Stock Market Terms That Every Beginner Should Know.
Today, we're going to talk about some key terms in the investing space. We will go over some key terminologies that we use a lot in our business every day.
Let’s make it simple and start with some key terms. Bull and Bear Market, obviously you hear a lot about that.
Let’s look at secular Bull and Bear Markets. This is where we are right now. We're in a secular Bull Market until otherwise we see a change. Where do you see changes and how do you look at it?
Here is the S&P year to date. There's a couple of things. 1, we had this move back in early October, then went through December where we hit our lows. With that being said, we did hit 20%, which some people would say is a Bear Market, but this was really a pullback within a bullish trend. We are still in a cyclical bull right now.
To give you some other ideas, let's look at gold.
Gold is one of our top holdings. This is going back to 13. Clearly, that was in a Bearish trend. You can see the down trend, but it mostly has gone sideways for quite some time now. You can’t forget to look at that golden cross! The definition of a golden cross is when your 50 day moving average goes above 200. This is also considered to be bullish.
Let's take a look at another example of a Bearish trend.
Commodities! Despite what's going on right now in Saudi Arabia. Here's the overall commodity index.
There is the opposite of the 50 going over the 200 it's actually going under. That is called a DEATH cross. But what else do you see here? You see a peak that was probably the peak of that bullish trend. And then you start getting a series of lower highs. Clearly, that is a downtrend until we see otherwise. We had a bump after the Saudi Arabian conflict with the drone strikes, It's still very much in a bearish trend line. What do you take from this? Well it’s as simple as Bulls and Bears…down trends and up trends.
So how about bid and ask? what is that? The bid is what you're willing to pay for something. Then you have the seller who is willing to sell it, at a certain price. That's what the market does. It brings together buyers and sellers pretty simple.
Moving on to Market Order. For example, let’s say I am sitting at my desk. I'm going to buy X, Y, Z….. I do a trade, boom! It happens right away. That is a market order, there are no delays. There’s no price, I just buy right away.
Limit order provides a specific price. You can use this in two ways, maybe you see something trending up. You're looking for a buy in, but you want it to break through certain levels. When it hits that price, it buys. Or you can use it the way I Personally like. On the downside I just did it recently on a stock and it took off. Then I put in a limit order to protect my gains. That's where you can really see the benefits.
Trailing stop. This is a good one. If you do have something that's suddenly in a big uptrend, and you want to make sure that you lock in those profits. You can do a trailing stop. Let's say you buy in at 10.00 a share. Now it's at 20. If the price drops 5%. The sell order is going to go in. So no matter what, you know, you're going up, it goes down, and then you're still going to be able to lock in those gains. Both of these you should be careful with because they might fill after hours, which can be in order.
When placing orders, you can do a market order or a day order, maybe just for that day or GTC which is good until canceled. This is important especially when you do a limit order or a trailing stop. Always do a good until cancel….. meaning until it actually executes, or you decide to cancel.
Let's talk about moving averages and trading volume. You will hear most people talk about the 50 day and the 200. That's the average price over 50 days. Average price of that ETF or stock over 200 days as you would expect. The 200 generally is pretty stable. Now look at that 200, it's going up and then you see the 50 going that way.
That has the potential of not being good.
You had the 50 day crossing over the 200 day. That's called a death cross. That is not bullish.
Going back to the fall, we hit our high. We kind of meandered along while raising some capital, when I saw that death cross, That's when I would short the market.
You can use moving averages in different ways. 1 way is to support resistance when looking for an entry or exit on an individual trade. As an investor, Pretty important key.
Here is your 50 day moving average. Look at the whole cluster, That was resistance. It just couldn't go above it, this is what we call resistance. 1, 2, 3, 4, even 5 times it failed. Then we broke above. Now what was once resistance becomes the support. Will we hold that support? I do not think we will. It's Friday, the 27th of September. If you break support that is going to change the trend over the short term.
Let’s look at volume, why is it important? Disclaimer……This is an index, for compliance reasons, I can only use indexes.
I look at volume every single day. Especially on individual ETF stocks so I can look at trends. Why? Because you and I don't move the markets. It's the big institutional players who are moving the markets, you are always looking for volume. You want to see the trend. Who's buying? Are the large institutions buying? Whatever the case might be. Volume as an investor, what does it mean to you? You want to see if people are selling.
You can see, there is a spike, that was triple witching Friday, which is totally different. But if I were to show you the equivalent on a large cap growth, you'd see large positions being sold on down days and lower volume on up days, which is one of the reasons why we are stuck in this box.
As of today, we are fairly neutral.
Next up, we have liquidity.
We hear a lot about that. How quick or how easy is it to get in and out? Meaning, are there any buyers if you're selling? That's liquidity. How is this important? Why is this important to you as an investor? I really look at it on ETF’s and stocks as well. As it pertains to volume. If you have low volume on a ETF and there's so many out there right now, you could see a bigger price swing with lower liquidity. Always good to use caution with that.
Going long, Going short. Going long means that you're buying that long term and you're looking for that stock to appreciate, and the opposite applies. If you think the market's going to go down, you would short that individual stock or the market. However your strategy is. There are different ways to do that. That is applied at certain times, not very many advisors do that. But we do!
Beta, Beta is risk. Depending on the sector. Here is an easy way to think of it. The S&P has a 1 beta. If that beta has a 1.25, You have 25% more risk than the S&P. The Same would apply if it's .75 beta. 25% less risk.
Blue chip companies, large industry leading companies offering a stable dividend. I get a lot of questions about that. People are looking for that dividend, especially when the market has been going sideways for quite some time.
Hopefully this was helpful to you, we are kicking off our Financial Planning Month. We would love for you to stop by, let us review your portfolio! It’s never to late to get on the path to a secure and successful financial future. Thanks for reading!