Candle Stick Chart
With the candlestick chart you will use to look at all stock movements. They document the range of the stock, the open and close price and the intraday high and low of the day. It is a very neat and useful way of presenting data.
Stop Loss/Trailing Stop Loss
Stop loss for a long position is a sell order placed in advance with the broker and is triggered when the stock price has hit the specified price. It is usually used to protect a trader from losing more than they are willing to risk. For example, you buy a stock at $10 and your stop loss is set at $9.00. Once the stock moves against you and hits the $9.00 target, your broker will automatically liquidate your position. A stop loss for a short position is placed above the current stock price and works the same way as for a long position but in reverse.
A trailing stop loss is similar to a stop loss except that it is set as a percentage of the current stock price. It will move higher if the stock is moving in the right direction and serves to protect profits in this case. Once the trade moves in the opposite direction, the stop loss will be triggered if it moves by the percentage of the stock set initially.
Easy to Borrow
A list of stocks deemed to be available for borrowing in short selling transactions because their delivery is assured. Availability is usually due to their accessible nature and/or high number of outstanding shares.
Pattern Day Trader Rule
According to FINRA, a trader with an account of under $25,000 is subject to the Pattern Day Trader rule. This means that under this rule, you cannot trade more than 3 times in 5 days. This law was implemented to protect the average trader from the elements of the stock market and from overtrading. (Read on to see how to avoid this rule.)
The $2.50 rule applies when you are short selling stocks that are priced under $2.50. Basically, the rule states that for every share you are short, you still need to put up $2.50 of capital, even if the stock is priced lower. Let’s say you have a $1000 account and you want to short sell penny stocks. If the stock is under $2.50, you will not be able to take a full $1000 position, even if you wanted to.
Here is the math:
You have a $1000 account. For any stock under $2.50, you must still put up $2.50 in capital.
Divide $1000 by $2.50, and the MOST number of shares you can short is 400 shares, regardless of price.
Bullish-ness in a stock causes it to run up much faster over a short period of time than it had previously. Draw a parabolic chart running upwards and that’s what an overextended chart looks like. Such charts are usually driven by emotion and have a very good chance of pulling back due to profit taking.
Scalping a Stock
Scalping means entering a trade on the ‘bid’ and quickly selling on the ‘ask’ for a small and quick profit. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.
Short squeeze is the process of short sellers rushing to cover their short positions and as a result, there is a spike in the stock price. When a stock is downward trending, it may attract a lot of short sellers to short sell the stock. You can check the number of short sellers in a particular stock by visiting Yahoo Finance and look under “Key Statistics”. You should be able to see the “Short % of Float” row and it should tell you the percentage of outstanding shares of a stock that is currently held short. If a positive news bit surfaces, it can cause a sharp spike in the stock because the short sellers will be rushing to buy in order to cover their positions. This phenomenon, coupled with buyers buying into the stock for a long position, causes the stock price to rise higher than expected.