Stock Market Terminology Explained For Beginners

[00:00:00] Speaker 1: In today's video, you're in for a treat. We're going to cover 10 stock market terms that every beginner in the stock market should know. So let's just jump right into this. Starting off with number one is a bull market. When the stock market is going up, people call it a bull market. That's because a bull thrust its horns in an upward motion. In a bull market, there's going to be ups and downs along the way, but the general direction of a bull market is up. A bull market can last for a few months or for many years. The average bull market lasts for three to four years. During a bull market, most investors are making money. That's because on average, stocks gain 110% during a bull market. A bull market is good times, and that's why people love it. Everyday investors enjoy watching their account values go up, and it's a great time all around. A bull market can be triggered by various factors, such as a booming economy or quantitative easing. Number two is quantitative easing, also abbreviated as QE. This is when the Federal Reserve is printing money, which causes inflation. When you have high inflation, most things will go up in price, including stocks in the stock markets. So stock prices tend to go up during quantitative easing. That's just because there's simply more money in the economy. All that newly printed money, it needs to go somewhere. And a lot of that money finds its way into the stock market, driving up the price of stocks. Number three is a bear market. When the stock market is going down, people call it a bear markets. That's because a bear swipes its claws in a downward motion. People use the term bear market when the stock market has fallen at least 20% from its peak. The average bear market lasts for nine months. On average, you can expect the stock market to fall by 36%. Therefore, you can understand why most investors do not enjoy a bear market. Number four, shorting. When the stock market is going down, not everyone is going to be sad though, because in the stock market, you can make money by betting that stocks will fall in price. In the stock market, most investors make money by buying a stock at a low price and then selling it at a higher price. You buy low and you sell high. However, you can switch the order around. You can sell high and then buy low. You're doing the same thing just in the reverse order. Therefore, when you're shorting a stock, you're hoping that the stock goes down in price. If you want to make money shorting a stock, then you should be searching for companies that have a very bad future ahead of them. This could be bad management, a dying industry, a product or service that was just a fad, too much debt, competitors that are out competing them, etc. When you're looking to short a stock, you want to make sure that they're as bad as they come. The more terrible, the better. Number five, quantitative tightening. We spoke about how quantitative easing is money printing. Quantitative tightening is the very opposite of that. When the Federal Reserve prints money, that's quantitative easing. When the Federal Reserve takes that money back, that's quantitative tightening. Quantitative tightening tends to be harmful to the stock markets. If the Federal Reserve is pulling money out of the economy, there's going to be less money to go around. If there's less money to go around, there's going to be less money in the stock markets. This means that the price of stocks will generally go down. So it's pretty straightforward. Quantitative easing pushes the stock market up. Quantitative tightening pushes the stock market down. At number six, we have dead cat bounce. When the stock market is going down, it's not going to go straight down. It's going to go up and down, up and down, but the general direction is downward. In this downward trend, you may see stocks bounce in price only to fall down even further. A lot of amateur investors lose money in a dead cat bounce because they think that a stock has reached a bottom at this point. They see the stock price going back up and they FOMO. They have the fear of missing out. However, that was not the bottom and this bounce will be short-lived. This bounce in price, it's something that always happens because nothing will ever go straight down. It's like a law of physics in the stock markets. Even stocks that announce that they're going bankrupt will have a dead cat bounce. They call it a dead cat bounce because when a cat jumps out of a tall structure, let's just say a tree, the cat hits the pavement, it dies on impact. It still bounces up because of physics, Newton's third law of motion. But the dead cat that bounced up, it's coming right back down. When a stock is going down, it may bounce back up. Investors may think that the stock is coming back to life and it's going to shoot back up. But no, it's going right back down. That's a dead cat bounce. Number seven, don't fight the Fed. The Federal Reserve's monetary policy is a big factor on whether the stock market goes up or down. If the Fed prints money, it pushes the stock market up. If the Fed takes that money back, it pushes the stock market down. Of course, it depends on how much money they're printing or taking back. The bigger the quantity, the bigger the impact. The Federal Reserve's decisions have a big influence on the direction of the stock market. The Federal Reserve can have more of an impact on the stock market than the health of the economy. This was clearly evidence in 2020. During 2020, the economy locked down. Unemployment skyrocketed and GDP fell. However, the Federal Reserve printed an excessive amount of money and has sent the stock market up 18%. So that's how powerful the Federal Reserve's influence is on the stock market. Therefore, you don't fight the Fed. Number eight, dollar cost averaging. You'll see investors abbreviating this as DCA. When you buy a stock, you never want to go all in. So let's just say that a stock is at $10 and you think it's a good price. Don't act like a crazy person and use all of your money to buy it at 10, even if you think it's a good price. So sure, you can buy some at $10, but save some money in case it drops to $9 and save some money in case it drops to $8. By doing so, you'll be averaging down on your purchase price. In this example, let's just say that you thought it was a good price at $10. And let's say that nothing has fundamentally changed with the stock and on no news, the stock falls to $9. So this would be a great opportunity to DCA, dollar cost average down and buy more shares at a cheaper price. A benefit of dollar cost averaging is if you buy some at 10 and then it goes up, then you'll make money. If the stock goes down, then you can buy more shares at a cheaper price. And this will allow you to make even more money because you got in at a better price. Number nine, tax loss harvesting. This is when you're selling, you're losing stocks, taking the loss so that you paid less taxes. So let's say that you bought and sold a bunch of stocks during the year and you're up $5,000. In that case, congratulations on your success. However, you're going to face taxes. However, if you're holding on to some stocks that went down in value, you can sell them at a loss. So your total gains are reduced. By tax loss harvesting, you end up paying less in taxes. Number 10, support and resistance. These are very important terms that you're going to hear often. A lot of people in the stock market like to look at the stock charts and identify patterns. If there's a certain price that a stock has a hard time falling below, that's called the support. If there's a certain price that a stock has a hard time going above, that's called the resistance. In a lot of cases, when the support is broken, it will turn into the new resistance. And a lot of times when the resistance is broken, it will turn into the new support. If you'd like to sign up for a free stock account and receive free stocks as a signup bonus, then please check out our link down below. So I hope you enjoyed this video. We have a lot of educational investing videos for stock market beginners, so please be sure to subscribe. Please check out our Patreon to see what we're up to in the stock market as well as cryptos. I thank you for the support and I wish you a very nice day.