Stocks Trading 101: My Guide to the Basics

When I first started looking into stock trading, the sheer amount of jargon felt overwhelming. Over time, I realized that understanding these terms is half the battle. Here are some key concepts and terms that helped me make sense of it all. Stock: A piece of ownership in a company. Share: One unit of stock or a slice of the company pie. Broker: The service or app that connects buyers and sellers; I’ve used platforms like Robinhood and TD Ameritrade to get started. Bid Price: The most someone is willing to pay for a stock at that moment. Ask Price: The lowest price someone is willing to sell for. Spread: The gap between the bid and ask prices. Smaller spreads often mean more activity and easier trades. Market Order: Buying or selling instantly at the current price. Limit Order: Setting a specific price at which to buy or sell; I use this when I don’t want to pay more or accept less than a certain amount. Stop Loss Order: Automatically sells to prevent big losses if the stock price drops too much. Trailing Stop Order: Similar to a stop loss, but moves up with the stock price to lock in profits as the price rises. Bull Market: When stock prices are generally going up. Bear Market: When stock prices are falling. Volatility: Measures how much stock prices go up and down, with higher volatility meaning bigger swings. Liquidity: Refers to how easy it is to buy or sell a stock without affecting its price much. Stocks with high liquidity feel less stressful to trade. Candlestick Chart: Shows price movements over a specific period with details on opening, closing, highest, and lowest prices. Support Level: A price where a stock tends to stop falling and bounce back up. Resistance Level: A price where a stock tends to stop rising and reverse. Trend Line: Shows the general direction of a stock’s price. Moving Average (MA): Smooths out price fluctuations to reveal trends more clearly. Earnings Per Share (EPS): A company’s profit divided by the number of shares. Higher EPS usually indicates more profitability. Price-to-Earnings Ratio (P/E): Shows how much investors are willing to pay for $1 of earnings. A high P/E could mean the stock is overvalued or reflect high growth expectations. Dividends: Portions of profits paid out to shareholders, a nice bonus for holding the stock. Market Cap: The total value of all a company’s shares combined. A useful way to compare company sizes. Day Trading: Involves buying and selling within the same day. It’s fast-paced and demanding. Swing Trading: Involves holding stocks for days or weeks to profit from short-term trends. Long Position: Buying a stock and expecting the price to rise. Short Position: Selling a stock you don’t own, hoping the price will drop so you can buy it back cheaper. Risk-Reward Ratio: Balances potential losses and gains, with a 1:2 ratio meaning risking $1 to potentially make $2. Diversification: Spreads investments across different stocks or sectors to reduce risk. Leverage: Borrowing money to trade bigger, amplifying both gains and losses. I use it cautiously. Margin: Money borrowed from a broker to buy stocks. Helpful but carries real risks. S&P 500: Tracks 500 of the largest U.S. companies and is a good measure of the overall market. Dow Jones Industrial Average (DJIA): Tracks 30 major companies and has a more traditional focus. Nasdaq: Heavily tech-oriented, featuring companies like Apple, Tesla, and Amazon.