30 Technical Trading Terms

Random Observation/Comment #701: Trading is definitely not for everyone. 80% of traders lose money.

Hopefully a bull market somewhere

Why this list?

Maybe you’ve saved a lot of money not eating at restaurants? Maybe you’re following r/wallstreetbets now? Maybe you just got some stimulus check money and need a place to spend it?

Whichever the reason (and I think these are all bad ones for getting into trading), more and more retail investors are eyeing the stock market for short term gains (a.k.a. gambling). You may have found some technical analysis videos on YouTube. I personally love:

If you start watching these without any finance experience or context, you will likely get confused by all the lingo.

Remember: Don’t quit your day job to be a trader because you made $1,000 on a gamble. Trading is one of the only jobs you can spend hours stressing over decisions that lead to negative cashflow. Watch the videos to stay informed of macro patterns. Make some monthly trades with money you’re okay losing. Always take money off the table.

Note: I’m not trying to teach technical analysis, but knowing these terms will likely be useful in understanding some of these videos. There’s also a lot of better resources than just a list of 30 on this stuff.

General Terms

  1. Technical / Fundamental analysis – Technical Analysis has charts/trendlines and looks at patterns with the latest updated data to note repeating market trends. Fundamental analysis is more qualitative about the company’s underlying strategy for long term investment. Most people rely on Technical analysis for short term trading and Fundamental analysis for long term investing.
  2. Long or Short the market – Being long the market is buying a long position, which is just buying spot, or direct shares of the stock. Shorting the market requires selling shares when you don’t have a position and buying it back if/when the price falls before you settle with your brokerage.
  3. Spot trading – This just means buying stock shares for direct exposure to the price. There’s also derivatives and futures trading. Buying the stock gives you exposure to any volatility of price on those shares.
  4. Bull market / Number going up / Bullish sentiment – We’ve been in an overall bull market since the 2008 crash. In general, the markets are designed to continue growing (stonks only go up), so bullish time periods have overshadowed bearish ones.
  5. Bear market / Number going down / Bearish sentiment – All markets are cyclical at every time chart. A true bear market arguably only lasts a few months (unless you’re in crypto winter). Many government organizations are incentivized to cycle between a strong dollar and bullish stock movement.
  6. Spreads – When buying from an exchange, you’re placing a bid to buy your stock at a certain price (Please don’t just do market buys). The fulfillment of your “Bid” comes from the order book of “Asks”, and a large bid can buy up available sells and increase the price of the stock.
  7. $SPY – S&P 500 is the set of 500 companies that represent a mix of economic activity across multiple sectors. It’s very liquid, which means a lot of people trade it and you’ll see very tight bid/ask spreads on options.
  8. Indices, ETFs, and mutual funds – The design pattern here is a portfolio of stocks. You can buy a mixed portfolio created by hedgefunds like ARK instead of choosing your own stocks. I personally look at high growth indexes instead of mutual funds to prevent fees. Fees have overall gone down by all trading brokerages.
  9. FAANG stocks – Facebook, Apple, Amazon, Netflix, and Google/Alphabet are core tech stock sector that make up the NASDAQ index. Most technical trading videos don’t care about the fundamentals of the company, but rather look at sector-based patterns. For example, these tech stocks have been mostly trading sideways while Weed stocks had a pretty sharp rally and pullback.
  10. Hedging – I think this is super important to add because Institutional investors and professional traders are always countering their positions with options. A successful consistent trading company cannot withstand the losses of gambling and YOLOs. There’s also strict trading regulations to prevent companies from going under or over leveraging.

Trades and Trendlines

  1. Chart Time period – Always pay attention to the time axis when zooming in and out between your hourly and daily/weekly charts. I sometimes think the markets have such a time-based volatility that it makes people second-guess their trades.
  2. Candlesticks – This is a chart that displays the high, low, open, and close prices within the time period. A lot of complex patterns are drawn from this that provide some traders guidance on when to enter/exit trades. Since timeframe can change for these setups, there’s often a lot of people who call these price predictions off of technical analysis a self-fulfilling prophecy.
  3. Price Channels – These trendlines are drawn all the time to connect the high resistance and low supports for a healthy bull market of higher highs and higher lows. You can zoom in and out for these, so you can imagine some people tracing back to the 1940s.
  4. Support / Resistance – If the price touches the higher low, then it meets support and continues an upwards trend. If the price is falling and tries to test a new high, but continues to fall then it has hit resistance.
  5. Touching Price Tests – The more your price touches these trendlines, the more other traders in the market will notice. I personally look at 4 to 5 waves in movement before estimating a top (especially if they are testing all time highs).
  6. Price fluctuations and Corrections – Anything less than 10% is a normal price correction of a healthy market. This year, we had mini corrections in September and October that lasted a few weeks. You can call this a mini bear market if you want, but that all depends on your timeframe.
  7. Yield Curve – Currently we’re going through a rising yield (higher interest rate) which may coincide with a reduced Quantitative Easing strategy and stronger dollar. All of this combined, might be a sign of a dip in stock prices. Either way, I’m not investing in the equities markets (but I am trading for fun).
  8. Fibonacci Retracements – The golden ratio for everything. People use Fibonacci sequences for predicting new all time highs and meeting resistance if the channels break. You’ll see some arbitrary price predictions given these Fibonacci traces.
  9. Buy/Sell Walls – Bids and Asks are constantly moving based on latest data, but retail investors tend to put sell walls around high numbers. Maybe it’s 1,000 or 50,000 or 69,420. Whichever the number depending on trends, you’ll see the volume face a sharp wall of sell or buy orders.
  10. Volatility (vol) – A volatile market means there’s a high amount of price fluctuation with large % swings in either direction. You can invest into this through the $VIX (volatility index).

Positive / Bullish Sentiment

  1. Higher highs and higher lows – This is healthy bullish price channel for stocks (and mostly indices). It’s less reliable for smaller volume individual stocks that might be market manipulated. Always check the volume on these stocks before trading.
  2. Market Rally – Referring to the flood of money going into a stock based on momentum, ratings change, or general interest.
  3. Break resistance to the upside / Breakout and blow-off top – If you follow a price channel consistently for a few waves (I usually time around 5 touch points on the weekly) and then break through the approximate resistance level, then you’re likely going to see a breakout in the trend. The best case scenario of this breakout is a blow-off top which indicates a large upside swing before an eventual peak and drop with some consolidation.
  4. Consolidation – You may hear this about the prices when there’s a lot of sideways trading after a large bull or bear run. Super uninteresting for options traders.
  5. Shorts getting squeezed – “Short” sellers (people who borrow stock betting it’ll fall) started buying shares back sooner to reduce losses (but also leading to the stock going up). A short position being squeezed out of its position may incur large losses as those levels change pricing.

Negative / Bearish Sentiment

  1. Snap back / Pull back – If patterns don’t hold or meet expectations, you may see strategic pull backs from All Time Highs or general evaluation.
  2. Over extended – If you over leverage your account (by trading on loans/margins) a trader/firm may need to liquidate securities. Some of these actions happen when options expire on Fridays and there are parties that end up out of the money.
  3. Gap down / Flag Poles – In the case of a bear market, you may see large flag pole sell-offs that show a big gap down position.
  4. Dead Cat Bounce / Bull Trap – The bigger pattern shows a peak/double-peak leading to a lower high price and then a waterfall death spiral. The dead cat bounce is false hope and may be a big cause for losing out as people try to buy the dip. Most beginnings to a bear market reaches All Time Highs too fast as a blow-off top and people see it as a continued bullish run. Without an exit strategy, you can be caught in a trap or miss out on a big run.
  5. Stop loss – I can’t emphasize this enough. If your prices reverse (and they always do at the wrong time), make sure you’ve set a stop loss trade that prevents you from sitting on overpriced shares or Out of the Money options.

Note: If you do wind up trading short time spans, remember to put in those stop losses! I have maximum appetite for a 10-15% loss.

For personal value, after writing this list, I found out that I know a lot more about trading than I thought I did. This was indeed a fun exercise to summarize my years of chasing the thrill and anxiety of trading.

~See Lemons Sometimes Trade