Trading Strategies & Orders Vocabulary

an order to sell a security automatically when it reaches a specified price, limiting downside loss

“He set a stop-loss order 8% below his entry price to protect against a major decline.”

an order to buy or sell a security only at a specified price or better

“She placed a limit order at $95, refusing to pay more than that for the stock.”

investing a fixed dollar amount at regular intervals regardless of price, reducing the impact of volatility

“By dollar-cost averaging into the index fund monthly, she avoided the trap of trying to time the market.”

adjusting a portfolio back to its target asset allocation by buying and selling assets

“After the equity rally, he rebalanced his portfolio by trimming stocks and adding bonds.”

excess return on an investment relative to the return of a benchmark index

“The fund manager generated 4% alpha by outperforming the S&P 500.”

a measure of how much a security moves relative to the broader market; a beta above 1 means more volatile

“The utility stock's beta of 0.4 meant it moved much less than the market.”

price-to-earnings ratio — the price of a stock divided by its annual earnings per share

“At a P/E ratio of 40, the stock was priced for aggressive future growth.”

a rapid price increase that forces short sellers to buy back shares at a loss, accelerating the rise

“The GameStop short squeeze of 2021 became one of the most dramatic in market history.”

an instruction to buy or sell a security immediately at the best available current price

“She placed a market order to sell all her shares when the bad news broke.”

spreading investments across different assets, sectors, or geographies to reduce risk

“Diversification across 12 sectors meant one bad industry could not sink his portfolio.”

the peak-to-trough decline in a portfolio's value during a specific period

“The fund's maximum drawdown of 35% during the crash tested investors' conviction.”

the expected profit of a trade compared to its potential loss, used to evaluate trade quality

“A risk-reward ratio of 1:3 means risking $100 to potentially make $300.”