Glossary

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Below are some of the most common terms used in trading penny stocks, if you do not find a term you are looking for in this section check under Technical Analysis Terms, Brokerage Terms, or Stock Slang Terms to find the answer:

Accumulation: The act of buying more shares of a security without causing the price to increase significantly. After a decline, a stock may start to base and trade sideways for an extended period. While this base builds, well-informed traders and investors may seek to establish or increase existing long positions. In that case, the stock is said to have come under accumulation.

After Hours: Any trade posting, adjusting, or changes made by specialists or member firm after the official close of the market.

AMEX: The term used for the American Stock Exchange.

Analyst: A person with expertise in evaluating financial instruments; he or she performs investment research and makes recommendations to institutional and retail investors to buy, sell, or hold. Most analysts specialize in a single industry or business sector

Ask: Also known as the “offer”, the price that the market maker guarantees to fill a buy order. A buy order placed at the market will usually be filled at the current asking (offer) price. The ask price is usually greater than the bid price.

Assets: Any possessions that have value in an exchange.

Bear: A person who believes prices will decline and might be described as having a “bearish” outlook. Bear markets occur when roughly 80% of all stocks decline for an extended period of time. 1973-74 and 1981-82 have been referred to as bear markets.

Bear Market: A long period of time when prices in the market are generally declining. It is often measured by a percentage decline of more than 20%.

Bid: The price at which the market maker guarantees to fill a sell order. A sell order placed at the market will usually be filled at the current bid price. The bid price is usually less than the ask price.

Bull: A person who believes prices will advance and might be described as having a “bullish” outlook. Bull markets occur when roughly 80% of all stocks advance over an extended period of time. 1982-87 and 1995-99 have been referred to as bull markets.

Bull Market: A long period of time when prices in the market are generally increasing.

Buyback: A company’s repurchase of it’s own shares of stock.

Capital Gain: The the profit derived from the selling price exceeding its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn’t been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.

Contrarian: A trading or investing style based on sentiment. Contrarians are typically bullish when sentiment is excessively bearish. Contrarians are typically bearish when sentiment is excessively bullish.

Correction: After an advance, a decline that does not penetrate the low from which the advance began is known as a correction. Also referred to as a retracement, a correction usually retraces 1/3 to 2/3 of the previous advance

Day Trading: A style of trading where all positions are cleared before the end of the trading day. Contrast this with position trading, where stocks or securities may be held for longer periods

Fundamental Analysis: A market analyst that relies on economic supply and demand information as opposed to focusing on charts and market indicators for a technical analysis.

Industry: A grouping of companies in the same line of business. Industry groupings are more specific to the business than sector groupings. For example, the transportation sector includes airfreight, airline, trucking, railroad and shipping industry groups

Liquidity: The ease with which a stock may be bought or sold in volume on the marketplace without causing dramatic price fluctuations. A highly liquid stock is characterized by a large volume of trading and a large pool of interested buyers and sellers

Market Capitalization: Also known as market cap, it is the total market value of a company (number of shares outstanding multiplied by the price of the stock). A company with 1 million shares outstanding and a stock price of $10 would have a market capitalization of $10 million.

Momentum: A leading indicator measuring a security’s rate-of-change. The ongoing plot forms an oscillator that moves above and below 100. Bullish and bearish interpretations are found by looking for divergences, centerline crossovers and extreme readings

Over The Counter (OTC): A securities market that is not geographically centralized like the trading floor of the NYSE. OTC securities are traded through a telephone and computer network.

Overbought: A technical condition that occurs when prices are considered too high and susceptible to a decline. Overbought conditions can be classified by analyzing the chart pattern or with indicators such as the Stochastic Oscillator and Relative Strength Index (RSI). A sharp advance from $15 to $30 in 2 weeks might lead a technician to believe that a security is overbought. Or, a security is sometimes considered overbought when the Stochastic Oscillator exceeds 80 and when the Relative Strength Index (RSI) exceeds 70. It is important to keep in mind that overbought is not necessarily the same as being bearish. It merely infers that the stock has risen too far too fast and might be due for a pullback.

Oversold: A technical condition that occurs when prices are considered too low and ripe for a rally. Oversold conditions can be classified by analyzing the chart pattern or with indicators such as the Stochastic Oscillator and Relative Strength Index (RSI). A sharp decline from 30 to 15 in 2 weeks might lead a technician to believe that a security is oversold. Or, a security is sometimes considered oversold when the Stochastic Oscillator is less than 20 and when the Relative Strength Index (RSI) is less than 30. It is important to keep in mind that oversold is not necessarily the same as being bullish. It merely infers that the security has fallen too far too fast and may be due for a reaction rally

Paper Trade: A hypothetical trade that does not involve any monetary transactions. Paper trading is a risk-free way to learn the ropes of the market.

Penny Stock: A stock that usually sells for less than $1 per share, though the price may rise because of significant promotion. Penny stocks are very speculative and risky due to their lack of available information and poor liquidity.

Range: The distance between the high price and the low price for a given time period. For example, the daily range is equal to the day’s high minus the same day’s low.

Reverse Stock Split: A stock split which reduces the number of outstanding shares and increases the per-share price proportionately.

Scan: A list of stocks, sorted and filtered according to criteria that vary with the scan.

Sector: A group of companies that generate revenue in similar ways, and tend to rise and fall with the economic cycle. Sectors are commonly broken down into smaller groups called industries. The sectors tracked by the Standard and Poors Index are Basic Industries, Financials, Technology, Industrials, Energy, Consumer Staples, Consumer Services, Utilities, and Transport/Cyclicals.

Securities and Exchange Commission (SEC): A federal agency created to regulate and monitor the securities industry. All U.S. companies with stock must abide by the SEC rules and regulations and are required to file quarterly status reports

Shakeout: A situation where many scared investors exit their positions due to unfavorable news or uncertainty regarding the stock or industry. The dot-com bust was characterized by numerous shakeouts causing many to abandon their dot-com positions, often at great losses

Short Selling: The process of selling a stock with the hope of buying it back at a lower price (sell high, buy low). Short sellers are bearish and believe the price will decline. Short selling involves borrowing stock (usually from the broker) to sell short and using margin to finance the borrowing. If the price of the stock in question advances too far, the short seller will receive a margin call and be required to put up more money. A short squeeze occurs when the price advances so fast that short sellers are forced to cover their positions (buy the stock back), which drives prices even higher

Split: The division of a stock into multiple shares. In a 2-for-1 split, the stockholder’s shares will double in quantity, though the value of each stock will be halved. A stock split is usually an attempt to make high stock prices seem more attractive to investors and generally occurs in the face of new highs

Volume: The number of trades in a security over a period of time. On a chart, volume is usually represented as a histogram (vertical bars) below the price chart. The NYSE and Nasdaq measure volume differently. For every buyer, there is a seller: 100 shares bought = 100 shares sold. The NYSE would count this as one trade and as 100 shares of volume. However, the Nasdaq would count each side of the trade and as 200 shares volume.

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