Stock Market Jargon

This sounds really complicated, doesn't it? Two intimidating words, technical and analysis. It's just got to mean something pretty hard to understand.

Actually, it's a lot simpler than it looks. Technical analysis is, in the trading world, the opposite of fundamental analysis

"Investors" (who buy stocks or other instruments for the long term) need fundamental analysis. They need to know that the instrument is going to be solid for the long run.

"Traders," on the other hand, buy instruments for the short term. They might hold an instrument for a few minutes, a few hours or a few days. (Sometimes they might hold it for just a few seconds!)

Jargon example: "I personally use technicals and rarely consider the fundamentals before opening a position."

Technical analysis is the catch-all term for the tools that help you predict what a stock will do in the very, very near future. That's all. Amazing how simple, isn't it?

This is a particularly cool piece of jargon because it has all kinds of other jargon that goes with it. So on a candlestick chart, you might have "doji" or "butterfly doji," "shaven heads" and "hammers," and even "gravestones." Yikes.

A candlestick chart is very simply another way of representing a bar chart. You know, those boring old charts you can create for yourself with an Excel spreadsheet.

And all these neat-sounding pieces of jargon are different names for patterns that show up again and again on these charts.

Candlestick charts aren't the only kind of stock chart, but they're very popular. They actually make life a lot simpler for traders, because they make trading patterns easier to see. The patterns with all the cool names tell the trader different things about what the stock will probably do next.

Jargon example: "The morning star showed me the bulls were getting the upper hand on the bears after a brief move to the downside."

Just remember, like all stock charts, candlestick charts are smart guesses about the future, they're not guarantees.

(If perfect tools existed to predict the future, everyone would use them and no one would lose money, right?)

Momentum trading or scalping trading is the rollercoaster practice of buying and selling financial instruments within a time frame of a few minutes, or even seconds.

There are other names for traders based on how long they hold the financial instruments they're trading.

Traders who hold instruments for a few weeks (sometimes into months) are called position traders. Folks who hold for a few days are called swing traders, and folks who buy and sell in the same day are the day traders who attracted so much attention in the late 1990s by, well, losing a lot of money because they didn't know what they were doing.

Each time frame has its own skill set and its own rules. None is "right" or "wrong." A good training education will give you the information you need to decide what time frame is best for your personality and your goals.

Margin trading is trading with someone else's money, specifically a broker's. "Buying on margin" is especially popular with day traders, and obviously being able to buy instruments with as much as 4x as much money as you really have can allow you to make four times the profit.

However, if your trade isn't wise, losses can steamroll just as quickly as wins can.

If an investor doesn't have a minimum amount of money or securities in her account (for example, if one of her positions is losing money faster than she expected), the broker making the loan can make a margin call and require the investor to put more cash into the account, or to sell off some assets to fund the account at minimum levels again.

Paper trading is the fine art of learning to trade by using "play money." You do everything just like you were trading for real, but instead of using real money that pays college tuitions and mortgage payments, you just pretend.

As you might guess, this is a very smart way to start out. But don't assume that if you're a genius paper trader, that you'll be just as smart when you're using the real green stuff. Paper trading can teach you the techniques and the skills, but it can't teach you to control your emotions--which is the hardest part.

If you want to learn to trade, humility just might be the most profitable trait you could develop in yourself. Everyone thinks she's immune to greed and fear (the two traditional drivers of the markets), but nearly all traders get bitten by these twin monsters when they're starting out.

If you're thinking, "that won't happen to me," you're a prime candidate for it happening to you.

You shouldn't let trading intimidate you, but you should also approach it with a great deal of respect.

True mastery of trading skills (including those all-important emotional skills) doesn't happen overnight. Trade wisely, trade carefully, and give yourself enough time to really master the game before you jump in too deep.