This is the laymen’s glossary of day trading vocabulary terms commonly used. If you have any others that you’d like me to add or you don’t understand any, please shoot me an email (marina@thetraderchick) and I’ll take care of it.
Breakout – when the price breaks out of the support/resistance area it was channeling in.
Buy – this is when you enter the market with the prospect of it going up so you can sell it at a higher price
Charts – this is the holy grail for traders, everything you will be doing is from your chart.
Consolidation – this is an area of indecision, where the market moves between two areas while transitioning into a more defined movement up or down.
Contracts – NOTE: in Futures market contract is used 2 ways:
1. An agreement to buy or sell a set amount of a commodity at a predetermined price and date
2. It’s the amount of positions you enter with into a trade (similar to shares when buying stocks/equities)
Channel – a range between support and resistance levels that the market has traded in for a certain period of time.
E mini futures – Electronic mini contract.
ES mini – Electronic S&P 500 index
Futures market – this market has always been associated with the commodities markets which are physical goods. You buy, for example, a barrel of crude oil at a certain price and you sell it (hopefully for more) in the future when the contract expires.
Going long – bullish – market going up – you know that big bull we see pictures of on Wall Street – this is where we get the bullish term from. The bull is charging.
Going short – bearish – market going down
Indicators – this is what you will be using on your chart to help you see the green lights for your entries.
Intraday trading – in and out of all positions within the same day – not holding anything overnight or longer.
Limit Order – this is how traders enter the market, they have their entry waiting at a certain price point that they are looking to enter in.
Market entry – this is when you enter the market at the exact price it is at the moment – traders never do this, you always know which price you want to enter at.
Momentum – when the market has a strong move in one direction
Margin (in Futures Market) – how much you have in your account deposited to trade. Each instrument requires a certain amount per contract, this is called on margin.
Points – in the Futures market the price value, especially for the ES Mini, is based on points. Each point has 4 ticks. In the ES specifically each tick is worth $12.50 and each point is worth $50 per contract.
Price action – literally watching the price of the instrument and charting it on your charts whatever way you prefer – tick bars or candlesticks.
Resistance – where the price level has reached to and can’t break through. The level is revisited over and over again.
Retracement – When you are in a trend (when the market is moving up or moving down) the normal behavior is to do a run in one direction and then a quick retracement (correction). In other words, a temporary reversal in the direction of the trend.
Risk management – you always, ALWAYS, need to have a risk management in place. You can never ever enter a trade without having your risk already there, or will lose it all. You can set this up with your trading platform, by putting in the amount of risk you are willing to give per trade. Or, if you want to manage it manually, make sure you know exactly what is the risk you are willing to put up and get out when it is in that range – NO MATTER WHAT.
Sell – this is when you are entering the market with the prospect of it going down and you can earn money on the difference
Software – many traders and companies will be talking about softwares, all I have to say is beware. You don’t EVER need to buy any software to trade. Indicators, for the most part will be what you use, and they usually come for free with good chart/trading platforms.
S&P 500 – Standard and Poors index of the 500 biggest companies in the US traded on the New York Stock Exchange.
Stop limit – this is your risk management. You will always have one in place. When you take a course that program can advise on the best stop management for you. But never enter a trade without one. You will lose everything. Stop limit is what you set on your trading platform so it is there to help you get out when you say you want to.
Support – An area were the price has fallen to and is not breaking through. Where the price keeps on revisiting.
Target – this is what your target profit will be, it can either be up or down depending if you are buying or selling (going long or going short). You can set this up with your trading platform, or know when you want to get out. Remember, the key is not to get greedy and get out when you say you will.
Ticks – this is how price is broken down with the ES. Each tick is worth $12.50 and there are 4 ticks in a point.
Tick bars – a tick bar can be any number you want – each tick on the price bar is a transaction. Meaning if you have a 610 tick chart, for each price bar there was 610 transactions before it moved on to the next bar
Trading Platforms – this is the actual software that your charts will be coming from. You will need to use a platform that is connected to your brokerage account. I recommend only working with trading platforms that are free.
Trend – the general direction of the market. Can be weak or strong, but must be in that direction.
For everything we do in our life we start from the basic, definitions of words we commonly use are implemented in our day to day, there’s no difference with learning day trading.
That’s why we put up for you this Day Trading Vocabulary.