Stock Market Glossary of Terms
Learning how and when to buy and sell stocks takes time and information. Gorilla Trades is not only an online stock picking service, but it also provides subscribers with educational resources and information to help them decide how and when to buy and sell stocks, how to limit losses, and how to increase returns. Learn the terminology of the stock market to help you make the best investment decisions. Here you’ll find our useful stock market glossary of terms as well as stock investment advice.
Gorilla’s Top 3
Internal Trend Line
Light Volume Pullback
Magazine Cover Theory
Active Picks – Active picks include all GorillaPicks in the current Gorilla Trades portfolio. A stock is dropped from the Gorilla Trades portfolio if it hits its stop loss level or achieves its second target. Updates on active GorillaPicks are available in the Evening Gorilla Email and on the Subscribers Website.
Banana Barometer- A feature of the Subscriber’s GorillaTrades.com website that gives a broad overview of the market environment. This is denoted by red, yellow, or green banana icon as well as a one-word adjective describing the health of the overall market (strong, neutral, oversold, overbought). The Banana Barometer also lists near-term support and resistance levels for the three major indices. For example, when the Banana Barometer changes to OVERSOLD, there is a high probability that a short-term bounce may occur in the overall market. When the Banana Barometer changes to OVERBOUGHT, there is a high probability that a short-term pullback may occur in the overall market.
Base- A chart pattern making a period of accumulation following a downtrend. The larger the base, the greater the upside potential following its completion. A base can take many forms.
Breakdown- A term indicating a downside resolution of a chart pattern. Its significance is determined by the same factors governing a breakout.
Breakout- A term indicating an upside resolution of a chart pattern. Breakout can take many forms, and their degree of importance is determined by the significance of the chart pattern which preceded it.
Candlestick- A price chart that displays the high, low, open, and close for a security each day over a specified period of time.
Channel- A chart pattern comprised of two parallel trend lines which form a trading band. Channels take the form of uptrend, downtrend, and horizontal.
Closing Price- (Date Initiated) The price of the last trade for that stock on the market day before the GorillaPick was listed. See definition of Current Picks.
Collar Strategy -An option strategy used when an investor expects a particular stock to advance in price, but realizes that there is a chance that it could decline. A put is purchased as insurance to defend against a potential decline, but to compensate for your cost of “insurance” (the put), the investor sells a call, creating a covered call with no downside. 1) Long 100 shares of stock
2) Long one protective put
3) Short one call to pay for the protective put Investors who use this type of strategy typically select a stock that they believe will appreciate in value over the time of the protective put, at a rate greater than the cost of the put. It is important to keep in mind that while collars can protect you against substantial losses, they also can prevent considerable gains.
Confirmation Day – An event that occurs as a result above average daily volume that fortifies a stocks desired direction. ex. Any point in time that a stock trades at, or through, a “trigger price” with above average volume, and has been authorized for purchase under GorillaTrades rules. A strong “trigger day” can also be a “Confirmation Day.” A “Confirmation Day” can occur for the triggered stock at any point in time after the initial price has been achieved. In addition, a GorillaPick must close HIGHER than its trigger price and a GorillaShort must close LOWER than its trigger price on the day it is to be considered “confirmed.” What exactly constitutes a Confirmation Day” To initially confirm, a triggered GorillaPick must do EACH of the following on the SAME day: 1) A GorillaPick must CLOSE higher than its previous close AND higher than where it opened.
2) A GorillaPick must CLOSE higher than its trigger price.
3) A GorillaPick must meet or exceed its specific volume level area. Please refer to: Confirmation Day for a complete explanation.
Cup and Handle- A chart formation that a stock usually makes before it makes a big upward move. If you look at the chart (visually) of a stock you can sometimes see the shape of a cup with a handle. Furthermore, the longer the handle, the higher the stock potentially rises when it does breakout.
Current GorillaPicks- Stocks that have appeared on the Gorilla’s radar screen and have been listed for possible purchase. These are released in the Evening Gorilla Email and on the Subscriber’s Website.
Dollar Cost Averaging Up (DCA Up)- To purchase shares of the same security at successively higher prices, lessening the risk of investing a large amount in a single investment at the wrong time. If you initially buy a stock at $10 and reinvest at $11, your Dollar Cost Average is $10.50, “up” from $10.
In neutral or negative markets, the Gorilla recommends using the relationship between strength and higher prices to increase the probability of a trade’s success. Since the majority of stocks will generally follow the market’s overall trend (3 out of 4), this very simple tool (DCA “Up”) may assist subscribers in reducing trade risk and preserving portfolio capital. The DCA “Up” strategy may require extra time and patience, but the payback is enormous when seeking certainty during NEUTRAL market environments.
Downtrend Line- A trend line connecting successively lower high points for a stock (or market). Its technical significance is determined by the same factors governing an uptrend line.
False Breakout – The technical description of a stock’s chart formation in which a breakout from a consolidation pattern (sideways move) to the upside is quickly followed by a reversal (drop). This is what the Gorilla Trades Confirmation Day concept guards against.
First Target- This is one of the trading guidelines that is released with every new GorillaPick. You are advised to sell a large percentage of your holdings at this level and let the remaining percentage remain invested in hopes of attaining the second target. The First Target is usually hit in a few days to a few weeks. See First Target examples
Gap- An open space in a chart created when a stock (or market) opens either higher than its highest level attained during the prior session (referred to as an upside chart gap) or lower than its lowest level reached during the prior day (called a downside chart gap). We consider gaps to be an increasingly important technical analysis ingredient.
Gorilla’s Top 3- These are 3 GorillaPicks that have been singled out because they appear ready for entry at any time during the week. They appear especially in tune with the market environment and may be suitable for entry at any point during the week they were issued, as opposed to waiting for a Confirmation Day as is recommended with normal GorillaPicks. The Gorilla’s Top 3 are otherwise regular GorillaPicks and should be treated as such. The Gorilla’s Top 3 are refreshed each Monday in the Evening Gorilla Email.
Heavy Accumulation – The technical description of a stock’s chart formation which shows greater buying interest than selling interest.
Internal Trend Line- A single trend line connecting at least several high and low points for a stock (or market) over time.
Light Volume Pullback (LVPB)- A feature of the GorillaTrades System that identifies GorillaPicks that have achieved their first target and are currently experiencing a pullback in price that corresponds with light trading volume. This combination means that despite the price drop, this GorillaPick appears healthy, and the pullback may provide an entry, or reentry, point for continued growth. For more information, go to the LVPB Page.
Limit Order- This order is placed to purchase or sell at a specified price or better; an order that specifies a price an investor is willing to pay or accept. A buy limit order is placed below the current market price and designates the highest price the investor is willing to pay. A sell limit order is placed over the current market price and it represents the lowest price the seller is willing to accept. Furthermore, limit orders allow investors to limit the length of time an order can be outstanding before cancelled.
Lock-Up Period -A Registered window of opportunity for insiders to liquidate shares they own.
Magazine Cover Theory- Link to The Magazine Cover Theory.
Market Maker- These industry players work on the Nasdaq exchange, but are not actually at the exchange. Rather, they are large investment companies that participate in the purchase and sale of actual securities. These market makers maintain inventories and buy and sell stocks from their personal inventories to individual customers and other dealers. As each security on the NASDAQ market generally has more than one market maker. Open displays of competition among them facilitate competitive prices and as such, individual investors generally will get the best price. As this competition is evident in the limited spreads between posted bids and asks, the market makers on the NASDAQ will in some instances act very similar to the specialists on the NYSE.
Moving Average- (30-week line) A technical analysis tool designed to smooth out a stock’s (or market’s) shorter-term fluctuations to provide a better picture of an underlying trend. Many moving averages exist but the 30-week moving average (also known as the 30-week line or 150-day line) is one of the most popular and respected in technical circles. It is calculated by totaling the latest 30 weekly (usually Friday closing) price levels and dividing by 30 to arrive at the average. Each week, the most recent week’s figure is added to the total, and the price level from 30 weeks ago is subtracted-hence the term “moving.” This line often provides support during an uptrend and resistance during a downtrend.
Overbought- The market conditions in which the volume of buying that has occurred is greater than the fundamentals justify.
Overhead Supply- A price area within the overall market (or an individual stock) where sellers might be a dominating factor.
Oversold- The market conditions in which the volume of selling that has occurred is greater than the fundamentals justify.
Previous Picks- GorillaPicks that are from previous days and are still active. More Information: See definition of “Active Picks”
Raised Stop Loss- Gorilla Trades actively manages the stop loss levels of GorillaPicks every Monday in the Evening Gorilla Email. A raised stop loss level will be issued in order to reduce the downside risk, to lock in gains, and sometimes even to harvest successful GorillaPicks that have had a successful run. When a GorillaPick position is closed because it hit a raised stop loss, this will be noted on the closed transactions page. This GorillaPick was sold when its stop loss level was triggered, but only AFTER the stop loss level was raised at least once from its initial stop loss level to protect profits. See Example of Stop Loss Level
Resistance- Also known as supply. An area where increased selling interest is likely to develop during a rally. These areas usually prove to be only temporary barriers to higher quotes during a primary uptrend, at which time many resistance levels are usually battered. Resistance areas tend to repel a stock’s upward progress during a primary downtrend, and they take several forms (minor, major, etc.)
Risk Rating- This rating is based upon a combination of share related items, including a stock’s market capitalization, shares outstanding, volatility and current tradable float. In addition to these share-related items, the possible risk to possible return ratio is also taken into consideration. The scale ranges from 1-5, with 5 being the highest risk and 1 being the lowest risk. Each GorillaPick’s Risk Rating is issued with its introduction and noted in the Evening Gorilla Email, on its graph, and in spreadsheets on the Subscriber’s Site. See tutorial on Risk Rating
Return-to-Risk Ratio (RTR) – A measurement, from a GorillaPick’s current price, of the projected profit potential, compared to the recommended stop loss area. Although GorillaPicks with large RTRs may appear healthy, the ratio only measures a stock’s distance from the recommended stop level in relation to the profit potential remaining. This figure may identify stocks that are experiencing a decline in price from prior levels, and may have a large reward potential from current levels. But remember, a large number often signals GorillaPicks that are close to their recommended stop loss areas and may stop out quickly. An RTR of “2” depicts a GorillaPick that has twice the amount of return potential than loss (if it stops out). This figure will usually reveal stocks that are showing strength, but also have a balance between the projected future returns and the risk of being stopped out from the portfolio. When using the RTR tool, the Gorilla recommends avoiding GorillaPicks in the portfolio that hold unrealized losses. Read more here on the Return to Risk Ratio.
Second Target- Long term price target that is released with each new GorillaPick. Usually can take anywhere from a few weeks to a few months to achieve. You are advised to sell the remaining portion of your position at this target. More Information: How are GorillaPicks generated?
Short Selling- Selling a stock that is not previously owned with the intention of buying it back at a lower price, for a profit, in the future. Each brokerage has different guidelines for “short selling.” Consult your brokerage for their specific rules.
Special Situations Radar Screen- stocks that appear on this special radar screen are meant to be a “bonus” to the GorillaTrades service. Unlike GorillaPicks, you do not receive ANY guidance with “Special Situation” picks. Subscribers are “on their own” with these picks. In addition, the market cap of these stocks can sometimes be VERY low and they can be quite volatile. Only more aggressive subscribers should look at this area. These picks are meant to have longer-term holding periods (several months in most cases). Special Situation picks rarely appear, but when they do appear, they seem to always do very well! –
Specialist- An individual on the trading floor of certain exchanges who holds an inventory of particular stocks. The specialist is responsible for managing limit trades, but does not make information on outstanding limit orders available to other traders. A specialist has four different roles in order to ensure steadily flowing markets: Auctioneer- Since the NYSE is an auction market, bids and asks are competitively forwarded by investors. These bids and asks must be posted for the entire market to view such that the best price is always maintained. It is the job of the specialist to ensure the accurate and timely reporting of all bids and asks that all marketable trades are executed and that order is maintained upon the floor. If a specialist can view price areas of specific interest, the stock may be collected with the anticipation of profitable movement. After all, the specialist is present to make money. Agent- The specialist also accepts limit orders relayed by investors through brokers or electronic trading. It is the responsibility of the specialist to ensure that the order is transacted appropriately on behalf of others with the same fiduciary care as the brokers themselves. Limit orders entered online will be seen on a specialist book. Thus, the bunching of orders within a specific price area may create abnormal price swings. Catalyst- As the specialist is in direct contact with the bidders and sellers of particular securities, it is their responsibility that enough interest exists for a particular stock such that a reasonable market exists. This is carried out by specialists seeking out recently active investors in cases where the bid and asks can’t be matched. If stock bids are scarce, a specialist can hold inventory in order to accommodate interest. Principal- In the instance where a market imbalance occurs between the demand and supply of a certain security, the market maker must make adjustments by purchasing and selling out of his/her own inventory to equalize the market. This is the precise reason why the Gorilla warns of entering pre-market orders; gap openings are usually due to an order imbalance. Work on the NASDAQ exchange, but are not actually at the exchange. Rather, they are large investment companies that participate in the purchase and sale of actual securities. These market makers maintain inventories and buy and sell stocks from their personal inventories to individual customers and other dealers.
Stop Loss Order – This order is commonly used to establish a new position, limit a loss on an existing position, or protect unrealized gains. It is an order to sell (or buy) a stock at or near a predetermined price. When a stock trades at or through this preset price, the order immediately becomes a market order, with the price to be determined by the market’s bid and ask prices on the stock at that time. Using a stop loss order ensures that if the stock crosses your set price, your order will be executed. However, if your stock gaps down (or up), the order could be executed at a price much different from your preset price. This order type is commonly referred to as a stop-loss order. When establishing new GorillaPick positions, a buy stop is placed above “trigger prices” or after “Confirmation Day” breakouts. Note: Since stop orders become market orders, during fast market periods executed prices may be filled beyond stop prices.
Stop Loss (Limit) Order – This order is useful when an investor wishes to buy or sell at a specific price level; this order combines both a stop and a limit order. It is an order used to sell (or buy) a stock no lower (or no higher when using it to purchase) than a predetermined price. Many brokerages allow the stop and limit price to be different, while others require that they must be the same. With this type of order, a brokerage will not guarantee that the order will be executed if a stock trades at or through this preset price. A stock may gap below (or above..for a buy order) your limit, or simply fall too fast below your limit price (or rise too quickly above your limit price for a buy order). This type of order may only be executed if the stock “bounces back” above the limit price.
Straddle- An option strategy in which the investor holds a position in both a call and a put, with the same strike price and expiration date. As Straddles is a good strategy to pursue if an investor believes that a stock’s price will move significantly, but is unsure as to which direction. The stock price must move significantly if the investor is to make a profit. One of the major advantages in trading a straddle is that the risk can be kept to a minimum. Because you are buying a put and a call, your only risk is that the stock does nothing and the options expire. If you buy enough time, you can exit a straddle with a minor loss if the stock doesn’t do what you expect. (However, remember that time value erodes the fastest during the last 45 days of an option’s life.)
Support- An area where increased buying interest is likely to develop during a decline. These points, which can take several forms (minor, major, etc.) often provide downside protection for an issue in a primary downtrend, during which time numerous support levels are often broken.
Tightening Base – The technical description of a stock’s chart formation which shows resistance to selling pressure during period of market weakness.
Top- A chart pattern marking a period of distribution following an uptrend. The larger the top, the greater the downside potential following its completion. It too can take many forms.
Trigger Day – The day in which a new GorillaPick initially trades ABOVE its “buy” price. For a GorillaShort, it is the day in which it initially trades BELOW its “sell” price. This MUST happen within five days of first appearing on the GorillaTrades radar screen. See this page on our Stock Picks to see how the Trigger Day fits in with the Gorilla Trades System.
Trigger Price – The previous day’s high price of a suggested Gorilla Pick that has to be reached before it may be considered for purchase.
Uptrend Line- A trend line connecting successively higher low points of a stock (or market). The longer this line is in force, and the more points that occur along it, the greater its technical significance.
Wash Rule- (31 day rule) Simply put, if within 30 days before or after the sale of a security, you purchase a “substantially identical” security, the IRS will consider the sale a “wash” and disallow your tax loss. The disallowed loss will be added to the basis of the “substantially identical” stock or securities purchased, and the holding period of the original property is added to the holding period of the newly acquired property. “Substantially identical” means different things for different investments. Here is a quick rundown:
Stocks – Obviously, the common shares of one company are not “substantially identical” to the common shares of another company. Taxpayers will generally run afoul of the wash sale rule when they sell stocks at a loss and then repurchase the same stock, or an option to acquire that stock, within 30 days (excluding the date of the sale and the date of the requisition).
If you want to maintain a position in a particular stock and recognize the unrealized loss in that position you have two options:
1. Doubling up. If you don’t want to be out of the market with respect to a particular stock, then you must increase your position in that stock by purchasing a similar block. You can sell the original loss position 31 days later. Identify the specific lot you are selling. You can do this by noting “versus purchase” (VSP) and the date of the purchase on the lot on which you are recognizing the loss.
2. Repurchasing after 31 days. If you do not want the added risk involved with double exposure, then the only alternative is to dispose of the current long position at a loss and repurchase the stock, or an option to acquire the stock 31 days later.
Mutual Funds – Mutual fund sales are subject to the wash sale rule. Like stocks, a taxpayer may not repurchase the fund sold within the 31-day window. You must be very careful when dealing with partial sale (loss) of mutual funds. Keep in mind that the reinvestment in dividends and capital gains is considered an acquisition. Thus, there should be no reinvestment during the 30-day period leading up to the sale, nor should there be any reinvestments 30 days after the sale date.
Bonds – Bonds are not considered “substantially identical” if (1) the securities have different issuers or (2) there are substantial differences in either maturity or coupon rate, and preferably in both. Year-end “bond-swaps” are common planning techniques. You should be careful when repurchasing bonds from the same issuer. The differences in maturity and/or coupon rate should be different enough to change your position relative to the market.
Individual Retirement Accounts – “Can a tax payer sell stock at a loss in his or her personal account and repurchase the stock in an IRA?” This question was posed to the IRS and its response is as follows: “The wash sale rule does not apply when an individual sells securities at a loss and identical securities are purchased by his/her IRA within 30 days. The wash sale rules apply when the identical securities are purchased by the individual, his/her spouse, or a corporation that he/she controls.” You should be aware that many practitioners caution against the use of this strategy. They argue that while this may not violate the wash sale rule, it could still be considered an indirect related party sale and the losses could nonetheless be disallowed.
1. Internal Revenue Code, Section 1091
2. Internal Revenue Service, Publication 550, page 52