Module 2: Stock Market Language (Done)

Question 1

What is an offer?

Answer 1

• An offer is when a party places a stock for sale
• If you want to sell a stock you put in an offer

Question 2

What is a bid?

Answer 2

• A bid is a proposition made by a trader to buy a stock, usually at a lower price than the original offer
• If you want to buy a stock you put in a bid

Question 3

What is a limit order?

Answer 3

• A limit order is an order placed to buy or sell a set amount of stock at a specified price, or better
• This type of order may not be executed if the price set by the investor cannot be met during the period of time in which the order is left open
• Most orders in day trading will be limit orders

Question 4

What is a market order?

Answer 4

• A market order is a an order to buy or sell a stock immediately, at the best available current price
• This type of order does not contain restrictions on price or the time frame in which the order can be executed

Question 5

What is a stop order?

Answer 5

• A stop order is an order to buy or sell a security when its price surpasses a particular point, ensuring greater probability of achieving a predetermined entry or exit price
• Stop orders can be used to limit losses or lock in profit
• You will not trade without a stop order

Question 6

What is liquidity?

Answer 6

Liquidity is the degree to which an asset or security can be quickly bought or sold in the market, without affecting the assets price.

Question 7

What is volume?

Answer 7

• We want to look for stocks with a minimum trading volume of two million shares per day (less than that = illiquid)
• Volume is the number of shares that are transacted during a given time period

Question 8

What is volatility?

Answer 8

• Volatility is the amount of uncertainty or risk related to the changes in a securities value
• We want high volatility for the stocks we are trading as day traders
• Volatility is synonymous with a large trading range
• The trading range is the difference between the lowest price and the highest price for the day (LO sale and HI sale)
• Remember, the market price is the most recent price at which a sale was made

Question 9

What is our profit goal for most trades?

Answer 9

• As day traders, we will look to make between $0.25 and $1.00 per trade
• We need volatility to give us those opportunities
• We need to look for high trading ranges in our stocks to make our $0.25, $0.50, $1.00 profits

Question 10

What does it mean to be long a stock?

Answer 10

Being long a stock means that you are buying shares in the open market with the expectation that the price of the stock will increase over time.

Question 11

What does it mean to be short a stock?

Answer 11

Being short a stock means that you are selling shares of borrowed stock in the open market with the expectation that the price of that stock will decrease over time.

Question 12

What are some things we should be looking for as day traders?

Answer 12

• Tight bid-ask spreads
• High volatility which means high trading ranges ($2 - $3 ranges)