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Stock Trading Terms 101
Stock trading terms have to do with general aspects of the market and things that are specific to trading stocks. Stock trading terms 101 has to do with general terms that apply to the stock market and trading stocks. First let us look at trends, the bull and bear markets.
Trends: Is the Market Rising or Falling?
The bulls are in charge the pundits say when the market is going up. A bull market is one in which prices are rising on an ongoing basis. A so called bear market is one in which prices are falling. These terms refer to market trends and not day to day price changes.
A secular trend lasts more than five years.
A primary trend lasts for more than a year but less than five.
A trend that lasts for a few weeks or months but less than a year is called a secondary trend.
Understanding these stock trading terms and what they imply is important for successful stock trading. For example, if you engage in range trading (repeatedly buying at the bottom and selling at the top of the market for a stock whose price cycles up and down) you need to have a clear idea of when a stock will hit its peak and when it will bottom out and head back up. If you are in a long term bull market the general range in which you will steadily head upwards causing you to continually adjust the channel in which you trade. But, knowing more precisely when the market will turn requires analysis of evolving market sentiment.
What Is the Sense of the Market?
The stock trading terms that apply to unfounded beliefs about stock prices are market (investor) sentiment and technical analysis. Before virtually every stock market crash there seems to be a period of euphoria in which naïve investors pour money into the market. They appear to believe that since the market has been going up for a month, year, or five years that it will continue to go up. This is investor sentiment at its worst. Its twin is when the market falls and everyone sells, just as many excellent bargains appear in the market due to panic selling. Many successful stock traders take advantage of unfounded investor sentiment. They use technical analysis. This is the statistical analysis of price patterns. Because price patterns often repeat themselves stock traders can read the first part of a pattern and then trade accordingly with the assurance that the second half of the pattern will develop. This method goes back centuries to tulip bulb trading in Holland and rice trading in Japan. The Japanese method, Japanese Candlestick trading, is still in existence today. Technical traders commonly jump in and out of the market as opportunities rise.
