Trading and investing glossary

The terms that turn up in market analysis, written out plainly. Each entry says what it means, why it matters, and how to read it when an analyst uses it.

12 terms

• 200-day moving average#TradingThe 200-day moving average is the average closing price of the last 200 trading days, redrawn each day. It is the most widely watched long-term trend line in markets.
• Bear market#MacroA bear market is a decline of 20% or more from a recent high, sustained over time. A drop of 10% to 20% is called a correction rather than a bear market.
• Bull market#MacroA bull market is a sustained period of rising prices, conventionally defined as a gain of 20% or more from a recent low. The term describes what has already happened, not what will happen next.
• Dollar-cost averaging#FinanceDollar-cost averaging means investing a fixed amount at regular intervals regardless of price, so you buy more units when prices are low and fewer when they are high.
• Drawdown#FinanceDrawdown is the fall from a portfolio's peak value to its lowest point before a new peak is reached, expressed as a percentage. Maximum drawdown is the worst such fall over a period.
• Golden cross#TradingA golden cross occurs when the 50-day moving average crosses above the 200-day moving average. The opposite crossing is called a death cross.
• MACD#TradingMACD tracks the gap between two exponential moving averages of price, usually the 12-period and the 26-period, plus a 9-period signal line. It measures whether momentum is building or fading.
• P/E ratio#FinanceThe P/E ratio is the share price divided by earnings per share. It tells you how many years of current earnings you are paying for one share, at today's earnings level.
• RSI (Relative Strength Index)#TradingRSI is a momentum indicator scored from 0 to 100 that compares the size of recent gains to recent losses. Readings above 70 are conventionally called overbought and below 30 oversold.
• Short squeeze#TradingA short squeeze is a sharp price spike caused by short sellers being forced to buy back the shares they borrowed. Their buying pushes the price higher, which forces more shorts to close, which pushes it higher still.
• Stop-loss#TradingA stop-loss is a pre-set price at which a position is closed to cap the loss. It converts an open-ended risk into a defined one that you choose before entering.
• Support and resistance#TradingSupport is a price level where buying has repeatedly stopped a fall; resistance is where selling has repeatedly stopped a rise. They are zones drawn from past reactions, not fixed prices.