Key terms
Bull market:
A bull market occurs when a majority of investors believe economic conditions support higher share prices. The market index trends upward.
Bullish news:
Developments and news that trigger or contribute to a stock's rise. Bullish news is good for long positions. Bulls toss the market higher with their horns.
Bear market:
A bear market is the opposite of a bull market. There are more sellers than buyers in the stock market, and the market index trends downward.
Bearish news:
Developments and news that trigger or contribute to a stock's decline. Bearish news is good for short positions. Bears claw the market lower.
Blue Chip Stocks：
Are the shares of mature, well-established companies that have a strong track record and robust businesses. Blue chip investors look for strong balance sheets and large market valuations, measured in the tens or billions of dollars.
The perceived safety of investing in blue chip stocks comes at the price of less exciting returns than higher risk, higher growth stocks. They are often better choices for investors seeking steadier market outcomes and higher dividend payments.
ETF:
An Exchange Traded Fund is an investment product, usually issued by a fund manager or other financial institution. It is listed and trades on one or more stock exchanges. There is a huge variety of ETFs, and investors must ensure that they understand the nature of the investment in any particular ETF.
Some ETFs are "plain vanilla" index funds with lower management fees, offering lower cost ways to invest in a diversified portfolio. Some offer exposure to sectors, countries or asset classes (bonds, cryptocurrencies), and others offer leveraged exposures. There are even ETFs that go up in value when share markets fall.
Many investors use platform or app based screeners, or other tools, to identify the ETFs most suitable for their investment needs.
Growth stocks:
Refers to shares in companies that are growing sales and profits at a faster pace.
These companies are usually ambitious, focus on research and development, and tend to re-invest profits to fuel their expansion.
Hot stocks:
Refers to stocks that are in favour with traders and investors. They may be in the news, with larger trading volumes, strong liquidity, and highly volatile stock prices.
Large Caps
The highest value stocks listed on an exchange. Market capitalisations are measured in the tens of billions, hundreds of billions, or even trillions of dollars. Many of the largest cap stocks are known globally.
Long:
Buying a stock is known as going long that stock. A person or institution that does so, is a "long". The holding is a "long position", and investors who only purchase shares are "long-only investors".
Market Capitalisation:
The total market value, in dollars, of the shares in a company. Market capitalisation is calculated by multiplying the current share price by all of the shares issued by that company.
Mid caps:
Established and emerging companies that have market capitalisation values in the range $1 billion to $10 billion.
Small Caps：
Listed companies with lower market capitalisations. Often considered higher risk, many consider the lower level of widespread knowledge about small cap stocks means there are significant opportunities.
Short:
Opening an exposure to a stock by selling a stock is known as going short that stock, or shorting the stock. A person or institution that does so, is a "short". The holding is a "short position", and investors that sell shares before buying are "short-sellers".
Unlisted stocks:
Shares that are not listed on a stock exchange. They are generally not tradeable.
Volatility:
Volatility is a measure of how fast a security's price is changing, not the direction it is taking. Volatilities are calculated for stocks, indices, currencies, commodities and almost all traded markets. It is often used as a proxy for risk, with lower volatility shares considered lower risk, and higher volatility indicating higher risk.
Market action
Breakout:
A breakout occurs when a stock that has repeatedly failed to move higher through a resistance level finally bursts through. A breakout can be a sign of strength and may lead to a significant move higher.
Bolter:
A stock that has doubled or multiplied in price within a relatively short period.
Bottom-picking:
Where a stock falls for a sustained period, interested investors may attempt to time a purchase to coincide with the lowest level for that stock. This practise is known, in a positive way, as bottom-picking. However, some believe it is highly dangerous, and refer to it as "catching a falling knife".
Bounce:
Refers to the phenomenon where a share price sometimes rallies temporarily after falling hard. The rebound is smaller than the decline, and the downward trend resumes after the rebound. Sometimes known as a "dead cat bounce".
Buying the Dip:
Investors can favour stocks in an uptrend, and wish to buy into the uptrend. The practise of waiting for the share to retrace some of its price gain before purchasing is known as buying the dip.
Change:
The current or closing price is compared with the previous day's closing price to determine whether the stock price has risen or fallen. It can be expressed as a dollar and cents amount, and/or a percentage change.
Closing:
The Close is the price of the last transaction of a stock at the end of the trading day. It is determined by the algorithmic matching of overlapping bid and offer prices at the closing auction.
Consolidation:
After a sharp rise or fall, the rate of change of the share price slows and it enters a period of sideways trading. This is called consolidation.
Correction:
The phenomenon in an uptrend where the stock price falls back briefly, before resuming upward momentum, is known as a corrective move or a correction.
Fill the gap:
When a stock returns to the price level of a gap on a chart, some investors expect that near-term moves will trade high enough (if entering from below) or low enough (if entering from above) to cover the share price range of the initial gap.
Gaps:
After a dramatic change in a company's fortune, the stock price jumps or plummets, with a large gap or gaps between traded prices. A gap may occur near the start or end of a major stock price movement.
High:
The High is the highest price for a stock traded in a session, most commonly the full trading day.
Limit Move:
Some exchanges place limits of the size of a move for a stock or index in a single session, usually per day. If a stock rises to a limit, it is "limit up", and may be suspended for the day, or unless sellers wish to transact below the limit price.
Low:
The Low is the lowest price for a stock traded in a session, most commonly the full trading day.
Open:
The Open is the price of the first transaction of a stock after the beginning of trading that day. It is determined by the algorithmic matching of overlapping bid and offer prices at the opening auction.
Over bought
If a share rises strongly to levels that analysts believe is well beyond it's value it may be overbought. Similarly, when the share price trends strongly higher, many chart based indicators will give overbought signals. Investors may use these signals, often joined with other factors, to determine an appropriate time to take profit.
Over sold
If a share falls heavily to levels that analysts believe is well below it's value, it may be oversold. Similarly, when the share price heads deeply lower, many chart based indicators will give oversold signals. Investors may use these signals, often joined with other factors, to determine an appropriate time to take buy shares.
Pull-back:
A phenomenon in which the price of a stock falls back temporarily after a fast rise. The practise of identifying pull-backs to purchase stocks is known as "buying the dip".
Short Squeeze:
An unusual but well-known market situation that may occur when there is a high level of short selling in a stock. A buyer or buyers with deep reserves start purchasing the short sold stock, with the intention of forcing the shorts to buy back as the cost of being short increases. If the buyers are successful, the scramble from sellers creates a squeeze, and the stock price rockets higher.
Sideways trading
A stock trading in a narrow price range, without a sustained rise or fall.
Strong opening:
Means that the opening price is much higher than the closing price of the previous day.
Ten-bagger:
A stock that increases in market value by ten times.
Turnover:
The number of shares traded.
Volume:
The number of shares traded, as opposed to the value of trades, which is the dollar value of shares traded. Larger trading volumes are a sign of strong interest in the stock, either positive or negative.
Weak opening:
Means that the opening price is much lower than the closing price of the previous day.
Market participants
Broker:
A person or business that executes a client's order to buy or sell securities, commodities, or other securities. Brokers usually receive a commission for doing so.
Institutional investors:
These are the biggest investors, such as investment banks, mutual funds, hedge funds, consortiums, trusts, and other groups with large amounts of capital.
Market makers:
Professional traders who offer prices in derivative and more exotic financial instruments, such as futures, options, convertible bonds and ETFs. Market makers seek to profit by providing liquidity in these instruments to other market participants.
Proxy:
Written evidence of the shareholder's appointment of another person or entity to exercise voting rights on his or her behalf at a general or extraordinary meeting of shareholders. A person who fulfils this role
Retail investors：
Individual investors who trade for themselves. Greater access to markets and more cost effective brokers and platforms have significantly increased direct participation in global markets by individuals.
Short sellers:
An investor who believes that a stock has risen to a peak and will soon fall, or a fall has started, sells at the higher price with the intention of buying the shares back at lower prices. The short seller must borrow the shares to cover the initial sale, and returns the shares when the stock is bought back. Short sellers are usually institutions, hedge funds, or professional investors.
Analysis
Fundamental Analysis：
An analysis of a business based on sales, assets, earnings, products or services, markets, and management. The purpose of fundamental analysis of stocks is to discern a "true value" for a company's shares. If the current share price is very different from the analyst's valuation, there may be a profit opportunity. Most common valuation approaches involve Discounted Cash Flow methodology
Also refers to the analysis of macro-political, economic, and monetary policy dynamics to predict their impact on the global and local economy, and therefore the stock market.
Price to earnings ratio (or P/E ratio):
The price-to-earnings ratio is the ratio of the stock price to its earnings.
Price-to-earnings ratio = stock price per share ÷ stock's annual earnings per share
The P/E ratio may be backward looking (comparing past earnings) or forward looking (future earnings estimates).
The price-earnings ratio is one of the most fundamental indicators, and is used as a rough "rule-of-thumb" for estimating and comparing the value of stocks. A very small ratio (12x or below) indicates that the stock price is low and may be worth buying, depending on risk. High P/E ratios (above 30x) could be a sign a stock is expensive, although history shows many examples of stock that have sustained P/E ratios over 100x for long periods.
Stocks with high P/E ratios are often hot stocks, and stocks with low P/E ratios may be unpopular or damaged.
Technical Analysis / price action
Technical Analysis：
A study of markets and stocks based on price action as shown on charts. Technical analysis studies price movements, trading volumes, trading trends and chart-based patterns to increase the probability of successful investing and trading. Common chart types include Open-High-Low-Close (OHLC), Candlesticks and point-and-figure charts. More exotic charts and hundreds of indicators are available for further analysis.
Downtrend:
A situation where a stock's price is falling over time. Markets rarely go anywhere in a straight line. However if a stock is making new and lower low points compared to recent activity, and the highs it bounces back to are progressively lower, it is in a downtrend.
Long-term:
Technical analysis is performed over different time frames. Long term analysis may focus on a period of time for the next three to five years, or decades.
Medium-term:
Technical analysis is performed over different time frames. Medium term analysis may focus on a period of time for the next few months, out to around one year.
Short-term：
Technical analysis is performed over different time frames. Short term analysis may focus on a period of time for the next few minutes, days or weeks.
Resistance:
An underpinning principle of technical analysis is that at a price level where investors have previously made decisions, they may again make decisions if the stock returns to that level. If a stock has repeatedly risen to a price point at which sellers emerge, and fallen back from that price, it is known as a resistance level, and is represented by a horizontal line on the stock chart.
Support:
An underpinning principle of technical analysis is that at a price level where investors have previously made decisions, they may again make decisions if the stock returns to that level. If a stock has repeatedly fallen to a price point at which buyers emerge, and risen from that price, it is known as a support level, and is represented by a horizontal line on the stock chart.
Uptrend:
A situation where a stock's price is rising over time. Markets rarely go anywhere in a straight line. However if a stock is making new and higher high points compared to recent activity, and the lows its pulls back to are progressively higher, it is in an uptrend.
Stock terms
Capital raising:
Listed companies may issue new shares to raise money, usually with the permission of shareholders. The capital raised may be needed to buy another business, fund a transaction, repair the balance sheet, or other business needs.
Cum-Dividend:
A stock trades cum-dividend from the announcement of the terms of the upcoming dividend until the ex-dividend date.
Cum rights:
Any stock with rights (to company bonus issues, stock distributions, in specie distributions) that have not been delivered is referred to as an attached right.
Ex-Dividend date:
Investors who purchase a stock BEFORE the ex-dividend date, and hold that stock on the ex-dividend date, are entitled to receive the dividend for that period (usually a half-year or full-year in Australia, quarterly in the USA).
Historic volatility:
Is the measure of how fast the price of a share is changing, and is often calculated as a function of the variance of the closing price each day over a period. This is Classical Historic Volatility. There are other methods to calculate volatility, such GARCH and Average True Range.
Implied volatility:
Implied volatility is a value calculated by reverse engineering the prices of options. Traders estimate future volatility as an input to their pricing models, and analysts breakdown their option prices to discover what professional traders are thinking.
Market parcel:
Shares trades may be subject to minimum amounts to trade. The size of a market parcel can vary by stock, broker and stock exchange. A common minimum parcel size in Australia is $500 worth of shares.
Price Increment:
The minimum share price change for any stock is determined by the share price level. Lower priced stocks have smaller increments, and as share prices rise, the price increment increases.
Record date:
The record date is the date shares are settled after the ex-dividend date, and the company records the details of investors entitled to the dividend for that period.
Rights Issue:
When the Company issues additional new shares or other securities, they may be allocated to shareholders for subscription at a special price (below market price) based on the number of shares owned by the shareholders.
Warrants:
May be company issued or constructed and traded by larger financial institutions, often aimed at retail investors. Warrants vary enormously in their composition and trading attributes. Investors must ensure they understand the nature of a warrant before investing.