James is a new trader and has a new-found interest in reading the latest trends in the market. He’s so excited to flip the day’s newspaper and go straight to the finance section to see the latest market news. But upon reading the latest article, he starts scratching his head the moment he sees unfamiliar terms such as long, short, bullish and bearish markets.
There might be some valuable information on the latest news that can earn him a profit. But since he can’t make sense of the news because it was peppered with a number of unknown terms, he might have lost his chance of earning good profit.
You see, in trading, you have to start with the basics – to the very bottom of things. In trading, before you get to use the latest trading tools or try out what everyone’s doing, you have to start with the very basic thing – and that is learning trading terminologies.
It might be the last thing that may catch your interest, but learning basic knowledge can lead you to better trading decisions in the future.
Here are the most used trading terminologies you need to learn before making your first ever trade.
“Investors are going long with Prime Oil’s stocks”.
James has no idea what this headline means. What does long mean?
Basically, long means “buy”. If investors go long with a particular stock, it means they are willing to buy it because they expect that its price will rise. And selling it would mean good profit.
BULL OR BULLISH
“With a new CEO, investors are bullish on HailCab’s stocks”.
Bullish is a belief that the price of a certain stock will rise. Investors might say that they are bullish, say, on HailCabs stocks, but it doesn’t mean that they’re actually buying it.
There is just an expectation that there will be a spike on the stock’s market price.
Meanwhile, you’ll see the term bull market when there is a sustained increase in price. This means an increase in price that can last for months or years.
BEAR OR BEARISH
“Bearish atmosphere following AceCar’s massive recalls”.
If the terms long and bullish pertain to something positive, then bear and bearish point to the opposite side.
Bear and bearish mean there’s a pessimistic view on the price of a certain asset.
Bear or bearish could mean you’ll probably lose money on your venture, and you need to act fast to avoid losses. You may sell your shares, or you can go the short route as a response to bearish news.
You’ll also see the term bearish market when there is a sustained decrease in an asset’s price over months or years.
SHORT OR SHORTING
There’s a way to buy an asset at a lower price: sell it first, and then buy it at a lower price. But it’s not that simple. Shorting is an advanced strategy used by seasoned traders to profit.
So how do they profit from this strategy?
Advanced traders will closely watch the market and spot a downward trend in the price of an asset. They will then sell the asset and wait for this downward trend to occur. When that happens, they will be able to buy the same asset at a lower price.
But a word of warning: this strategy is only advisable for seasoned traders with a wide knowledge of how the market moves.
There’s a need to start with the basics first. Take your time acquiring knowledge. Rushing is the surest way to fail in trading.
Also read: Basic Forex Terms You Should Know