Learning basic definitions is fundamental to day trading. You cannot be a trader if you do not have a strong grasp of the basics. When you are operating on the trading platforms and talking to your brokers, these terms will consistently appear. Understanding what they mean or how they work can save you precious time. In due time you will come to realize, in the world of day trading, every second counts.
You expect the stock price to fall and therefore, you borrow shares from your broker to sell when it is at the high and buy them back later to cover your position when the stock price has dropped. You earn the difference.
You expect the price of the stock to rise over time and therefore, you buy it now and hold, in order to sell it at a higher price later. You earn the difference.
The bid price represents the maximum price that a buyer is willing to pay for a stock. The ask price represents the minimum price that a seller is willing to receive for the stock. A trade occurs when the buyer and seller agree on a price for the stock.
The spread of a stock refers to the difference between the ask price and the bid price of a stock. The larger the difference is between the two, the wider the spread. Highly liquid NASDAQ stocks will usually have a low spread while relatively illiquid OTCBB stocks usually have a wider spread.
Level 2 Quote
A trading service consisting of real-time access to the quotations of individual market makers registered in every NASDAQ listed stock. It basically tells you who is buying or selling how many shares of a specific stock in real time. This is especially useful if you are trading OTCBB when the stock is not very liquid and the spread is wide. However, it is not as useful if you are trading NASDAQs. Level 2 quote is usually a paid service that can be subscribed from your broker.
Support Line/Resistance Line
This is the bread and butter tool of trading, especially day trading. You must understand them inside out before you start to trade. Support and resistance lines are often described as self-fulfilling prophecies because everybody watches these imaginary lines and anticipates them. Others might beg to differ, but there is no denying that they are crucial to a trade