Algo - Short for algorithm.
Alpha - A measure of performance; a risk-adjusted measure of the excess return of an investment, above the benchmark index referenced as a base of comparison. Thus, traders obviously seek returns in excess of say, the SPX benchmark index, they seek alpha.
Ask - The price that a seller is willing to accept for a security. This is also called the offer.
Austrian Economics - Influential in the 19th and 20th centuries but in recent times viewed as outside the main stream thought. An opposite approach to Keynesian economics. Austrian approach says the complexity of human behavior makes mathematical modeling of markets extremely difficult so it is best to take a more hands off approach to the markets . Companies should be allowed to fail rather than the government stepping in to provide bailouts. Ludwig von Mises is the most recognizable name associated with Austrian economics.
Bag Holder - The last sucker that comes into a trade, buying too late, exactly at the top, or shorting to late, exactly at the bottom. Wall Street relies on Joe Sixpack to be the regular bag holder.
Bear Market - A market where the major indexes come off a top formation by 20% or more to the downside. This trend continues as a secular trend unless a 20% reversal occurs from a bottom sending markets back up into a secular bull.
Beta - An indicator of risk; a measure of a stock's volatility in relation to the market. The market is a beta of one. A stock that moves more than the market has a beta greater than one, a stock that moves less than the market has a beta less than one. High beta is typically high risk high return. Low beta is less risk less return.
Bid - The price at which a buyer is willing to pay for a security.
Bid and Ask - Highest price and lowest price that trader's are willing to buy and sell the stock.
Block Trades - Large players typically trade in large share lot transactions of 100,000 shares. A trader is best served to trade in blocks of 100, 1,000, 10,000 and 100,000 lots since the trades are cleaner, and paperwork and trading is easier. Keystone prefers trading in blocks of 100 shares for stocks priced over $10 and blocks of 1000 shares for stocks priced under $10 to keep things simple.
Boiler Room - A high-pressure sales group that uses telephone sales and other shady sales techniques most concerned about finding sucka's that they can fleece. Since these type of illegal establishments are rare now, boiler room is used as slang to simply refer to the place you work if it is a high pressure environment.
Bond Vigilantes - Refers to the bond market that fights govenment policies by selling bonds (which increases yields). Many government policies, like quantitiative easing, money printing, are inflationary, and a higher inflation environment demands higher yields (lower bond prices) to allow for the added risk. The bond vigilantes provide balance to the markets and remind politicians that the markets have underlying problems. Mr. Edward Yardeni is credited for coining the phrase in the 1980's.
Bot - Robot, typcially a loose reference referring to programmed trading using robots, quants and algorithms.
Bottom Line - The earnings per share value for a stock, typically appearing on the bottom of an income statment. One of the two key numbers reported for earnings season; the top line and the bottom line.
Breakout - The price level where the price moves out of the trend channel; when price crosses thru an important trendline.
Bucket Shop - Firms that specialize in buying stocks and commodity futures. This is another term that references illegal operations over the years but is used nowadays to simply refer to a smaller trading firm.
Bull Market - A market where the major indexes come off a bottom formation by 20% or more to the upside. This trend continues as a secular trend unless a 20% reversal occurs sending markets back into a secular bear. Corrections are common in secular bull runs.
Business Cycle - A term used to describe the alternating periods of expansion and contraction in economic activity.
Candlestick Analysis - A charting methodology using candles for each time period. The candle represents the open and close for that time period and also the shadows extending from the candle on each end represents the high and the low. Keystone's charts show the candlesticks routinely. Candlestick patterns such as a doji and spinning top indicating possible trend changes, a hanging man candle indicating a potential top and a hammer indicating a potential bottom. Study these set ups as well as three black crows, engulfing candles and many others.
Coincidental Indicator - An indicator that signals in sync with market moves. The indicator may not be useful as a forecasting tool but it does provide ongoing confirmation of market moves as the move occurs and after it occurs.
Contagion - A financial scenario where small shocks to banks, or countries, appearing relatively straight forward to handle, instead spread to other banks and countries threatening a much larger-scale economic problem. Banks or countries that were healthy are dragged into the mix since the global economy is highly cross connected. Currently, fears are that a poor handling of the Greece situation may result in European contagion especially with Italy, Spain, Portugal and/or France.
Core Holdings (Core Position) - Simply put, the largest portion of the portfolio, that tends to be a position, or positions, that traders are willing to hold for a longer time, as compared to trading positions that are entered and exited via mouse clicks on a daily basis. Shorter term trades can be used as hedges against the core position to constantly balance risk and reward.Correction - A market pull back of 10% or less during a long secular bull run. A correction typically leads to a resumption of the upward longer trend. If the market pulls back 20% or more, it flips form a secular bull to a secular bear market.
Cyclical - Referring to the multi-month moves in the markets within a larger secular move. Think weeks, months, a couple-few years. Cyclical follows the economic cycle; bull runs typically continue for 2 to 4 years. Bear moves tend to be shorter duration. The rally from the Iraq War in March 2003 to the market top in October 2007 was a cyclical bull. The market move from summer 2010 to summer 2011 was a cyclical bull fueled by QE2. The cyclical bear was July 2011 to the October 2011 bottom. A cyclical bull runs from October 2011 into the April 2012 top. The 18-year cycle identifies the secular bear that is running from 2000 to around 2018.
Cyclical Stocks - Stocks that are considered cyclical, which are affected by the ebb and flow of the markets and business cycle, are steels like X or NUE, equipment manufacturers such as CAT, and other industrical and chemical names, companies that prosper in the upturns, like IR, BHP, DD, etc... Think in terms of things that are needed as the economy expands such as chemicals, lumber, commodities, equipment, manufacturing, etc..., but, all good things come to an end, and as the economic cycle peaks and rolls over, these same stocks are hit harder than secular, or non-cyclical, stocks.
Dark Pools - Also called dark liquidity, is trading volume or liquidity that is not openly available to the public. Dark pools allow large trades by financial instituitions to proceed anonymously.
Day Trading - Trading where you enter and exit positions during the same day; intraday trading; scalping. Traders make quicker trades that result in smaller profits but the multiple trades add up.
Dead Cat Bounce - When an index or individual stock tumbles lower, taking a drastic drop, price will typically rebound for a brief bounce, simply to relieve some of the strong selling pressure.
Diversification - A prudent investment startegy where you typically do not place more than 20% of your holdings in any one type or style of investment, and most definitely not in in one individual stock. This startegy provides protection to a portfolio since a big move down in one single stock or sector will not seriously damage your portfolio. You can diversify within your stock holdings making sure the picks are from differnet sectors, or diversify as a part of your larger picture investment strategy by maintaining exposure across many asset classes; stocks, bonds, treasuries, currencies, CD's, money markets, real estate, gold, silver, art, cash, etc...
Dove - Concerning Fed policy, doves are typically more concerned about keeping unemployment low at the expense of inflation. Dove's favor low interest rates, a Keynesian appoach.
Dr. Copper - Copper leads the broad markets since it is such a key industrial metal. It is the doctor, the leader, the all-knowing precursor of broad market direction.
Exchange Traded Fund (ETF) - Indexes, baskets of indexes, sectors, baskets of sectors, countries, commodities, curencies, almost anything is traded as an ETF nowadays. ETF's enable a trader to move in and out daily like any stock, only incurring commission charges. Compare this to mutual funds with fees and limits on when you exit and enter.
Fade - A trader that is often wrong so it is best to do the opposite of what they say, 'fade' them. Also references a trade where a rising price is sold, or a falling price is bot, you 'fade' the move.
Falling Knife (Catch a Falling Knife) - Buying a long position in a stock as the stock collapses thru support levels, in essence, trying to call a bottom in the stock or index. More often than not the down move continues and the knife cuts deep as it continues to fall, making all the bottom-callers pay deeply.
Forex - Foreign Exchange Market or Currency Market where currencies are traded.
Fundamental Analysis (Fundies) - Using analytical analysis, P/E ratio's, cash flow, earnings, and other accounting type data to project future stock movements. Analytical minds, engineers, scientists, and accountants tend to trade better using fundamental analysis while creative people, writers, artists, musicians and visual folks trade best with TA. Fundies work well for long term traders and investors. Always explore both fundies and TA to determine what fits your personality.
Futures - A financial contract obligating the buyer to purchase and asset, or the seller to sell an asset, at a predetermined future date and price.
Good 'Til Cancelled Order (GTC) - An order to buy or sell a security (stock) at a set price that remains active and open until the customer cancels it, or it is filled.
Government-Sponsored Enterprise (GSE) - A financial services corporation created by the United States Congress. Fannie Mae and Freddie Mac, Ginnie Mae. Since these entities are backed by the faith of the U.S., then all the taxpayers are ultimately on the hook to always bail them out, and more billions are needed.
Handle - The round number integer for any given stock or index. For example, 57.67 is a 57 handle.
Hawk - Concerning Fed policy, hawks are typically more concerned about inflation and its negative effects on the economy and are in favor of hiking rates to keep a handle on inflation.
High-Frequency Trading - Computerized trading strategies that hold positions for small increments of time; seconds and less than seconds, the complete opposite of long term investment trading. Recent estimates suggest that over 70% of current U.S. equity trades are high-frequency trades.
Implied Volatility - The market's forecast of the future volatilty of the underlying security, and is directly reflected in an option's premium.
Intermediate Term Trading (IT) - Keystone labels the week and month time frame as IT; think about 4 months to nine months.
Joe Sixpack - A generic term referencing the regular common folks in the U.S. In trading, Joe Six is usually the gullible bag holder.
Keynesian Econmics -Macroeconomic theory based on 20th century economist John Maynard Keynes. Keynes favors government involvement and large stimulus packages to spur the economy in troubled times. Unfortunately, many government programs continue indefinitely, adding to more bureaucracy resulting in counter productivity. The Austrian economists take the opposite side of Keynesian economists.
Lagging Indicator - An indicator that signals after the markets have made a move serving as a confirmation of the move.
Leading Indicator - An indicator that signals before the markets have made a move serving as a forecasting tool for markets.
Level I - A trading service consisting of real-time bid and ask quotes.
Level II - A trading service that consists of quotes from individual traders providing a more detailed picture of how a stock is moving.
Limit Order - An order to buy or sell at a specified price or better; traders use limit orders since the preferred entry and exit points have been studied by the trader and the risk management assessed, and the trade can be controlled.Long Term Trading (LT) - Keystone labels the month and year time frame as LT. Or, tongue-in-cheek, what happens when a short term trade goes bad--it turns into a long term investment.
LTBH (Long Term Buy and Hold) Trading - Holding trades over the long term time frame of months and years. A fool's folly over the last decade and more since the decreased value of the dollar has eroded any stock market gains. Folks using the buy and hold strategy are brainwashed by pundits to buy and hold but this strategy will continue to struggle as long as the dollar loses value. On top of that, if the broad markets weaken, there is a double whammy making a LTBH strategy inferior to more active trading. LTBH does have some attractiveness from the standpoint of overall diversification, use of divvy stocks and use of speculative stocks--trying to find the next Microsoft in its infancy.
Long Term Trading (LT) - Keystone labels the month and year time frame as LT; think about ten months to a year and longer.
Market Order - An order to buy or sell immediately at the prevailing market price. Typically, novice traders make the mistake of using market orders. Market orders are best avoided and limit orders preferred.
Option - The right, but not the obligation, to buy (call) or sell (put) a specific amount of a stock or instrument at a specified price (strike) during a specified period. The amount is usually 100 share lots for stock options. The option buyer is the holder and the option seller is the writer.
Pairs Trading - A trader buys one stock while shorting another in the same sector or industry. This strategy allows the trader to separate the performance of an individual stock versus the sector, and also serves as a hedge.
Programmed Trading - A technique that uses automatic electronic trading. More specifically, trading baskets of stocks where the basket is made up of at least 15 stocks of over one million in value. This type of trading is employed by many hedge funds via mathematical algorithms. The change from fractions to decimals for stock prices greatly increased programmed trading.
Prop Trading - Banks and institutions are in the markets buying and selling with the firm's own money as opposed to the customer's money. Problems arise if there is confusion over the separation of the two types of holdings. The Volcker Rule and Dodd-Frank Reform, however, disallows the banks form prop trading which creates lower volume, higher volatility and more erratic markets.
Pump and Dump - A typical Wall Street scheme where pundits, through tv, radio, print or other media, tout a stock as the greatest thing since sliced bread, screaming from the rooftops that you are a fool if you do not buy it. Of course some novice traders are fools, and buy it, only to realize later the pundit had an interest in pumping the stock since he needed to distribute and unload his shares to suckers because the stock was about to collapse. The pundit pumped it and dumped it, making his money and screwing Joe Sixpack, the bag holder.
Quant - A quantitive analyst. The term quant is a hip buzz word nowadays so it has taken on all kind of nuanced meanings. Quant may refer to the individual math and computer wiz as well as referring to the firm in general that employs the quants, as well as referring to the alogrithmic program itself. Quants use numerical, statistical, mathematical, quantitative and related techniques to provide a trading advantage and increase the profitablilty of investment management firms, hedge funds and stock trading institutions.
Quantitative Analysis - Mathematical techniques applied to finance, investments and stock trading.
Position Trading - Trading over the week and month time frame; short term to intermediate term trading. Typically longer than swing trading since the swing trading is entering and exiting on peaks and troughs where position trading will ride out pull backs if long, or pops if short. Trading is performed with the intermediate trend in mind and a more relaxed time frame of weeks and months instead of the faster paced day and swing trading.
Roach Motel - A trade that you get in but can't get out. An old tv commercial would publicize roach traps in this manner. Sometimes a trade you enter long falls so quickly, you are in a quandry of whether to take the loss and exit, or give it a chance, you feel you are stuck. In trading, you are never stuck, more often then not, taking the loss and exiting is the best course.
Running Money - Slang for handling and managing investments.
S/R - Support and resistance. As a stock price moves up it must move thru areas of resistance overhead adn as it moves down it is supported by price levels underneath. The support levels are determined thru common closing, open, high and low numbers as well as levels where high volume moves occur.
Secular - Referring to the very LT movement of stocks and indexes. Secular markets are multiple year directional moves; sometimes a couple decades as shown by the 18-year cycle. A secular bear market ran from the mid 1960's until 1982. A secular bull ran from 1982 until 2000. Keystone believes we remain in a secular bear currently from 2000 that will continue into the 2015-2019 area.
Short Term Trading (ST) - Keystone labels the minute, hour, day and week time frame as ST; think anything less than a month or two.
Statistical Arbitrage - Techniques that take advantage of mispricing of one or more assets based on the expected value of those assets. Some hedge funds are dedicated to statistical arbitrage techniques. StatArb typcially focuses on any one or all of the following four key areas; first, operating substantial mathematical and computational trading and infrastructure systems, second, taking advantage of mean reversion strategies, third, using short holding periods, and fourth, trading large share blocks.
Stop Limit - An order that becomes a limit order once the specified price is hit.
Stop Order - An order that becomes a market order to buy or sell once the specified stop price is hit. Exercise caution since the stop may be triggered but the actual trade execution may occur at a much different price since it is a market order.
Swing Trading - Trading in the day to week time frame, sometimes up to a month or more; short to intermediate term trading. A shorter term style of trading using lows and highs as entry and exit areas to take advantage of volatility swings; channel trading; support and resistance trading; trend reversal and retracement trading.
Tail Risk - A low probability outcome for investments. Typical probabilty distributions for trading place market moves within three standard deviations almost 100% of the time. For tail risk, the distribution is skewed and beyond three standard deviations representing the tiny fraction of a percent for non expected outcomes.
Technical Analysis (TA) - Using stock chart patterns, trend lines, support and resistance, Elliott wave anlaysis, candlesticks and other visual indicators to project future stock movements. Creative people, writers, artists, musicians and visual folks trade best with TA while analytical minds, engineers, scientists, and accountants tend to trade better using fundamental analysis. TA believes that everything known is built into price already. TA is better for short term trading while fundies are better for the LTBH. Always explore both as you determine what fits your personality.
Top Line - Company revenues. Sales. Healthy revenues indicate demand for the product. One of the two key numbers reported for earnings season; the top line and the bottom line.
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Trannies - Nickname for the transportation sector. TRAN or IYT.
Value Trap - A stock that sells off over time and the price appears so attractive that surely you cannot go wrong buying it-it is such a great value. But, lo and behold, it continues to fall, or move sideways, stagnant for weeks, months, sometimes years.
Vega - An option's price sensitivity to a one percentage-point change in its implied volatility.
Very Short Term Trading (VST) - Keystone labels the minute, hour and day time frame as VST; think anything less than a few days.
Window Dressing - Money managers are paid based on what assets are held at the end of the month. Therefore, the managers make a bad quarter look better buy adding winning stocks to the portfolio during the last few days of the month, so the indexes are prone to float upwards.
ZIRP (Zero Interest Rate Policy) - Chairman Bernanke and the FOMC maintaining rates at or near zero for an extended period of time to help stimulate the economy.
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