TheGreenBaron.com - Investor Strategies - Part Five
COMMON STOCK TRADING TERMS
Advocate: Someone who promotes or “advocates” with positive or negative information on Internet based investment related message/chat forums and/or Social Media platforms in order to affect trading activity, investor sentiment, share price and/or trading volume.
Authorized Shares: This is the number of shares that a company is currently “authorized” to trade. Keep in mind, Penny stocks companies with a high number of authorized shares can issue stock quickly - and often usually do, which increases the “outstanding” shares. This dilutes the value of outstanding shares – hence the term “company dilution”. If any topics of discussion by shareholders include “verified company dilution” that is a huge red flag that you at least need to confirm or investigate further into – and if/when necessary, act accordingly to protect your capital.
Averaging Down: Entire books have been written on this subject and this technique has eliminated and/or reduced investor losses substantially when effectively applied – especially when the stock cooperates. “Averaging Down” is when an investor buys additional shares of a stock they already own (at higher levels) as the price goes down. This technique causes their “average” purchase price to decrease (go “down” – hence, “Average Down”) and lessens initial loss amounts and/or provides an opportunity for gain. But you’re still buying a stock that is headed down or you wouldn’t need to average down in the first place. True, but sometimes, when applied properly and skillfully and with enough information about the company/stock to make an informed “guess” at a better sell price - your safest (if not only) option to limit losses while extricating yourself from a particular stock may be to get your “average” share price closer to your target sell price by combining your shares purchased at a higher price earlier, with shares purchased at a lower price later.
Base (Base Share Price): Usually the lowest average share price range a particular stock trades within or stays at for a period of time (channel) based on normal company/investor conditions and average trading activity. Increased investor interest, activity and buying may move certain stocks up to a new higher “base” or to a new lower base under opposite conditions.
Basher: A term applied to investment related Internet message forums to individuals/groups that publicly and intensely attack (bash) a particular stock/company with negative information and advice - usually in order to discourage buyers and encourage sellers in the hope of artificially lowering the share price of the stock, even on a temporary basis, usually in order to purchase shares at a lower price and/or on the bid helped by their “down advocacy” efforts and content.
Boards: Internet and/or Social Media message posting and/or chat forums, venues, websites, and other various public/private access platforms investors use to communicate with each other regarding a particular investment(s).
Bear Market: Due to more selling than buying of stocks in general means the stock market is currently in a downtrend, or a period of falling stock prices. This is the opposite of a “Bull Market”.
BORSON Technique (Buy On Rumor – Sell On News): A short term method of trading stocks based on the anticipated upward volume/share price movement a positive announcement (PR – news) can and often does create, that is expected to occur from a company based usually on previous public and/or Forward Looking Statements from the company, then selling the shares purchased “pre-news” on the day of, or soon after, the announcement is officially released to the public – usually via PR, Social Media, etc.
Bounce: Which is only the term’s “partial” name – but out of respect for our fellow cat owners/lovers we will only use the “partial” term “Bounce” for purposes of this definition. When a particular stock has a sudden and usually unexpected upward spike in price/volume it will usually peak, then begin to return to previous/lower levels, then upon reaching the “bottom” the share price drops to, often a “Bounce” effect will take place as sellers rethink and reload their positions and/or “average down” at those lower prices – and that reversal caused primarily from mostly selling turning into mostly buying creates the “Bounce” off the bottom. Note; “Bounces” are often very temporary and only experienced “rolling” savvy traders should try to play “Bounces”.
Bull Market: This is when the stock market as a whole is in a prolonged period of increasing stock prices usually due to a higher level of upward buying pressure overall or above average performance and/or indicators that attract more investors (and their capital) into the market for a certain amount of time. Opposite of a “Bear Market”.
Common Stock: These are the shares that are commonly owned and/or traded by the public of a particular stock. They are different than the “Preferred” shares (see below).
Cover / Covering (a stock position): To “cover” or “covering” a stock position is a buy order made on a stock or other listed security to close out an existing short position. A short sale involves selling shares of a company that an investor does not own, as the shares can be borrowed but need to be repaid at some point.
Dividend: this is a portion of a company’s earnings that is paid to shareholders, or people that own that particular company’s stock, on a quarterly or annual basis. Not all company’s pay dividends to the shareholders of their company’s stock and “dividends” usually come with conditions and/or exclusions – especially dates and/or time frames for ownership of that particular stock.
Due Diligence: Also commonly referred to as “DD” – Conducting research and analysis of a particular stock, sector and/or other investment based topic.
Exchange: An exchange is a place in which different investments are traded. The most well-known ones in the United States are the New York Stock Exchange, DOW, OTC:BB, Pink Sheets and the Nasdaq.
Execution: When an order to buy or sell has been completed. If you put in an order to sell 100 shares, this means that all 100 shares have been sold and your order has been “filled” and/or “executed”.
Fluff: Usually trader slang for a mediocre or insignificant company press release and/or announcement.
Hype-Ster: Basically the opposite of a “Basher” (see definition above) – someone who strongly and openly (and times overly) promotes (hypes) the benefits and ownership of a particular stock – usually because they own shares in the company and want the price to go up to increase their investment and or selling opportunities via increased volume and/or buying pressure.
Initial Public Offering (IPO): The first sale or offering of a stock by a company to the public, rather than just being owned by private or inside investors.
Investor Relations (IR): is a department or individual, either an outside third-party or in-house entity present in most medium-to-large public companies that provides investors with an accurate account of company affairs. This helps private and institutional investors make informed buy and sell decisions. A company's IR department also serves as a bridge for providing market intelligence to internal corporate management. IR departments, individuals, even sometimes a senior executive of the company assuming the IR responsibilities will work to communicate with investors, shareholders, government organizations, and the overall financial community.
Long: A shareholder that is planning on holding a particular stock or security for a lengthy (long) time frame. They’re in for the “long” haul.
Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin.
Market Maker: Also known as MM’s for short. These are the “players” who provide liquidity in the marketplace. This means that they are required to buy when nobody else is buying and sell when nobody else is selling. They make the market.
Moving Average: A stock’s average price-per-share during a specific period of time. Some time frames are 50 and 200 day moving averages.
MOMO: (Momentum Move) When a third-party or outside group/individual enter a particular stock creating themselves and/or attracting well above average trading activity and volume with the objective of significantly increasing the share price artificially and temporarily within an extremely condensed time frame. If the MOMO is temporary or strictly to quickly enter then exit the stock for a quick profit it can sometimes also be referred to as a “Pump & Dump”.
Order: An investor’s bid to buy or sell a certain amount of stock or security for a set price (limit order) or best available price (market order) price. When placing an order to buy or sell a stock at a set “limit” price your stock will only be bought or sold at the specific “limit” price you place the order at if there are shares to buy and/or sell at that particular price only. By placing a “market” order you are basically giving the Broker the option of buying or selling your shares at the “best available” price the order can be filled at either in full or partially.
OTC:BB (Over-The-Counter / Bulletin Board): is an electronic trading service provided by the National Association of Securities Dealers (NASD) that offers traders and investors up-to-the-minute quotes, last-sale prices and volume information for equity securities traded over the counter (OTC). All companies listed on this platform must file current financial statements with the Securities and Exchange Commission (SEC) or a regulator. Different from listings on the Nasdaq and New York Stock Exchange (NYSE), there are no listing requirements for companies listing stocks on the OTCBB.
Outstanding Shares: The number of shares that currently can be traded.
Pink Sheet (stocks): When a company is not officially “listed”, it often will trade on the “Pink Sheets” or the OTC:BB - However, the Pink Sheets are different from the OTC:BB. Companies on the Pink Sheets are not required to meet minimum requirements or file with the SEC. Typically, companies are on the Pink Sheets because either they are too small to be listed on a national exchange or they do not wish to make their budgets and accounting statements public or to avoid having to file with the SEC. Stocks listed on the “Pink Sheets” will have an additional “PK” added to their stock symbol. Keep in mind, companies listed on the Pink Sheets are difficult to analyze because it is harder to obtain accurate information about them.
Poach / Poaching: When an individual and/or “advocacy” group attempt to entice shareholders/investors from one particular stock into another stock – one they usually already own shares in, to help increase trading activity, interest, volume and share price. Literally “poaching” another company’s shareholders/investors.
Portfolio: A collection of investments owned by an investor. You can have as little as one stock in a portfolio to an infinite amount of stocks.
PR (Press Release): A press release, news release, media release, press statement, Social Media or audio/video release is a written or recorded communication directed at members of the investing community and particularly a company’s shareholders providing information on a particular matter and/or event involving that particular company.
Preferred Stock: Preferred stock is a class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares “usually” do not carry voting rights. Some penny stocks allow these to be converted to common stock which can lead to major sell offs – so this is a very important indication and/or announcement to watch for from any company you hold stock in. This usually occurs when financial backers and/or large shareholders basically want some or all of their money back and the only method the company has to acquire the capital is to convert those investors/shareholder’s “preferred” stock into shares of “common” stock that the recipients of usually can’t sell off fast enough! Many times creating an avalanche of selling. So watch carefully for this type of red flag.
Quote: Information on a stock’s latest trading price. This is sometimes delayed by 20 minutes unless you are using an actual broker trading platform or “Real Time” and/or Level 2 quote trading platforms.
Rally: A rapid increase in the general price level of the market or of the price of a stock.
Ram-Rod: (See “Advocate” definition above) A Ram-Rod AKA “Shot Caller” is the designated leader of an advocacy group targeting a particular stock/company and/or stock play.
Reverse Split or R/S : This is when a company reduces the total number of its “outstanding” shares (see below). Example: if there were 100,000 shares “outstanding” and the company reduced those 100,000 shares to 1,000 shares that would be a 100 to 1 reverse split. The stock price ideally then would go up by 100 times to reflect the new share count differential. So again, “ideally” the value of your shares you still hold remains the same. Penny Stocks companies will apply reverse splits to the outstanding shares but not to the Authorized shares. That is a huge red flag.
Rolling: The practice of buying and selling a certain stock within a condensed time frame and/or on a regular or continuing basis based upon a consistent and ideally predictable up and down price swing or “rolling” and/or “channel” pattern with the share price. Traders that participate in “rolling” stocks are often called “active traders”, “Rollers”, “Channel Traders” or in the old days “day traders.” An example would be to buy a stock at 1 cent, then sell the stock at 2 cents, then wait for the stock to retreat back to or close enough to your original buy price of 1 cent – then re-loading (buying back in) and waiting again for the price to return back up to 2 cents so you can again sell your shares – “rolling” in and out of the stock and/or playing the “rolling” of the share price in the “channel”.
Securities and Exchange Commission (SEC): is a U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception. The SEC consists of five commissioners who serve staggered five-year terms.
The SEC has four major divisions.
- The Division of Corporation Finance ensures corporate disclosure of important information to the investing public.
- The Division of Trading and Markets ensures fairness, order and efficiency in market activities.
- The Division of Investment Management helps protect investors and encourages capital formation through oversight and regulation of the investment management industry.
- The Division of Enforcement investigates securities law violations and initiates civil and criminal actions.
Sector: A group of stocks that are in the same business or industry. An example would be the “Technology” sector including companies like Apple and Microsoft.
Share Structure: This is the number of outstanding shares and the number of authorized shares. When you hear people say this stock has a “great share structure” it typically means it won’t take much volume to move the stock – in either direction.
Short / Short Trading / Short Selling: The sale of a security that the seller has borrowed. A short seller profits if a security's price declines. In other words, the trader sells to open the position and expects to buy it back later at a lower price and will keep the difference as a gain.
Short-Squeeze: Is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing short sellers to close out their short positions and adding to the upward pressure on the stock. Short sellers are being squeezed out of their short positions, usually at a loss.
Slide: Selling a position in one company/stock in order to free up investment capital to purchase another (usually more desirable / profitable) stock – “Sliding” from one stock to another. You’re probably familiar with the old adage, “throwing good money after bad” – “sliding” from a bad stock into a better stock is basically, “throwing bad money after good”
Spam: In the field of “investing”, to “Spam” is to flood various Internet investment message forums, chat rooms, Social Media, etc. with an abundance of information about a particular company/stock attempting to direct interest and activity towards that stock and usually not specifically directed at any particular individual but rather the group as a whole. Basically the investment community’s version of “junk mail”
Spread AKA Gap: This is the difference between the bid and the ask prices of a stock, or the price someone is willing to buy the stock for and the price someone is willing to sell the stock for.
Spread AKA Gap: This is the gap between the Ask and the Bid. If stocks have too wide of a gap or a large spread between the “Ask” and the “Bid” they offer an immediate loss risk. If you buy on the ask and have to sell on the bid you could lose a lot of money fast. The minute you execute a trade on the ask your loss is “immediately” the difference between what you bought the stock for on the ask and what you sell it even just a few seconds later for on the bid. Tight spreads are always preferable if nothing more than to lessen that “immediate loss” while making the stock more attractive to average investors.
Volatility: This refers to the price movements of a stock or the stock market as a whole. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded, or have low trading volumes.
Volume: The number of shares of stock traded during a particular time period, normally measured in average daily trading volume.
Whale: A large investor/shareholder that has taken or has the ability to take a “large” position within a company using their capital and high share count to often have an impact/influence on the stock’s performance – in either direction.
READ PART ONE: INTRODUCTION - Getting Ready to Get Ready - Stop Banging Your Head Against the Wall - Learning and Trading as a T.E.A.M.; Together Each Achieves More - The Financial Benefits of Trading Penny Stocks - Going Where the Money is
READ PART TWO: Trading Like the Big Traders by Trading With the Big Traders – Trading and Conducting "Proper" Due Diligence as a Group – Selling Too Soon? - Minimizing Risk/Loss – Tools of the “Trade” – Paper Trading
READ PART THREE: The Decision Process – Good News Versus Bad News - Obtaining Accurate Data – Properly Identifying Buy and/or Sell Signals – Strategies for Identifying the Right Stock at the Right Time - Your "Top Five" Reasons Check-List - Trading Your Passion - The Importance of Diversification - Effectively Dealing with Delays - Activity Creates Productivity - Keeping it Simple - Trading by the Numbers
READ PART FOUR: “The Green Baron’s Wall Street Fighting Rules” – 20 Proven and Effective Strategies for Maximizing Profits and Minimizing Risk When Trading Penny Stocks – A Must Read for Every Investor!
READ PART SIX: CONCLUSION