Glossary of Trading Terms
Trading – buying or selling a security for a short period of time. That time can be measured in seconds, minutes, hours, days, weeks or even months. Typically trading will be used for generating an income, but there will be times when we will execute trades even in our retirement accounts.
Investing – buying or selling a security for an extended period. That time is typically measured in years or decades. Investing is nearly always the purchase or sale of the underlying security and not a leveraged option of the security.
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Time Frame – the specific time we are currently looking at on a security. The ones used are Monthly, Weekly, Daily, 480 min, 240 min, 180 min, 120 min, 60 min, 30 min, 15 min, 2 min.
Market – an overall combination of securities based on a specific structure. Example: Futures market means all the futures securities in the Chicago Mercantile Exchange (CME). Forex market means all the foreign currency pairs within the global Foreign Exchange Market. The markets we refer to are futures, forex, Nikkei (Japanese Index Fund), DAX (German Index Fund), London (combination of all London Exchange securities), US Market (combination of the 4 main stock market indexes – Dow Jones, NASDAQ, S&P 500, Russell 2000).
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Securities – the specific, tradable symbol within an overall market. Example: E-mini S&P 500 is the futures contract on the CME that is related to the S&P 500 index fund.
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Symbol – the short name given to a tradable security. Example: the E-mini S&P 500 on the CME futures market is called ES. Click the "Symbols" link in the menu bar for a full list of the symbols we use in the daily set up show. Also, the top “ticker” line of every chart we look at has both the symbol and the full name for reference.
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Supply and demand – the overall foundation for how we trade. Buy at low prices and sell at high prices. All securities follow this basic principle, and we look for areas of imbalance in that supply and demand equation for our locations to buy or sell.
Current price – the location on a chart where the security is currently being traded.
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Supply zone – an area of imbalance above current price where we are expecting price to change direction and move down. We would be selling the security here.
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Demand zone - an area of imbalance below current price where we are expecting price to change direction and move up. We would be buying the security here.
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Line of Support and Line of Resistance – areas on a chart where price has not moved through but are not defined supply or demand zones. We use these for reference only and will never actually use them for trades.
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Trend – the movement of a security in an up or down direction that is defined by either higher highs and higher lows for a trend up or lower highs and lower lows for a trend down.
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White space – an area where price is moving back and forth between either 2 supply and demand zones or 2 areas of support and resistance. We typically don’t take trades in this area. We wait for price to move out of that area first for higher probability of the trade working.
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Consolidation – area where price movement is getting smaller and smaller setting up for a bigger move either up or down.
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RSI – Relative Strength Index. One of the very few indicators we use. This will be the line you see at the bottom of all the charts shown in the daily show. We typically only look for negative divergence on this indicator. That is shown as price moving higher with RSI moving lower or price moving lower as RSI moving higher. Please look for a detailed explanation of how we use indicators coming soon.
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Bollinger Bands – One of the very few indicators that we use. This indicator is based on the standard deviation principle, and we know that 95% of all activities occur within 2 standard deviations. Please look for a detailed explanation of how we use indicators coming soon.
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ETF – Electronically Traded Fund. Just another way to refer to any of the overall indices that we trade.