Trading terms

Trading terms explained like you're 15 1. STOP LOSS An order to automatically sell a stock if it drops to a price you set. Example: Buy at $1,000, set stop loss at $950. If it hits $950, you're out, loss capped at 5%. Think of it as: A safety net that limits your losses. 2. SUPPORT & RESISTANCE Support is the price floor. Resistance is the price ceiling. Example: Price keeps hitting $200 and falling back, that's resistance. Price keeps hitting $150 and bouncing up, that's support. Think of it as: The walls price fights against. 3. VOLATILITY How much a price swings up and down. High volatility = big, unpredictable moves. Low volatility = small, stable moves. Example: A Meme stock jumping 20% in a day is highly volatile. A blue-chip utility stock barely moving is low volatility. Think of it as: How wild the ride is. More volatility = more risk = more potential reward. 4. LIQUIDITY How easily you can buy or sell something without moving its price. Example: Selling Apple stock takes seconds. → High liquidity. Selling a rare vintage watch might take months to find a buyer. → Low liquidity. Think of it as: How easy it is to get in and out. High liquidity = easier trading. Low liquidity = harder exits. 5. SHORT SELLING Betting a price will fall — by borrowing the asset, selling it now, and buying it back cheaper later to return it. Example: Borrow a stock trading at $1,000, sell it, buy it back at $700, pocket the $300 difference. PROFIT: $300 Think of it as: You're profiting from things going down, not up. HOW IT WORKS 1 BORROW Borrow the stock from a broker. 2 SELL NOW Sell it on the market at $1,000. 3 BUY BACK LATER Buy it back later at $700. 4 RETURN Return the stock to the broker. $1,000 (sell) – $700 (buy back) = $300 profit 6. LEVERAGE Using borrowed money to control a bigger position than your own cash allows. Profits multiply, but so do losses. It's a turbo booster, not a safety net. Example: You have $1,000 but borrow $9,000 more to trade with $10,000 total. YOUR MONEY $1,000 + BORROWED MONEY $9,000 = TOTAL TRADING POWER $10,000 HOW LEVERAGE AMPLIFIES RESULTS MARKET MOVES UP 10% MARKET MOVES DOWN 10% YOUR RETURN WITHOUT LEVERAGE +10% $100 PROFIT (ON $1,000) YOUR RETURN WITHOUT LEVERAGE -10% $100 LOSS (ON $1,000) YOUR RETURN WITH LEVERAGE +100% $1,000 PROFIT (ON $1,000) YOUR RETURN WITH LEVERAGE -100% $1,000 LOSS (ON $1,000) Think of it as: A turbo booster for your trades. More speed can take you further, but it can also crash you faster. Use it wisely: High reward potential comes with high risk. BULL MARKET vs BEAR MARKET Bull market = prices up, optimism high. Example: 2009-2020 was mostly a bull market. Early 2020 (COVID crash) was a bear market. VS Bear market = prices down, confidence low. Example: 2000-2002 was a bear market. Late 2002-2007 was a bull market. KEY CHARACTERISTICS Prices are rising Markets trend upward over time. Optimism is high Investors are confident and expect gains. Strong economy Growth, jobs, and earnings are generally strong. Higher risk appetite More willingness to invest in growth and riskier assets. Prices are falling Markets trend downward over time. Pessimism is high Investors are fearful and expect more losses. Weak economy Growth slows, unemployment rises, earnings decline. Lower risk appetite Investors move to safer assets like cash or bonds. HOW TO INVEST Stay invested and think long term Focus on growth and quality Dollar-cost average Diversify across strong sectors Protect capital first Focus on quality and value Consider defensive sectors (utilities, healthcare, staples) Keep cash for opportunities WHAT DRIVES IT Economic growth Rising corporate earnings Low unemployment Easy monetary policy (lower rates) Positive news and investor confidence Economic slowdown Falling corporate earnings Rising unemployment Tight monetary policy (higher rates) Negative news and fear