Terminology Flashcards
Liquidity
Depth of the market- where the traders are lining up to be buyers and sellers. They are creating the market.
BBO
Best bid offer- where the price os currently tradioning
Hitting the bid
Agressive volume- takes liquidity off the best bid
Lifting the offer
take liquidity off the best buy offer - hit the market buy button
LOB - CLOB - DOM
Centralised limited order book, limit order book, depth of market
Current order book
Current state- depth of the offer, current bid, the spread
DOM
Depth of market
Whyd does the price change
Heavy imbalance of order book, lots of contracts best offer price. intent of trade affects the price- in times of high volatility change the price.
High liquidity and agression causes imbalance in the book
Spoofing
Imbalance drive price lower. - when someone buys or sells big amounts to force the price up or down
Sweeping of the order bookd
Trading through 1 or more price levels.
Massive red dots sweeping as the price goes lower
Market buy sweeping
High buying drives it up sweeping the levels lifting the offer
Pullback set ups
Sweeping - Limit sell orders if we believe it will pull back up- inside the spread because a vacuum has been created.
Momentum
Looking for the sweep and joining in
Pullback
Drops and comes back up
market orders
Based on the current market price
limit order
Limit sets that you create to complete the transaction
Open Interest
number of contracts open or outstanding
volume
Number of contracts traded per day
Options
Open contracts that are out there
Stocks volume
Number of shares per day
Call contract
100 shares at certain at certain strike price
Open interest
1000 + shares
STOCK VOLUME
1 MILLION
Short Selling
Short-selling, or a short sale, is a trading strategy that traders use to take advantage of markets that are falling in price. When you short-sell, you are selling a borrowed asset in the hope that its price will go down, and you can buy it back later for a profit.
Long Selling
This is where you buy an asset in the idea that it will trend upwards and can sell at a higher price
Short covering
An example of short covering
Let’s say that you have a feeling that Company X’s stock is about to drop, so you short-sell 100 shares at a price of $50, for total proceeds of $5,000. In two weeks, Company X is trading for $40 per share, so you buy 100 shares for $4,000 in order to cover the short position. In this case, the overall result of the trade would be a $1,000 profit.
Postition
What Is a Position?
A position is the amount of a security, commodity or currency which is owned by an individual, dealer, institution, or other fiscal entity. They come in two types: short positions, which are borrowed and then sold, and long positions,
VWAP
Volume weighted average price
ETF’s
Exchange Traded Funds
STOCKS IN PLAY
A stock with fresh news A stock that is up or down more than 2% before the market Open A stock that has unusual pre-market trading activity A stock that develops important intraday levels which we can trade off from
How do you recognize the behavior of the market?
Index funds such as the Dow Jones Industrial Average (DJIA) or the S&P 500 (SPY) are usually good indicators of what the overall market is doing. If the Dow Jones or the SPY are red, it means that the overall market is weak. If the Dow Jones or the SPY are strong, then the overall market will be going higher.
Aziz, Andrew. How to Day Trade for a Living: Tools, Tactics, Money Management, Discipline and Trading Psychology (p. 59). AMS Publishing Group. Kindle Edition.
What makes a stock in play
Usually it is the release of fundamental news about the stock either the day before or during the same trading day.
Float
Float means the number of shares available for trading.
medium float stocks
stocks in the range of $10-$100. These stocks have medium floats of around 10 million to 500 million shares.
Stocks in play criteria
Stocks that in the pre-market gapped up or down at least 2% Stocks that have traded at least 50,000 shares in the pre-market Stocks that have an average daily volume of over 500,000 shares Stocks that have Average True Range of at least 50 cents (how large of a range a stock has on average every day) There is a fundamental catalyst for the stock As a rule, I do not trade stocks with an enormous short interest higher than 30% (the short interest is the quantity of stock shares that investors or traders have sold short but not yet covered or closed out)
Stocks in play criteria
Stocks that in the pre-market gapped up or down at least 2% Stocks that have traded at least 50,000 shares in the pre-market Stocks that have an average daily volume of over 500,000 shares Stocks that have Average True Range of at least 50 cents (how large of a range a stock has on average every day) There is a fundamental catalyst for the stock As a rule, I do not trade stocks with an enormous short interest higher than 30% (the short interest is the quantity of stock shares that investors or traders have sold short but not yet covered or closed out)
Requirements for stocks in play
Have gapped up or down at least $1 Have ATR of more than 50 cents Have average relative volume of at least 1.5 (the stock is trading at 1.5 times its normal volume) Have average daily trading volume of at least 500,000 shares Those are my requirements for a stock to be in play.
What is a bid
What peoples are offering - bid is always lower , the difference is bid ask spread
Ask
What sellers are demanding
