how many shares to buy so that the loss if the stop is hit equals a set, small share of the account.
Price action: The movement of a stock’s price over time, studied directly from the chart rather than through indicators.
Pullback: A temporary decline within an uptrend, often back toward a moving average or a prior breakout level.

R

Relative strength: How a stock has performed compared with the overall market or other stocks. Not the same as the RSI indicator.
Resistance: A price level where selling has repeatedly stopped advances. Once cleared, old resistance often acts as support.
Reversal pattern: A pattern that suggests the existing trend may be ending, such as a head and shoulders or a double top. Learn more about Reversal pattern
Risk/reward ratio: The potential loss on a trade (entry to stop) compared with its potential gain (entry to target).
RSI (Relative Strength Index): A momentum oscillator from 0 to 100 that compares recent gains with recent losses. Readings above 70 or below 30 are often called overbought or oversold.

S

Sector: A broad group of related industries, such as technology, health care or energy.
Short selling: Selling borrowed shares, hoping to buy them back later at a lower price. Losses are theoretically unlimited.
Slippage: The difference between the price you expected and the price you actually got, common with market orders in fast or thin markets.
Spread: See bid/ask spread.
Stock: A share of ownership in a company. Shareholders own part of the business and may receive dividends.
Stop-loss order: An order that becomes a market order once a set price is reached, used to limit a loss. The fill can be worse than the stop price.
Support: A price level where buying has repeatedly stopped declines.
Swing trading: Holding trades for a few days to a few weeks to capture a single price swing.

T

Technical analysis: Studying price and volume charts to judge supply and demand and the likely direction of a stock. Learn more about Technical analysis
Ticker symbol: The short code that identifies a stock on an exchange, such as AAPL for Apple.
Timeframe: The period each bar or candle on a chart represents: one minute, one day, one week and so on.
Trend: The general direction of price: higher highs and higher lows in an uptrend, lower highs and lower lows in a downtrend.
Trendline: A line drawn across two or more lows (in an uptrend) or highs (in a downtrend) to show the trend’s slope.
Triangle: A pattern where price swings narrow between two converging trendlines: ascending, descending or symmetrical. Learn more about Triangle

V

Volatility: How much and how fast a price moves. Higher volatility means larger swings in both directions.
Volume: The number of shares traded in a period. Volume confirms whether big investors stand behind a price move.
VWAP: Volume-weighted average price: the average price paid for a stock during the day, weighted by volume. Widely used by day traders and institutions.

W

Wedge: A pattern bounded by two converging lines that both slope up (rising wedge) or both slope down (falling wedge). Learn more about Wedge
Whipsaw: A sharp move in one direction quickly followed by a reversal, which can trigger entries or stops and then go the other way.