Tactical Trader Glossary

Call: An option contract that gives the holder the right but not the obligation to buy the underlying security at a specified price for a certain, fixed period of time.

Capitulation: In the market's equivalent of waving the white flag of surrender, capitulation refers to the act of giving up. In the stock market, capitulation occurs during times of very high volumes and panic selling. With stocks, capitulation is seen as the true bottom of the stock price, as any investors who were interested in a particular stock have given up and sold out, sometimes due to margin calls. On the bright side, the event is seen as a turning point -- theoretically, there's nowhere to go but up after hitting rock bottom.

Death cross: A death cross is a trading tool that indicates when a selling trend is under way. This technical indicator is formed when the 50-day moving average of a stock falls below (crosses) the 200-day moving average, indicating that there are currently more people selling than buying the stock than in the past. Technical analysts believe a death cross is a clear warning to sell. (There are also mini-death crosses where the 30-day crosses the 50-day, and while these warrant attention, it is generally not viewed as an indication of lower prices ahead.)

Entry Point: A stock's "entry point" refers to the price point at which an investor takes an initial position in a stock.

Float: The percentage of a company's stock that is held by the public and not by insiders.

Golden Cross: A golden cross is a trading tool that indicates a buying trend is in place. A golden cross occurs when the 50-day moving average of a stock breaks above (crosses) the 200-day moving average. This technical indicator tells you that there are currently more people buying than selling the stock than in the past. Technical analysts believe a golden cross usually means it is safe to buy a stock and it will continue to rise. (There are also mini-golden crosses when the 30-day crosses the 50-day and while this is a positive sign, it is generally not viewed as an indication of higher prices ahead.)

Long Position: A position where someone owns a security with the intent of holding it as it rises.

Moving Average Convergence Divergence (MACD) : The MACD is a momentum indicator that shows the relationship between two moving averages of a stock's price.

Moving Average: The average closing price for a stock over a specific period. The moving average smoothes out day-to-day swings in prices and creates a context in which to judge price trends. Calculated by dividing the number of days (anywhere from 10 to 200) into the average price of a stock for the same number days (determined by adding the closing prices for that period).

Option: A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.

Position Trading: A trading strategy where we blend technical and fundamental analysis to plot trades that are given a chance to unfold over a period of several weeks according to the current market trends.

Price Earnings Ratio (P/E) : Price divided by earnings per share. Literally means the ratio of a company's stock price to the trailing 12 months' earnings per share. The higher the P/E ratio a company commands, the higher the expectations for future rates of growth.

Put: An option contract that gives the holder the right but not the obligation to sell the underlying security at a specified price for a certain fixed period of time.

Put-Call Ratio: A ratio of the trading volume of put options to call options. This is used to gauge investor sentiment.

Relative Strength Index (RSI) : The Relative Strength Index is a comparison between the trading days that a stock finishes in positive territory against the days it finishes in negative territory. The RSI ranges from 0 to 100 where a reading of 80 or above would be considered overbought and reading of 30 or below is considered oversold.

Resistance: A technical analysis term for a price area higher than the current stock price where an abundance of supply exists for the stock and therefore the stock may have trouble rising above that level.

Sell Stop: A sell stop is a protective measure, which will automatically trigger the sale of stock once its price dips below a certain pre-determined level. A sell stop is also called a stop loss order. In more detail, a sell stop limit order means that when a stock falls to the level you have indicated as the point to sell, the stock will be sold at the EXACT price you have specified. (However, remember that a falling stock may not always hit the exact price you have specified. It may jump down and miss your sell stop level altogether.) On the other hand, a sell stop market order means that once the stock falls to that price, the stock will sell at whatever the going market price of the stock is at the time.

Short Position: The term used to describe the selling of a borrowed security, commodity, or currency, with the expectation that the asset will fall in price.

Strike Price: The stated price per share for which the underlying security may be purchased (in the case of a call) or sold (in the case of a put) by the option holder upon exercise of the option contract.

Support: A technical analysis term describing a price area lower than the current price of the stock where demand is thought to exist. The price of a stock would be expected to stop falling when it reaches a support area.

Technical Analysis: The method of predicting future stock price movements based on observation of historical stock price movements.

Trailing sell stop: A trailing sell stop is designed to protect an investor's profits. A standard sell stop is a price below a stock's current price that an investor sets as the sell point for the stock, identifying a bailout point if the price drops too low. However, with a trailing sell stop, the sell stop price is manually adjusted upward as the stock price increases, to guarantee that profits are retained if and when the stock price declines.

VIX (also known as the CBOE Volatility Index) : A volatility index for the Chicago Board Options Exchange, known by its ticker symbol "VIX." It is calculated by taking a weighted average of the implied volatility from eight calls and puts on the S&P 100 index.