Day Trading Terminology: A Complete Guide
Day trading terms are something every trader needs to understand and use to efficiently describe what is happening in markets. Let’s begin with basic terms that most day traders have at least heard, and then we’ll move into more advanced terms after building a foundation.
This dictionary will be organized categorically not alphabetically, but you can search for a specific trading term by using the browsers ‘Find’ function. Press Control/Command + F to bring up the search bar.
Basic Day Trading Terms
Bias
Bull / Bullish – A market participant who expects prices to go up. This can also be in reference to a specific asset moving up in price. Bull is the opposite of bear.
Bear/ Bearish – A market participant who expects prices to go down. This can also be in reference to a specific asset moving down in price. Bear is the opposite of bull.
Long – The purchase of an asset with the expectation it will increase in value—a bullish attitude. Opposite of short.
Short – The sale of an asset with the expectation it will decrease in value—a bearish attitude. Opposite of long. A short trade happens when a trader borrows shares from their broker, sells to open the position and buys to close the position.
Covering – To close a short position a trader must “cover” their position and buy back the borrowed shares they sold to open the position.
Durration
Swing Trading – Unlike day trading, swing trades require holding an asset overnight. Swing traders hold an asset for at least 1 night, but are not limited to a maximum hold time. Think of swing trades as very short-term investments. Commonly just called a ‘swing’ or ‘I’m swinging that AAPL position.’
Day Trading – The act of buying shares of a stock with the intention of selling them on the same day. You can also day trade options, futures, forex pairs, any asset bought and sold in the same day is a day trade.
Pattern Day Trader – A pattern day trader (PDT) is a trader who executes four or more day trades within five business days using the same account. They must maintain a minimum account balance of $25,000 USD. If your margin account does not qualify or the account drops below $25,000 USD, you will be prohibited from making any further day trades until the balance is brought back up.
Scalp – A trading style that specializes in profiting off of small price changes and making a fast profit off reselling. Scalpers will make a number of trades each day—perhaps in the hundreds—with hold times as short as just a few seconds.
Stock Market Hours – The market is open from 9:30am-4pm EST Monday – Friday. Also abbreviated to RTH (regular trading hours). Some holidays the market is closed or closes early at 1pm. Check the exchange holiday calendar here: Market Holidays
Extended Hours – Trading is available before the regular stock market hours but liquidity is often low. Because of this most brokers require traders to enter limit orders during extended trading sessions. Also abbreviated EXT AH (after hours).
Analysis
Fundamental Analysis – Evaluating the intrinsic value of a an asset and factors that can affect its value in the future. A top-down approach takes an overview of the economy, assessing the entire market first, then a sector, then an industry, and finally a company. A bottom-up approach goes the other direction by starting out with a specific stock and scaling upwards to the general economy.
Technical Analysis – Using market data or technical indicators to predict the future movement of the price of an asset. Technical analysis (TA) assumes that the collective buying and selling of a particular security within a market reflects all the necessary information pertaining to that security (known as the efficient market hypothesis).
Line Charts – A line plot of the last traded price. This can give a good understanding of price action over long periods of time, but for shorter time periods it doesn’t provide necessary detail that traders require.
Candlestick Charts – Candle charts are what most active day traders use establish a basis for taking a trade. A candle stick includes 4 pieces of information. The open price, the close price, the high of the period price, and the low of the period price. OHLC abbreviations refer to open, high, low, close of a candlestick.
Technical Indicators – Technical indicators, or studies, help interpret current price action. These lag behind the price action since they are mathematical interpretations of price action that has already happened. Price action itself will almost always be more valuable than technical indicators.
Support – An area of the chart where price struggles to break below and find acceptance below. Buying pressure keeps price higher. Also known as demand areas. When support is broken, it often becomes resistance.
Resistance – An area of the chart where price struggles to break above and find acceptance above. Selling pressure keeps price lower. Also known as supply areas. When resistance is broken, it often becomes support.
Hammer – A candle with a lower wick generally two times the size of the body. Small to no upper wick. Indicates buying pressure returning.
Inverted Hammer – A candle with a upper wick generally two times the size of the body. Small to no lower wick. Indicates selling pressure returning.
Shooter – Shooting star, inverted hammer, large upper wick, selling pressure.
Doji – A doji is a name for a trading session in which an asset has open and close levels that are virtually equal, as represented by a candle shape on a chart. This indicates indecision from participants in that market.
Ascending Triangle – Higher lows forming based on a ascending support trend line. Flat resistance. Normally leads to bullish breakout.
Descending Triangle – Lower highs forming based on a descending resistance trend line. Flat support. Normally leads to a bearish break down.
Flush Point – Lots of lows all at the same price level. If price breaks below the level, expect a larger move to the down side.
Bull Flag / Pennant – Ascending triangle or sideways channel forming after a bullish move to the up side. Continuation pattern.
Bear Flag / Pennant – Descending triangle or sideways channel forming after a bearish move to the down side. Continuation pattern.
Cup & Handle – A ‘u’ shaped bottom with a pullback forming the handle. Bullish continuation pattern.
Symmetrical Triangle – Ascending support trend line and descending resistance trend line forming a triangle. Favors a breakout in the direction of the most recent trend.
Double Top – Two equal or similar highs forming a resistance. Bearish reversal pattern.
Double Bottom – Two equal or similar lows forming a support. Bullish reversal pattern.
Head & Shoulders – Bearish reversal pattern where a lower high is set, and the break of the neckline(support level) brings follow through to the downside. Works as an inverted pattern as well.
Bid Price – Bid is the highest price traders are currently willing to pay for a stock.
Ask Price – Ask is the lowest price traders are currently willing to sell a stock for. Also referred to as the offer. Traders are offering shares of the stock at some price.
Spread – The difference between the bid and the ask is known as the spread; the smaller the spread, the greater the liquidity of the given asset.
Level 2 – Level two data includes the scope of bid and ask prices for a given security. Also called depth of book, Level 2 lists all price levels of quotes submitted to an exchange.
Time & Sales –This will show every transaction that occurs and will list the price, the number of shares, the route, and the time. The transactions will appear red if they occur at the bid price, green if they occur at the ask price, and white if they occur in between the spread.
Volume – A measure for the number of shares traded in any given period.
Indicators
Moving Averages – Moving averages are a technical indicator that tell us the average price of a stock over a period of time. They can be either simple moving averages, or exponential moving averages. Exponential moving average weights recent price action heavier than older price action. This means the moving average will move faster in response to recent moves. Simple moving averages use equal weighting.
Relative Strength Index (RSI) – An oscillating indicator that moves between 0 and 100. A stock with an RSI of 0 is deemed oversold and may be due for a bounce. A stock with an RSI of 100 is deemed overbought and may be due for a reversal.
Moving Average Convergence Divergence (MACD) – An oscillating indicator with no bounds. MACD measures the distance between a fast and slow moving average. If the moving averages are moving apart a stock is moving quickly, if they are coming close together, a stock has changed directions and is returning to balance.
Bollinger Bands – The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average and can be modified. When the price continually touches the upper Bollinger Band, it can indicate an overbought signal. If the price continually touches the lower band it can indicate an oversold signal.
Advanced Day Trading Terms
Short Squeeze – When a stock suddenly starts moving up, and traders who are holding short positions must buy to cover their position. This creates an extreme buy/sell imbalance and can lead to outsized moves intraday.
Gamma squeeze – When a rapid increase in the price of a stock occurs due to the forced buying of shares by market makers or option traders to hedge their exposure to short options contracts. This heightened demand drives up the stock’s price, creating a feedback loop as more traders rush to buy, potentially triggering a short squeeze and amplifying the price movement further.
Slippage – The difference between the price you thought you would trade at, and the price the trade actually went through at. This is the result of fast moving markets, volatile stocks, and spreads.
Tempo – The speed of the tape. If the market is moving fast it is indicative of confidence and emotion. If the market is moving slow it is indicative of indecision and contentment.
Market Profile
Double Distribution – A market profile distribution split into two distributions separated by single prints. Each distribution should be treated as if it were a separate day. The end points of the single prints between should be seen as support or resistant points.
Initial Balance – The price range resulting from the market’s trade during the first two 30 minute periods of the regular trading hours session.
Mechanical High / Low – A mechanical high/low is formed when a market rejects at technical or profile nuance. Because these nuances are often visual we assume short term traders have positions there, and thus if tested again, should break and price should go on a stop run. Also known as ‘weak high’ and ‘weak low.’
One Time Framing – Market profile reference where we are producing consistent higher lows in an uptrend, or lower highs in a down trend. Can not take out a prior high / low with more than two ticks of excess.
Poor High – Market profile that lacks excess. A poor high has less than two TPO’s of excess at the top of a daily range forming a flat looking top. It indicates weak handed longs at that high of day. Price should back away from the poor high first because longs are trapped at poor location. On a subsequent test of the poor high the market should break the level and move higher.
Poor Low – Market profile that lacks excess. A poor low has less than two TPO’s of excess at the bottom of a daily range forming a flat looking bottom. It indicates weak handed shorts at that low of day. Price should back away from the poor low first because shorts are trapped at poor location. On a subsequent test of the poor low the market should break the level and move lower.
Point of Control – The level in the value area where either the greatest amount of volume traded in the prior session, or the greatest amount of time was spent as measured by the number of TPO’s going across.
Spike – A set of single prints that are created in the last 30 minute session of the day which form at the top or bottom of a range. The only reason the market stops is because the bell rings and the session closes. There is no opportunity to see if there would be acceptance of the extended prices thus the next day’s open has a set number of outcomes. Open above, inside, or below the spike.
Value Area – A range where approximately 70% of the prior days volume traded or time was spent. The range is derived from one standard deviation on either side of the mean which is technically 68% that we round to 70%. Value area high and low (the bounds of the value area) are seen as areas of potential support and resistance.