Trading Terminology

Trading Terminology

AB=CD Formation
The ABCD pattern (AB=CD) is one of the classic chart patterns which is repeated over and over again. The ABCD pattern shows perfect harmony between price and time and is also referred to as ‘measured moves’.
Active manager
An investment manager who seeks to outperform an investment benchmark through, amongst other things, asset allocation, market timing, duration selection or security (company or bond) selection.
Alpha
A measure of the return of a portfolio relative to an investment benchmark. Alpha adjusts for the level of risk being run in the portfolio compared with the benchmark (as measured by the portfolio’s beta against the benchmark).
APAC
An abbreviation of the Asia-Pacific region
Ask price
The price at which a dealer will sell a security to an investor. Also known as offer price.
Asset allocation
A fund’s allocation to different asset classes.
Asset class
The main types of investment available: bonds, equities, real estate, commodities etc.
Basis point
1/100th of 1% (0.01%).
Bear(ish)
Someone who thinks the stock market or a particular share will go down. Also used adjectivally, as in ‘bearish’, ‘bear market’ and so on. Derived from the fact when bears attack the attack in a downward motion.
Bearish Divergence
A situation in a bull cycle when two technical indicators move in opposite directions and signal a near-term turning point in the trend.
Bearish Flag
Bear Flag is a sharp, strong volume decline, several days of sideways to higher price action on much weaker volume followed by a second, sharp decline to new lows on strong volume.
Benchmark
A standard asset allocation against which an investment strategy is measured.
Bespoke Indicator
Signal Centre’s proprietary technical indicator.
Beta
The sensitivity of an asset’s or portfolio’s return to fluctuations in the return of the market or benchmark. If beta is greater than 1.0 the asset or portfolio will move more than the market or benchmark, while if it is less than 1.0 it will move less
Bid price
The price at which a dealer will buy a security from an investor.
Bond
A form of loan. Typically, the investor should receive a regular coupon and the return of the principal originally lent when the bond matures. Note: Not all bonds are interest bearing (see zero coupon bond), and not all bonds are fixed rate (e.g. index linked, floating rate and stepped rate bonds).
Breakout
A Breakout refers to a security’s price movement through a historical resistance or support level. A breakout typically precedes heavy trading volume and increased volatility.
Bull(ish)
Someone who thinks the stock market or a particular share will go up. Also used adjectivally, as in ‘bullish’, ‘bull market’ and so on. Derived from the fact when bulls attack the attack in an upward motion.
Bullish Divergence
A situation in a bear cycle when two technical indicators move in opposite directions and signal a near-term turning point in the trend.
Bullish Flag
Bullish flag formations are found in stocks with strong uptrends. They are called bull flags because the pattern resembles a flag on a pole.
Cap
E.g. ‘market cap’, ‘small cap’ etc. Abbreviation of ‘market capitalisation’.
CFD
A contract for differences (CFD) is an arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than by the delivery of physical goods or securities. This is generally an easier method of settlement, because both losses and gains are paid in cash. CFDs provide investors with the all the benefits and risks of owning a security without actually owning it.
Commodities
Raw materials such as crude oil, metals and agricultural products.
Confluence
Confluence is the combination of multiple strategies and ideas into one complete strategy.
Contrarian
An investor who takes a position in the market contrary to the majority
Correction
A technical correction is a decrease in the market price of an asset or entire market after extensive price increases.
Corrective Cycle
Corrective cycles or waves are a set of stock price movements associated with the Elliott Wave Theory of technical analysis. This theory reports that security price movements are broken up into two types of waves, motive waves and corrective waves.
Correlation
The extent to which two assets’ values rise and fall together
Cryptocurrency
A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies are a kind of alternative currency and digital currency.
Currency
The local currency of the security
Cycle
The market is moved by a countless number of trading cycles but, there are 3 cycles which influence all the others: The economic cycle. The emotional cycle. The Accumulation/Distribution cycle.
Dashboard
The dashboard is a control panel viewable once logged into the website. This is a customisable view to allow users to present information that they are interested in.
Defensive stock
A stock which is expected to be relatively insensitive to market or economic downturn, for example a food manufacturer.
DFB
Daily funded bet is the price of the assets analysed on IG Markets platform
Dips
It involves buying into small pullbacks within an established uptrend
Diversification
Holding a range of assets to reduce risk.
Dividend
The portion of company net profits paid out to equity investors.
Doji
The doji is a commonly found pattern in a candlestick chart of financially traded assets in technical analysis. It is characterized by being small in length—meaning a small trading range—with an opening and closing price that are virtually equal. The doji represents indecision in the market.
Double Bottom
A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action.
Double Top
The inverse of the double top chart pattern is a double bottom, which signals a potential bullish reversal of a downtrend. Downside
Drawdown
A drawdown is the peak-to-trough decline during a specific recorded period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the subsequent trough. Those tracking the entity measure from the time a retrenchment begins to when it reaches a new high.
Economic Calendar
The Economic Calendar covers important news events and economic releases that affect financial markets.
Educational Centre
This is an area of the website where users can gain knowledge to technical tools and indicators.
Emerging markets
The investment markets of developing economies.
Equity
The shares in a company. Investors in equities are a company’s owners and are entitled to its profits after other claims on the company have been met.
Exchange traded fund (ETF)
A vehicle that is traded on a stock exchange and whose performance is designed to track a given market index. Exchange traded funds represent a low cost, highly liquid ‘form’ of index investing.
Exhuastion
Exhaustion is a situation where a majority of participants trading in the same asset are either long or short, leaving few investors to take the other side
Fibonacci
There is a special ratio that can be used to describe the proportions of everything from nature’s smallest building blocks, such as atoms, to the most advanced patterns in the universe, such as unimaginably large celestial bodies. Nature relies on this innate proportion to maintain balance, but the financial markets also seem to conform to this golden ratio.
Fibonacci Confluence
The Fibonacci confluence is a culmination of Fibonacci retracements from various significant highs and lows during a given time period.
Fibonacci Extension
Fibonacci extensions are simply ratio-derived extensions beyond the standard 100% Fibonacci retracement level. They are popular as forecasting tools, and they are often used in combination with other technical chart patterns.
Fibonacci Retracement
A Fibonacci retracement is a popular tool that can be used to identify support and resistance levels, and place stop-loss orders or target prices.
Financial Conduct Authority (FCA)
A UK administrative agency that, along with the Prudential Regulation Authority (PRA), replaced the Financial Services Authority (FSA) in 2013. The FCA regulates the retail and wholesale banking industry in the UK.
Fixed Income
Fixed income is a type of investing or budgeting style for which real return rates or periodic income is received at regular intervals and at reasonably predictable levels. Fixed-income investors are typically retired individuals who rely on their investments to provide a regular, stable income stream. This demographic tends to invest heavily in fixed-income investments because of the reliable returns they offer.
Flows
In finance, flow trading occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with funds from a client, rather than its own funds.
Fundamental analysis
An assessment of a company’s share value and potential for future cashflows and profits based on accounting, economic, and business information (hence fundamental factors).
Gap
A gap is a term related to price charts where a stock makes a sharp move upwards or downwards based on announcements, a change in outlook or other news.
Gilt (-edged)
Name sometimes given to government bonds issued by the Irish, South-African and UK governments.
Government bond
A bond issued by a government.
Growth stock
A stock that is expected to achieve above average earnings growth. Growth stocks normally have a high P/E ratio relative to the market as a whole, as investors are willing to pay a premium for future higher earnings.
Hammer
A hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or near its opening price.
Hanging Man
A hanging man is a bearish candlestick pattern that forms at the end of an uptrend which can indicate the waning influence of bullish investors.
Harami Candle
Harami is a basic candlestick chart pattern indicating that a bearish or bullish stock market trend may be reversing.
Head and Shoulders
A head and shoulders pattern is a chart formation that resembles a baseline with three peaks; the outside two are close in height and the middle is highest.
Hedge fund
A fund that seeks to generate investment returns by using non-traditional investment strategies, utilising mechanisms such as short selling, gearing, programme trading, arbitrage, and tools such as options, futures, swaps, and forwards (derivatives in general).
Hedging
An operation to secure an investor against a potential loss or to minimise a potential risk by offsetting the exposure to a specific risk by entering a position in an investment with the exact opposite pay-off pattern. The term is often applied to the currency markets (currency hedging).
High yield bond
A bond whose issuer has a credit rating of BB+ or lower with S&P, or Ba1 or lower with Moody’s. They are also known as junk bonds or sub-investment grade bonds.
Ichimouku Cloud
The Ichimoku cloud is a chart used in technical analysis that shows support and resistance, and momentum and trend directions for a security or investment.
Income stock
Shares which have a higher than average dividend yield or those where a relatively high proportion of the total return is derived from dividend income. Typical examples of income stocks are utilities.
Index (Indices)
An index is an indicator or measure of something, and in finance, it typically refers to a statistical measure of change in a securities market. In the case of financial markets, stock and bond market indices consist of an imaginary portfolio of securities representing a particular market or a portion of it. In reference to mortgages, it refers to a benchmark interest rate created by a third party.
Index-linked gilt
A bond issued by the UK Government (gilt) whose interest (coupon) and capital (principal) payments are linked to the UK Retail Prices.
Inflation-linked government bonds
Government bonds whose payments are linked to inflation.
Institutional Investor
An institutional investor is a nonbank person or organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment and lower commissions. Institutional investors face fewer protective regulations because it is assumed they are more knowledgeable and better able to protect themselves. Examples of institutional investors include pension funds and life insurance companies.
Intraday
Intraday is another way of saying “within the day.” Intraday price movements are particularly important to short-term traders looking to make many trades over the course of a single trading session. The term intraday is occasionally used to describe securities that trade on the markets during regular business hours, such as stocks and ETFs, as opposed to mutual funds, which must be bought from a dealer.
Investment style
A portfolio’s exposure to (or an investment manager’s preference for) large or small cap stocks, and to value or growth stocks.
Large cap stock
A stock with a market capitalisation that is among the largest within a market e.g. the capitalisation of one of the top 100 companies in the UK as represented by the FTSE 100 index
Leverage
1) When an investor has more than a 100% exposure to a market, or part of a market, typically resulting from the use of debt or derivatives (futures and options). 2) The US term for gearing.
Liquidity
The extent to which an asset can be bought and sold quickly and cheaply. Liquidity can be measured by the daily trading volume in a security.
Long
An investor is ‘long’ when the exposure to a given asset is greater than the level considered neutral. This is usually with a view to selling it at a higher price at a later date.
Long / short fund
A hedge fund comprising a mixture of long and short positions in the same asset class or market
Long Term
At Signal Centre we class any trade with an expected duration of 3 months and beyond as ‘Long term’.
Long-term
In the Eurobond market, refers to initial maturities longer than seven years.
MACD
Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices.
Marabuzo
Marubozu is the name of a Japanese candlesticks formation used in technical analysis to indicate a stock has traded strongly in one direction throughout the session and closed at its high or low price of the day. A marubozu candle is represented only by a body; it has no wicks or shadows extending from the top or bottom of the candle.
Market capitalisation
The total value of a company or market. For a company, the number of shares multiplied by their market price. For a market, the sum of the market capitalisations of the constituents of that market.
Market neutral
An investment strategy (particularly associated with some hedge funds) that aims to produce returns that are independent of fluctuations in market returns.
Market price
The price at which an asset changes hands in an open market.
Market risk / Systematic risk
The risk which is common to an entire class of assets or liabilities. It is the level of risk in the market that cannot be eliminated by diversification.
Medium term
1) In the Eurobond market, refers to maturities of two to seven years. 2) In the Euro-money markets, refers to maturities in excess of one year.
Medium term
At Signal Centre we class any trade with an expected duration of 1 month to 3 months as ‘Medium term’.
Mid
The average of the bid price and offer price of a security.
Mid-cap
Used to describe collectively those companies of medium-sized market capitalisation.
Momentum
The rate of acceleration of a security’s price or volume. The idea of momentum in securities is that their price is more likely to keep moving in the same direction than to change directions.
Moving Average
A moving average (MA) is a technical analysis indicator that helps smooth out price action by filtering out the “noise” from random price fluctuations.
Open position
In the context of exchange-traded derivatives this means a position that is exposed to price movements.
Oscillator
Oscillators are popular and widely used because they are leading indicators that can signal a possible trend change that is yet to start.
Outperformance
The return on a fund in excess of the benchmark return.
Outside Candle
The Outside Candle is a powerful statement in the market. It signals dramatic price action and can generate powerful moves
Overbought
Overbought refers to a security that traders believe is priced above its true value and that will likely face corrective downward pressure in the near future.
Oversold
Oversold refers to a security that is trading below the true value and is likely to rebound.
Overweight
Exposure to a given asset or asset class greater than that implied by its weight within a market index or benchmark against which the portfolio is measured. Investment managers may take overweight positions in shares or sectors they expect to outperform in order to add value to the portfolio.
Passive management
Investment management that seeks to closely match the performance of a benchmark.
Pennant
The pennant pattern is identical to the flag pattern in its setup and implications; the only difference is that the consolidation phase of a pennant pattern is characterized by converging trendlines rather than parallel trendlines.
Performance related fee
An investment management fee the extent of which is determined by the degree of over or under performance relative to an agreed benchmark.
Qualitative analysis
Assessing the value of an investment by examining mainly non-numeric characteristics such as management, people, process etc.
Quantitative fund management (‘quant’)
Investment management that stresses statistical and other numerical relationships between securities and their returns, and makes extensive use of computer models.
Rallies
A quick or marked recovery after a decline.
Real estate
Buildings or land
Rebalance
To change a fund’s constituents so that they more closely match those of its benchmark
Relative/Relative Ratio
The performance of an asset relative to the benchmark it is measured against. The ratio is simply a division of the price of a stock versus the benchmark. E.g. Relative Ratio=Vodafone/FTSE100
Resistance
A resistance level is the opposite of a support level. It is where the price tends to find resistance as it rises. Again, this means that the price is more likely to “bounce” off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue rising until meeting another resistance level.
Retail investor
A retail investor is an individual investors who buy and sell securities for their personal account, and not for another company or organization. Also known as an “individual investor” or “small investor”.
Risk
In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must promise higher expected returns if investors are to invest in them. Risk is usually measured by the standard deviation of returns. Risk management is an important aspect of portfolio management and may involve the use of complex statistical models.
Risk/Reward
Risk/Reward Ratio is used by many investors to compare the expected returns of an investment with the amount of risk undertaken to capture these returns.
RSI
Relative Strength Index (RSI) is a very popular technical analysis indicator (oscillator) which aims to identify overbought and oversold market conditions of any traded asset.
Sector
Stock markets are divided into sectors, which comprise of companies from the same industries e.g. telecommunications sector, oil sector, media sector etc.
Selloff
A sell-off is rapid selling of securities, such as stocks, bonds and commodities which leads to a decline in the value of the security
Share
A stake in a company which confers ownership rights on the holder. Shares are also known as equities.
Shooting Star
A shooting star is a bearish candle with a long upper shadow, little or no lower shadow and a small real body near the day’s low. It comes after an uptrend.
Short
An investor is ‘short’ when the exposure to a given asset is less than the level considered neutral. If the neutral exposure is zero, the investor’s exposure is negative. Investors go short on a given asset with a view to buying it back at a lower price at a later date.
Short term
At Signal Centre we class any trade with an expected duration of 1 day to 1 month as ‘Short term’.
Short-selling
Adopting a negative exposure to an asset by agreeing to sell it when it is not currently owned by the investor.
Small-cap
Used to describe collectively those companies that have a small market capitalisation.
Spikes
A spike is a comparatively large upward or downward movement of a price in a short period of time. Spike also refers to the trade confirmation slip which shows all the pertinent data for a trade, such as the stock symbol, price, type and trading account information.
Spot Price
The spot price is the current market price at which an asset is bought or sold for immediate payment and delivery. It is differentiated from the forward price or the futures price, which are prices at which an asset can be bought or sold for delivery in the future.
Spread
The difference between the bid and ask prices.
Spread Betting
Spread betting is a type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer. The investor does not own the underlying stock in spread betting, they simply speculate on the price movement of the stock.
Stamp Duty and Reserve Tax (SDRT)
Stamp duty depends upon there being a document which can be stamped. For this reason SDRT was introduced in the UK in 1986 to cater for paperless transactions in shares. It is the tax paid on the transfer in beneficial ownership of certain types of asset, for example, units in UK unit trusts which invest in UK equities or property.
Stock market
A place for dealing in stocks and shares (equities) such as the London Stock Exchange.
Stocks
Equities (shares) and (in the UK) bonds (loan stocks).
Strategic asset allocation
The mix of investment regarded as appropriate for an investor over the long run given that investor’s circumstances. This often becomes the investment benchmark.
Support
A support level is a level where the price tends to find support as it falls. This means that the price is more likely to “bounce” off this level rather than break through it. However, once the price has breached this level, by an amount exceeding some noise, it is likely to continue falling until meeting another support level.
Swing High
Swing high is a term used in technical analysis that refers to the peak reached by an indicator or a security’s price.
Swing Low
Swing low is a term used in technical analysis that refers to the troughs reached by a security’s price or an indicator.
Tactical asset allocation (TAA)
The adoption by an investment manager of an asset allocation different from the benchmark in order to enhance return. Tactical asset allocation is used to reflect the portfolio manager’s short-term market views.
Technical analysis
The analysis of historical price movements and trends to predict future price action.
Three Black Crows
Three black crows is a bearish candlestick pattern that is used to predict the reversal of the current uptrend. This pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle.
Three White Soldiers
Three white soldiers is a bullish candlestick pattern that predicts the reversal of a downtrend.
Trend
The trend is the general direction of a market or of the price of a security.
Trendline
A trendline is drawn to illustrate the prevailing direction of price, tracing over pivot highs or under pivot lows to represent support and resistance.
UCITS
Undertakings for Collective Investments in Transferable Securities. The UCITS legislation governs how a fund can be marketed within the European Union and is designed to allow cross border fund sales to investors of different nationalities. To obtain UCITS status a fund mustinvest within defined but wide parameters.
Underlying security
The shares (or other securities) on which a derivative instrument is based.
Underweight
Exposure to a given asset or asset class less than that implied by its weight within a market index or benchmark.
Upside
Upside is the potential monetary or percentage amount by which a market or a stock could rise.
Value investment / Style
An approach to investment that places emphasis on identifying shares that are believed to be underpriced (on the basis of indicators such as P/E ratio and dividend yield) by the market.
Value stock
A stock that appears cheap when compared with other stocks because the share price is low relative to the book value of the equity (or earnings or dividends).
Volatility
The fluctuations in an asset’s return. See standard deviation.
Volume
Volume of trade is the total quantity of shares or contracts traded for a specified security. It can be measured on any type of security traded during a trading day. Volume of trade or trade volume is measured on stocks, bonds, options contracts, futures contracts and all types of commodities.
Wave Count
A wave is a pattern of behavior marked by noticeable increases and decreases. They can be identified in stock price movements and in consumer behavior.
Wedge
A wedge occurs in trading technical analysis when trend lines drawn above and below a price series chart converge into an arrow shape.
Weight (%)
The percentage of the total portfolio which a fund or sleeve represents
Weighting
Proportion of an index or portfolio made up of an individual or group of items, usually expressed as a percentage e.g. the percentage of a portfolio invested in a region or in any one stock. See also underweight and overweight.
Yield
A measure of the income return earned on an investment. In the case of a share the yield expresses the annual dividend payment as the percentage of the market price of the share. In the case of a property, it is the rental income as a percentage of the capital value. In the case of a bond the running yield (or flat or current yield) is the annual interest payable as a percentage of the current market price. The redemption yield (or yield to maturity) allows for any gain or loss of capital which will be realised at the maturity date.
YTD
Total year-to-date geometrically linked returns of a portfolio.