Trading Glossary

The lowest price a seller is willing to accept for a security. When you buy a stock, you pay the ask price. The difference between bid and ask is called the spread — a cost you pay on every trade.

How you divide your portfolio among different asset classes: stocks, bonds, real estate, cash, etc. A common (though simplified) rule of thumb: subtract your age from 110 to get your stock allocation percentage. Your risk tolerance and goals should drive this decision.

A sustained decline of 20% or more from recent highs. Can last months or years. Bear markets are psychologically brutal but historically have always been followed by recoveries. The average bear market since 1929 has lasted about 9 months.

The highest price a buyer is willing to pay for a security. When you sell, you receive the bid price. Highly liquid stocks (Apple, Microsoft) have very tight bid-ask spreads. Thinly traded stocks can have wide spreads that eat into your returns.

The difference between the bid and ask price. This is an invisible cost on every trade. A stock trading at $50.00 bid / $50.05 ask means you instantly 'lose' $0.05 per share the moment you buy. Spreads are tighter on high-volume stocks.

When a stock price moves above a defined resistance level (or below support). Breakouts on high volume suggest the move has conviction. False breakouts (price quickly reverses) are common and why experienced traders wait for confirmation before entering.

A sustained period of rising stock prices, typically defined as a 20%+ rise from recent lows. Generally associated with economic expansion, low unemployment, and investor optimism. The S&P 500's average bull market has lasted about 4 years.

A decline of 10-20% from recent highs. More common than bear markets — corrections happen roughly once per year on average. Often a normal part of healthy markets, not a signal of prolonged decline.

Spreading investments across different stocks, sectors, or asset classes to reduce risk. The idea is that losses in one area are offset by gains in another. However, over-diversification ('deworsification') can dilute returns — there's a point where adding positions stops reducing risk meaningfully.

A portion of company profits paid directly to shareholders, typically quarterly. Dividend yield = annual dividend / stock price. Income investors prioritize dividends. Growth investors often prefer companies that reinvest profits rather than pay dividends.

What's left after all expenses, taxes, and interest are deducted from revenue. Also called net income or 'bottom line.' Reported quarterly. Earnings beats (actual > expected) typically cause stock price jumps. Misses cause drops.

The period each quarter when most public companies report financial results. Typically 2-3 weeks after each quarter ends (Jan, Apr, Jul, Oct). Heavy volatility — stocks can move 5-20%+ on earnings beats or misses. Many traders specifically avoid holding positions through earnings.

Earnings Per Share. Company's net profit divided by total shares outstanding. The core profitability metric for equity analysis. Growing EPS over time is a fundamental signal of a healthy business. Watch for EPS guidance vs. actual results each earnings season.

Exchange-Traded Fund. A basket of securities that trades on an exchange like a stock. SPY tracks the S&P 500. QQQ tracks the Nasdaq 100. ETFs offer diversification with one purchase and typically lower fees than mutual funds. The foundation of most long-term portfolios.

The interest rate at which banks lend money to each other overnight — set by the Federal Reserve. The most important single number in global financial markets. Rate increases slow borrowing and spending, which can compress stock valuations. Rate cuts stimulate and tend to boost stocks.

A fund that tracks a market index (S&P 500, Nasdaq, etc.) passively. No fund manager making decisions — just mirroring the index. Lower fees than actively managed funds. Decades of data show most active managers underperform index funds over long periods.

The rate at which the general price level of goods and services rises over time. Measured by CPI (Consumer Price Index) and PCE (Personal Consumption Expenditures). High inflation typically causes the Fed to raise rates, pressuring stock valuations — especially growth stocks.

An instruction to buy or sell only at a specific price or better. You set the price ceiling (for buys) or floor (for sells). May not execute if the price never reaches your limit. Preferred by most active traders for price control.

Moving Average Convergence Divergence. Shows the relationship between two moving averages. When the MACD line crosses above the signal line, bullish momentum is building. Crosses below: bearish. Best used to confirm trends, not predict reversals alone.

Total market value of a company's outstanding shares. Calculated as share price × total shares. Large-cap: $10B+. Mid-cap: $2B–$10B. Small-cap: $300M–$2B. Micro-cap: under $300M. Generally, larger companies are more stable but offer lower growth potential.

An instruction to buy or sell a security immediately at the best available price. Guarantees execution but not price. Fine for large, liquid stocks. Risky for thinly traded stocks where you might get a terrible fill price.

The average closing price of a stock over a specified period, updated each day. Common: 50-day MA and 200-day MA. Used to identify trend direction and potential support/resistance. Price above its 200-day MA is generally considered in an uptrend.

Contracts giving the right (not obligation) to buy (call) or sell (put) a stock at a specific price before a specific date. Powerful leverage tool that can amplify gains — and losses. Widely misunderstood. Options can expire worthless, losing 100% of the premium paid.

Price-to-Earnings ratio. Share price divided by earnings per share. A P/E of 20 means you're paying $20 for every $1 of annual earnings. High P/E = growth expectations baked in. Low P/E = value or declining business. Context matters — compare to industry peers.

The collection of all investments you hold — stocks, ETFs, bonds, cash, etc. A well-constructed portfolio balances risk across positions and asset classes. Concentration in one sector or stock amplifies both gains and losses.

A price level where a stock has historically struggled to rise above. Sellers tend to emerge at resistance. A stock that breaks through resistance on high volume often continues higher. The more times a level has held, the more significant the eventual break.

The total income generated by a company before any expenses are deducted. Also called 'top line.' Revenue growth signals demand for the product. But revenue without profit improvement is dangerous — a company can grow itself into bankruptcy.

Relative Strength Index. A momentum indicator measuring how fast and how much a stock's price has moved. Ranges 0–100. Above 70: overbought (may pull back). Below 30: oversold (may bounce). Useful for timing entries but not infallible — strong trends can stay overbought for long periods.

The movement of investment money from one industry sector to another as economic conditions change. Example: money flows from growth tech stocks into defensive staples when recession fears rise. Institutional investors rotate billions — tracking these flows helps individual traders identify momentum.

Borrowing shares and selling them, hoping to buy them back cheaper later and pocket the difference. Profit when stocks fall. Unlimited risk theoretically (a stock can rise indefinitely). Complex and risky — not recommended for beginners without deep understanding.

An order that automatically sells your position when the price falls to a predetermined level, limiting your loss. The single most important risk management tool. Every trade should have a defined stop loss before entry — not after.

A combination: when price hits your stop trigger, a limit order activates at your specified price. Protects against bad fills but doesn't guarantee execution if the stock gaps through your limit.

A price level where a stock has historically stopped falling and reversed upward. Buyers tend to step in at support. If support breaks, it often becomes resistance. Support levels are never guaranteed — they're probabilistic, not rules.

The CBOE Volatility Index. Measures the market's expectation of 30-day volatility based on S&P 500 options pricing. Often called the 'fear gauge.' VIX above 30 signals elevated fear. VIX below 15 signals complacency. Spikes in VIX often coincide with market bottoms.

The degree to which a stock or market fluctuates. High volatility = larger price swings in both directions. Measured by standard deviation or VIX (the 'fear index' for the S&P 500). Higher volatility means higher risk and higher potential reward.

The number of shares traded in a given period. High volume confirms price moves — a breakout on high volume is more meaningful than one on thin volume. Unusual volume spikes often precede big moves or signal institutional buying/selling.

A chart showing interest rates across different bond maturities. Normally upward sloping (longer maturity = higher yield). An inverted yield curve (short rates > long rates) has historically preceded recessions. Closely watched by institutional investors as a leading economic indicator.