If you are reading one of my stock market articles, you may have come across an investment term or phrase that you are unfamiliar with.
I've assembled a list of the more pertinent investment phrases and terms, along with their definitions, that I frequently reference in my stock market articles.
Click the investing phrase or term below to expand and view its definition. Some of the investing terms or phrases may have links to additional resources. I am continually adding new investment terms and phrases, so be certain to check back frequently for updates! Now, on to the definitions....
Stock Market Terms & Definitions
If you are not prepared for the possibility of a bear trap, it usually ends up with you selling your shares at exactly the wrong time as prices are declining and getting ready to rebound.
How can you tell if it is a bear trap, indicating you should be purchasing shares, or the start of a longer decline which indicates that you should be selling some shares? By using technical analysis of course!
Break-away gaps to the upside are also called Rising Window candlestick patterns.
Break-away gaps to the downside are called Falling Window candlestick patterns.
Read more about candlesticks, candlestick charts and candlestick patterns here:
- A stock's share price increases 25 - 50% or more in 1-3 weeks after already having an extended run in its share price
- When a high percentage of the recent activity has been trending upwards, like 7 out of the last 8 days or 8 out of the last 10 days, this could be an early indicator of a climax top when there is heavy volume associated with the upwards move
- The largest daily gain in a stock's share price
- A gap-up after an extended run in the stock's share price; this is also referred to as an "exhaustion gap" (see below).
The earlier a continuation pattern can be properly identified, the sooner a portfolio can be adjusted for the expected continuance of the trend.
When the 50 Day moving average line crosses below the 200 Day moving average line, it usually signals a change from a bullish trend to the probable start of a new bearish trend. A Death Cross pattern is considered a lagging indicator.
Review additional details and real-life examples of Death Cross patterns here:
Distribution days should be traced separately between the NASDAQ Composite, the NYSE composite and the S&P 500. Tracking the accumulated number of distribution days is crucial to gauging a market's health. Why? Because distribution days almost always are signs that large institutions are exiting the market.
Some examples of "large institutions" include pension funds, money managers and investment bankers. And since these large institutions control the bulk of the daily trading volume due to their overall size, they also tend to have an influence on the market's overall direction.
You can't expect stocks to rise without those big guns on your side. How many accumulated distribution days is too many? Investors Business Daily states that the market could probably withstand approximately six or seven distribution days before rolling over and falling into a deep correction.
Learn more about Elliott Wave analysis and wave patterns here:
Review additional details and real-life examples of Falling Window candlestick patterns here:
The next two sessions, Days 2 and 3, don't need to show much in the way of gains. As long as they don't undercut Day 1's low, the rally remains intact. For a follow-through to occur, you want it to land between Day 4 and Day 7 of the attempted rally. On any one of those days, you're looking for one or more of the major indexes -- the NASDAQ, S&P 500 or Dow -- to rise 1.7% or more in higher volume than the previous day.
Though a follow-through in that span gives the strongest signal for a new rally, one that hits anywhere between Day 4 and Day 10 can work. Follow-through days that occur after Day 10 yield lower success rates.
In most cases of FOMO, rather than getting higher prices, the investor/trader ends up getting lower prices by holding onto those shares for too long before selling. It is usually better to "stick to the plan". If you think you are developing a case of FOMO, send me a message.
For companies, information such as revenue, earnings, assets, liabilities and growth are used to determine the quality of the fundamentals. Investors analyze a company's fundamentals to help determine the health of the company, security or currency, as well as its growth prospects. For example, a company with little debt and a lot of cash is considered to have strong fundamentals.
Gap-downs can be created by factors such as regular selling pressure that continues to gain momentum, bad earnings announcements & outlooks, negative changes in analyst outlooks and other types of significant news releases.
Gap-downs are referred to as Falling Window candlestick patterns in Japanese candlestick terminology. Review additional details for Falling Window candlestick patterns here:
Gap-ups can be created by factors such as regular buying pressure that continues to gain momentum, good earnings announcements & outlooks, positive changes in analyst outlooks and other types of significant news releases.
Gap-ups are referred to as Rising Window candlestick patterns in Japanese candlestick terminology. Review additional details for Rising Window candlestick patterns here:
Gaps can develop by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release. See also Gap-Downs and Gap-Ups for specific types of gaps.
When the 50 Day moving average line crossed above the 200 Day moving average line, it usually signals a change from a bearish trend to the probable start of a new bullish trend. A Golden Cross pattern is considered a lagging indicator.
Review additional details and examples of Golden Cross patterns here:
- The zero line for the MACD Histogram represents neutrality - no buying or selling momentum
- A negative reading for the MACD Histogram represents selling momentum
- A positive reading for the MACD Histogram represents buying momentum
Read more about the MACD Histogram here, including how to use it effectively as both a trading and investing tool:
Each market maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, a market maker immediately sells from its own inventory or seeks an offsetting order. This process takes place in mere seconds.
The NASDAQ Exchange consists of over 500 member firms that act as NASDAQ market makers, keeping the financial markets running efficiently because they are willing to quote both bid and offer prices for securities.
The greater the buying or selling momentum that there is, the longer that a trend lasts. Therefore, the earlier that a trend can be established, the more money that can be made by trading the momentum of the trend. Determining the strength of a trend is critical to investing success.
Become a Trendy Stock Charts member today and learn about different ways to effectively measure a stock's momentum.
Some investors and traders use moving averages to trade and invest. For example, a 200 Day Moving Average is typically used to help determine long-term trends and also calculate buying and selling targets. Also see Simple Moving Averages.
Instead of a line chart or a bar chart, a Point & Figure chart is constructed by columns of X's and O's.
- If a stock's share price is rising, the column boxes on the P&F Chart are designated with the letter “X”
- If stock's share price is falling, the boxes are designated with the letter “O”
Vertical columns of “X”s and “O”s are constructed as the market moves higher and lower, respectively.
Read more about Point & Figure charting (P&F Charting) here:
Relative strength (RS) is measured between the number 1-100. A stock with a RS rating of 90 is outperforming 90% of all other stocks in the market. With that definition, it becomes quite clear that the higher the RS rating, the better.
Review additional details and real-life examples of Rising Window candlestick patterns here:
Technical analysis is also used to calculate support areas used to buy stocks as well as resistance areas that can be used to lock in profits and sell stocks. For the daring, a strong resistance area can even be shorted.
Learn more about the different types of technical analysis I discuss at Trendy Stock Charts. These methods provide the best and most consistent results IMO:
For example, a moving average is considered a technical indicator. So is a MACD Histogram charting tool.
The earlier that a trend can be established, the more money that can be made, especially when the momentum of the trend is calculated.
Determining the strength of a trend is critical to investing success. Become a Trendy Stock Charts member and determine how I use different Technical Indicators to identify a trend for either stocks or indices.
View illustrations and read more about drawing Trendlines here:
Volume "spikes" can also help determine a stock’s trend, depending upon where it develops in the larger trend at hand. Some volume spikes stop trends, some start new trends while others continue trends at hand. Therefore, volume spikes can be used to confirm breakouts, continuations or climaxes.
I discuss volume in more detail on its webpage, along with a stock's price as an indicator. "Price & Volume" analysis is like peanut butter and jelly.
Join Trendy Stock Charts
If you aren't a member already, what are you waiting for? As a Trendy Stock Charts member, all of the above stock market terms & definitions will become second-hand nature in no time.
In my stock market articles, I review Cup with Handle chart patterns, Elliott Wave patterns and heavy volume moves. I'll analyze charts using Fibonacci analysis and trading tools such as the Fibonacci Retracement Tool, Extension Tool and Fan Tool. Trendlines can always be seen on almost all of my charts. Moving averages help to confirm many other forms of analysis. And let's not forget candlestick patterns, a literal one-hit wonder.
At the end of each article, I put it all together and come up with either a buy, sell or hold recommendation. Sometimes a combination of two using a scale-in or scale-out strategy.
Learn the ropes of technical analysis at Trendy Stock Charts. I've put together a winning combination of technical analysis methods that will help you and your portfolio outperform the market. Learn how to decide which stocks to buy and which to avoid using a few simple tools.
Outperforming the market is only a few clicks away. Don't delay, join Trendy Stock Charts today!