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Udemy > Trading > Flashcards

Trading Flashcards

1
Q

What are the two reasons people learn to day-trade stocks?

A

The two main reasons people trade stocks in trading their money the other reason is to trade other people’s money and gain income by doing that

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2
Q

What is a shareholder and share?

A

A shareholder is a part owner of the company.A share is a security that signifies ownership in a company.

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3
Q

What is a primary market?

A

The primary market is the market that the stocks trade in for the first time ever. So the first time that a stock is issued goes out to the public.

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4
Q

What is the secondary market?

A

The secondary market is where investors buy and sell securities from other investors

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5
Q

What is a market?

A

Market: A place where people gather for the purchase and sale of products.

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6
Q

What is the IPO?

A

IPO (Initial public offering): This is the first time that a stock of a private company is offered to the public.This is primarily done by underwriting firms.

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7
Q

What is the difference between stock market and exchange?

A

Stock Exchange:The stock market is a general term which is related to a place where stocks are traded. A stock exchange is more specific to the place where the trading is executed, such as ARCA, NSE, NYSE, NASDAQ and so on.

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8
Q

What is a floor broker?

A

an independent member of an exchange who is authorized to execute trades for clients on the exchange floor.

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9
Q

What is an order?

A

Order: An instruction to buy or sell a security on a specific stock exchange. There are many order types that vary in complexity. Orders can be sent through a broker or directly to the exchange if you have direct market access.

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10
Q

What does fill mean?

A

Fill: A fill happens when your order gets executed.

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11
Q

What is a market order?

A

Market Order: This is a buy/sell order that needs to be executed immediately at any price available.

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12
Q

What is a limit order?

A

Limit Order: A limit order is an order to buy or sell a stock at a specific price or better.

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13
Q

What is the ticker of a company

A

A ticker is just an abbreviation for the name of a company

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14
Q

What is a bid?

A

Bid: (or bid price) Is the highest price that a buyer/bidder is willing to pay for a product

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15
Q

What makes stocks go up?

A

The thing that makes stocks move is the orders that people send.

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16
Q

What is the ask?

A

Ask: (or ask price or offer) Is the lowest price that a seller is willing to receive for a product.

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17
Q

What is the spread of a stock?

A

Spread: Difference between the ask price to the bid price.

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18
Q

What is the times and sales?

A

Time and Sales: Displays every single execution that happens on the market. The executions are displayed real-time and include information like: time, direction, quantity traded and exchange traded on.

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19
Q

What is level 1?

A

Level 1: Displays the bid and ask prices as well as quantities. This also displays the last trade execute

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20
Q

What is level 2?

A

Level2 / Order book: Electronic list of buy and sell orders for a stock. This list is ordered by price and then by time. The order book lists the number of shares on the bid and ask at every price point.

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21
Q

What is the shares outstanding?

A

The shares outstanding is the amount of shares issued by the company.

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22
Q

What is the float?

A

The float is the number of shares available to buy at the given moment

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23
Q

What are the two types of analysing stocks?

A

The two ways you can predict if a stock is going up or down is technical analysis or fundamental analysis.

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24
Q

What are fundamental and technical analysis for?

A

The two ways you can predict if a stock is going up or down is technical analysis or fundamental analysis.

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25
Q

What is a chart showing?

A

A chart is a graphic representation of historical prices

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26
Q

What can a candle show?

A

a candle stick chart show open, close,high and low.

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27
Q

What is a doji?

A

A doji shows the stock closed on the same price it opened at.It shows the shadow but not the actual candle.

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28
Q

What is a big red candle?

A

Big Red Candle Has an unusually long red body with a wide range between high and low. Prices open near the high and
close near the low. Considered a bearish pattern.

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29
Q

What is a big green candle?

A

Big Green Candle Has an unusually long green body with a wide range between high and low of the day. Prices open near the low and close near the high. Considered a bullish pattern.

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30
Q

What do dojis show?

A

Dojis form when the opening and closing prices are virtually equal. Alone, dojis are neutral patterns. Dojis show a lot of indecision, the longer the wicks the bigger the indecision.

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31
Q

What is a gravestone and what does it show?

A

Gravestone (doji with high shadow no lower shadow): The long upper shadow suggests that the direction of the trend may be nearing a major turning point. It is formed when the opening and closing price of the underlying asset are equal and occur at the low of the day.

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32
Q

What is a dragonfly and what does it mean?

A

Dragonfly (doji with long downward shadow) : The long lower shadow suggests that the direction of the trend may be nearing a major turning point. It is formed when the opening and closing price of the underlying asset are equal and occur at the high of the day.

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33
Q

What is a shooting star and what does it mean?

A

Shooting Star A black or a white candlestick that has a small body, a long upper shadow and a little or no lower tail. Considered a bearish pattern in an uptrend.

34
Q

What is a hammer and what does it mean?

A

Hammer A black or a white candlestick that consists of a small body near the high with a little or no upper shadow and a long lower tail. Considered a bullish pattern during a downtrend.

35
Q

What is a bearish Harami and what does it mean?

A

Bearish Harami Consists of an unusually large green body followed by a small red body (contained within large green body). It is considered as a bearish pattern when preceded by an uptrend.

36
Q

What is a bullish harami and what does it mean?

A

Bullish Harami Consists of an unusually large red body followed by a small green body (contained within large red body). It is considered as a bullish pattern when preceded by a downtrend.

37
Q

What is an Engulfing Bullish and what does it mean?

A

Engulfing Bullish Consists of a small red body that is contained within the followed large green candlestick. When it appears at bottom it is interpreted as a bullish major reversal signal.

38
Q

What is an Engulfing Bearish and what does it mean?

A

Engulfing Bearish Consists of a small green body that is contained within the followed large red candlestick. When it appears at top it is considered as a bearish major reversal signal.

39
Q

What is a Morning Doji Star and what does it mean?

A

Morning Doji Star Consists of a large red body candlestick followed by a Doji that occurred below the preceding candlestick. On the following day, a third green body candlestick is formed that closed well into the red body candlestick which appeared before the Doji. It is considered as a major reversal signal.

40
Q

What is an Evening Doji Star and what does it mean?

A

Evening Doji Star Consists of three candlesticks. First is a large green body candlestick followed by a Doji that is above the green body. The third candlestick is a red body that closes well into the green body. When it appears at the top it is considered as a reversal signal. It signals a bearish trend.

41
Q

What is a trend?

A

A trend means the direction the stock is going.

42
Q

What indicates an uptrend and downtrend?

A

Higher highs and higher lows indicate an uptrend.

Lower highs and lower lows indicate a downtrend.

43
Q

What is a sideways trend?

A

A sideways trend is the horizontal price movement that occurs when the forces of supply and demand are nearly equal.

44
Q

What is a trendline and trend break?

A

A trendline is placed on the lows and sometimes the highs which indicate a trend and when the price falls below the line this is called the trend break.

45
Q

What are channels?

A

Channels are price ranges that an investment trades within over a period of time. The tops and bottoms of a channel can be significant price levels for chart users.

46
Q

What are the most common chart patterns?

A

The most common chart patterns are

Head and shoulders

Double top and multiple top

Double bottom ,Multiple bottom

Ascending triangle,descending triangle

wedge, wedge up wedge down

Cup and handle , Rounding bottom.

47
Q

What is a head and shoulders?

A

The head and shoulder consists of a high then the price going down then a new higher high then the price goes down and then goes up to a high similar to the first high.The neckline is the support of the head and shoulders.If it breaks the neckline its an indication to sell the stock.

48
Q

What is a double top?

A

A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs.Its extremely bearish and the resistance will hardly ever break again.

49
Q

What is a multiple top?

A

A multiple top is like a double top but it touches the resistance multiple times. The more the price hits the resistance the stronger the resistance and the price will be less likely to break the resistance next time.

50
Q

What is a double top?

A

Double bottom is when the price hits the support twice.Its highly suggestive of an uptrend but could break the support.

51
Q

What is a multiple top?

A

A multiple bottom is when a stock price touches a support multiple times this means the price is even more unlikely to break the support than a double bottom.

52
Q

What is an ascending triangle?

A

An ascending triangle is a flat resistance line but a support that is ascending, the gap between the two should be decreasing.When the price is being wedged in the triangle both sides are being aggressive.It will usually go up as the buyers keep buying at a higher price but it usually goes to whatever side is more aggressive.

53
Q

What is a descending triangle?

A

A descending triangle is where the support is flat and the resistance is going downwards. the sellers are more aggressive as they are selling at a lower price

54
Q

What is a wedge?

A

When there the support is going up and the resistance down and they are going towards each other this is called a wedge. Both buyers and sellers are aggressive. The further the price goes within the wedge the stronger they’ll explode.

55
Q

What is a cup and handle?

A

A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a “u” and the handle has a slight downward drift.Its a bullish symbol

56
Q

What is a rounding bottom?

A

A rounding bottom is a chart pattern used in technical analysis and is identified by a series of price movements that graphically form the shape of a “U”.Bullish.

57
Q

What is relative volume?

A

Relative volume: Relative volume compares the current volume to the average volume that the stock should have at the same time of day. If the relative volume is over 1 this means the stock is experiencing more then it’s usual volume. If for example the relative volume is 4, this means the stock is experiencing 4 times it’s usual volume.

58
Q

What is average volume?

A

Average volume: The average daily quantity of shares that have been traded for the past X period. Usually this is calculated on the past 3 months.

59
Q

What is volume?

A

The volume is basically the quantity of shares traded.Ex. If 100 shares got traded thats 100 shares of volume.

60
Q

Why is volume significant?

A

Volume is an important indicator in technical analysis because it measures the relative significance of a market move. The higher the volume during a price move, the more significant the move; the lower the volume during a price move, the less significant the move.

61
Q

What is a technical indicator?

A

Technical indicator: Mathematical computation based on historical price and volume which aims to help forecast future price movement and is mostly used for entry/exit signals.

62
Q

What are bollinger bands?

A

Bollinger bands are composed of a N-period moving average and two bands. An upper band that is set at X times above the moving average, and a lower band that is set X times bellow the moving average.

63
Q

What is RSI?

A

The relative strength(RS) is calculated by dividing the average of positive price changes by the average of negative price changes. Obtain RSI by subtracting 100/(1 + RS) from 100.The RSI gives an indication of recent price action performance and can range from
0 to 100. The default periods computed on is 14 days. The lower the RSI the more oversold the stock is and the higher the RSI the more overbought the stock is. Usually an RSI under 30 is considered oversold and over 70 is overbought.

64
Q

What is the ATR?

A

The Average true range tells you how far a stock can go.The ATR can guide you where to put your stop loss and take profit.It basically tells the average it moves in a day but in dollar value not percentage.

65
Q

What is expected value and how do you find it?

A

Expected value: The expected value is an anticipated value for a given investment. In statistics and probability analysis, the expected value is calculated by multiplying each of the possible outcomes by the likelihood that each outcome will occur, and summing all of those values. By calculating expected values, investors can choose the scenario that is most likely to give them their desired outcome.
Stock XYZ has a price of 10$ its has a 0.4(40%) chance of going to 16$ (gaining 60%).

It also has a 0.6(60%) chance of going to 8$ losing (20%).

To calculate expectancy you do

0.6 (from the est. 60% gain) x 0.4 (from the est. chance that its going to 16$)

secondly we do that for the other

(-0.2) because its negative x 0.6 (From the est. chance its going to 8$0

The whole thing will look like

0.6 x 0.4 + (-0.2) x 0.6

0.24 - 0.12

0.12 = 12%

You have an expectancy of making 12%
Expectancy is a mathematical concept used to assess the average expected outcome of a decision or action. It is calculated by multiplying each possible outcome’s probability by its associated value and then summing up these products. The formula for calculating expectancy is:Expectancy = (Probability of Outcome 1 * Value of Outcome 1) + (Probability of Outcome 2 * Value of Outcome 2) In this formula, you list the potential outcomes of a decision or action, assign probabilities to each outcome, and determine their associated values. A positive expectancy indicates an average expected gain, while a negative expectancy suggests an average expected loss. Expectancy helps individuals and businesses make informed decisions by quantifying the anticipated outcomes based on probabilities and values.

66
Q

What is a batting average?

A

Batting average: The average probability that a trader is right. To calculate the number of profitable trades divided by total number of trades during a specific period.

67
Q

What is the win loss ratio?

A

Win/Loss Ratio: The ratio of the average profitable trades over the average un-profitable trades

68
Q

What is a systematic risk?

A

Systematic Risk: The risk inherent to the entire market or an entire market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the right asset allocation strategy.

69
Q

What is an unsystematic risk?

A

Systematic Risk: The risk inherent to the entire market or an entire market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. This type of risk is both unpredictable and impossible to completely avoid. It cannot be mitigated through diversification, only through hedging or by using the right asset allocation strategy.

70
Q

What is risk management?

A

Risk Management: Risk management is the process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyses and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance.

71
Q

What is risk mitigation?

A

Risk mitigation is defined as taking steps to reduce adverse effects.

72
Q

What is risk acceptance?

A

Risk Acceptance: Risk acceptance does not reduce any effects. However it is still considered a strategy.

73
Q

What is risk avoidance?

A

Risk Avoidance: Risk avoidance is the opposite of risk acceptance. It is the action that avoids any exposure to the risk whatsoever.Risk avoidance is saying i cant afford the risk on this position, i could lose too much money and i do not want to enter in this trade.

74
Q

What is risk limitation?

A

Risk Limitation: Risk limitation is the most common risk management strategy used by businesses. This strategy limits a company’s exposure by taking some action. It is a strategy employing a bit of risk acceptance along with a bit of risk avoidance or an average of both

75
Q

What are some simple rules you should follow?

A

*Maximum risk per position should never exceed 5%.

*If you have $10,000. The maximum that you can lose should be 500$

*2% is ideal.

*There is a very real probability that you take 10 losing trades in a row

76
Q

How to calculate position size (simple)?

A

Position sizing is based on your money management and risk management.

A simple way to calculate position sizing is

positions size = (max loss per trade) / (amount you can lose per share)

77
Q

What is the loss aversion theory?

A

Loss aversion theory states that losses have a bigger negative impact than equivalent gains have a positive impact. This means that the negative feelings associated with giving up an object are greater than the positive feelings that are associated with acquiring that same object. This is what actually explains some of the observations in the endowment effect and in the status quo bias.

78
Q

What is the endowment effect?

A

The endowment effect tells us that we place more value in something we own than if we didn’t own it.People dont perceive what they have as better because they own it, they perceive the loss associated with giving up the object as bigger than it actually is.

79
Q

What is the status quo bias?

A

Status quo bias is an emotional bias; a preference for the maintenance of one’s current or previous state of affairs, or a preference to not undertake any action to change this current or previous state.The more choices someone has the stronger the status quo bias.

80
Q

What is the anchoring bias?

A

The anchoring effect is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions. During decision making, anchoring occurs when individuals use an initial piece of information to make subsequent judgements. Once an anchor is set, other judgements are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. For example, the initial price offered for a used car sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the car is really worth

81
Q
A

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