Friday, February 3rd 2012 - 06:12:25 pm

TradeStocksAmerica.com Glossary of Terms

Glossary of Terms
(Some abbreviations are for communication on the Trading Room)

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Call Option - Someone buying a call option anticipates that the stock will go up in price. An option has more leverage than just buying the stock itself. Opposite of a put Option. Equity option is another term for stock option, as opposed to Index option which is based on an index like the S&P-500, OEX, NYSE, etc.

Candlesticks - a type of charting that is widely used today and is credited to the Japanese that was supposedly was used in analyzing the price of rice contracts traced back to the 1600’s. Candlestick charts display the open, high, low and closing price in a format similar to a candle shape.

CANSLIM - is an acronym developed by William O’Neill, founder of Investor’s Business Daily newspaper that represents a method of analyzing stocks using a fundamental approach to narrowing a search for the best stocks. It is the first letter of a word that represents the procedures to follow when screening for a good stock to invest in.
Current quarterly earnings per share
Annual earnings growth
New products, new managements, new highs
Shares outstanding
Leading industry
Institutional sponsorship
Market direction

Capitulation – the point at which a stock (or market) reaches maximum negative or positive sentiment and with unusually high trading volume, the stock reverses in direction. The maximum point of enthusiasm would be associated with the peak price in a stock and the maximum point of “despair” would mark a significant bottom in a stock price. Ideally, both points would be reached with parabolic curves leading up to the peak or to the bottom.

Charts – a graphical representation of a stock price and can have various studies and indicators showing volume, moving averages, relative strength and many other studies. The length of time that a chart can represent can be years of data to minutes and can be used to show history as well as for forecasting price direction.

Class A Shares - Typically, this is the more desirable class of stock with more voting rights than Class B Shares. Class A shares are designed to insulate management from the short-term swings of Wall Street and allow management to make decisions based on this stock.

Commodities - basic materials and goods needed to produce finished products. Examples of commodities would be wheat, corn, cotton, cattle, steel, gold, natural gas.

Common Stock - Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company's assets only after bondholders, other debt holders, and preferred stockholders have been satisfied. Typically, common stockholders receive one vote per share to elect the company's board of directors (although the number of votes is not always directly proportional to the number of shares owned).

Contrarian is investing or trading in the opposite direction that the conventional wisdom or the mass group of people. The theory that “most people are wrong at about the worst time” can be used for further evidence that an opposite strategy would have higher odds of being correct. Indicators such as Put-call ratio or Investor’s Intelligence which represents the sentiment of advisors.

Conversion price - The price at which a given convertible security can be converted to common stock. The conversion price is specified when the security is issued. The number of shares to be received is the principal amount of the security divided by the conversion price (after the conversion price is adjusted for stock splits and dividends).

Conversion ratio - The number of shares of common stock that could be obtained by converting each share of a convertible security.

Coverage initiated - When a research firm begins coverage on a particular stock or sector.

Crash of 1929 - The name for the period lasting from October 29th to November 13th in 1929 during which the stock market dropped violently, losing much of its value and contributing to the start of the Great Depression. The Crash of 1929 was the impetus for a great number of reforms and regulations related to securities trading.

Crash of 1987 - October 19, 1987, the day on which the DJIA fell 508 points (22%). also called Black Monday.

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