The Diary of a Mad Hedge Fund Trader is read in 140 counties. About a quarter of our readers run the letter through Google Translate before reading.
That has created a problem.
Stock trading is probably the most slang- and acronym-ridden profession on the planet, second only to the United States Marine Corps. (Semper Fi).
And guess what? Google Translate has never worked on the floor of a major stock exchange.
That means its translations often come out as gobbledygook or complete nonsense. So, the customers email me asking what the heck I am talking about in my daily newsletters, eating up a portion of my day.
I am therefore enclosing “The Mad Hedge Fund Trader’s Dictionary of Traders’ Slang” below.
To keep this a PG-rated publication, I have left some terms undefined, but you can make a good guess as to their true meaning. It turns out that most traders never went to finishing school, and many are not even gentlemen.
If any of you out there have additional terms you would like to add, please email them to me at email@example.com and put “DICTIONARY” in the subject line. I’ll use them in a future update. No doubt there are hundreds, if not thousands more.
Read, enjoy, and laugh.
Accelerated Time Decay: The increasing decline of the value of a stock option as it approaches its expiration date
Black Swan: A term made popular by Nassim Taleb that refers to a sudden, unexpected low probability event that has a disproportionately high impact on your portfolio
Boredom Trading: Reaching for marginally profitable trades during quiet markets because there is nothing else to do. Usually a bad idea.
Bottoming Process: When a market makes several failed attempts to make new lows, creating a medium-term bottom
Blow off Top: The top of a price spike upward usually associated with a volume spike as well
Bubble: Any assets class rising in price far above and beyond any rational valuation measures
Buy the Dip: BTD/BTFD/BTMFD – Buy the recent decline in prices.
Don’t Catch a Falling Knife: Don’t try and buy a stock in free fall
Don’t be a Hero: Keep positions small during volatile markets
“Be greedy when others are fearful, and fearful when others are greedy” is a classic Benjamin Graham quote which means “buy bottoms and sell top.”
Pigs Get Slaughtered: Buy a position that is too big for you and it will turn around and bite you
Bull Trap: A strong market move up that sucks in buyers and then dies as soon as the last one is in
Bear Trap: A strong market move down that sucks in lots of short sellers and turns around as soon as the last one sells
Buy When There is Blood in the Streets: Buy stocks at market bottoms
Capitulation Bottom: The last bull throws in the towel, gives up, and dumps all his stock, making the final bottom of a major move
Capitulation Top: The last bear throws in the towel, gives up, and jumps into the market late, making the final top of a major move
Choppy: Sudden and erratic price moves within a narrow range
Contrarian: One who trades against the general market consensus
Dead Cat Bounce: A brief rally in a stock that has just seen a sharp drop
Dialing for Dollars: Calling brokerage house customers to sell stocks for commissions
Don’t fight the Fed: Don’t expect markets to fall when interest rates are falling
Don’t Fight the Tape: Don’t trade against the market trend. Come for the paper ticker tapes that once transmitted stock prices by telegraph.
Dry Powder: Keeping cash in reserve for better trading opportunities
Dumb Money: What inexperienced retail investors are doing. Thanks to the Internet, they’re not as dumb as they used to be.
Get Filled: Your order is executed
The Greeks: Greek alphabet letters that refer to option valuation components, such as delta, theta, gamma, and vega
High-Frequency Traders (HFT): Firms using sophisticated computer programs to take positions for infinitesimally short periods of time taking microscopic profits in enormous volumes. They account for roughly 70% of the daily trading volume.
Holding the Bag: You are left holding stock in a falling market or short in a rising one
Honor Your Stops: Don’t make excuses for ignoring stop losses. This is where the really big hits come from.
Killing It: Making a series of successful trades
Locked Market: When the bid and offer are identical
Market Makers: Firms that provide market liquidity with two-sided bids and offers, now largely replaced by computers
Melt Up: A straight line move upward in shares with no pullbacks whatsoever, usually triggered by a news or earnings release
Momo: Momentum-based trading, buying rising markets and selling falling ones
Never Short a Dull Market: Quiet markets can often rally sharply because the selling is done
Noise: Random media reporting that has no true impact on the direction of stock prices
Pain Trade: The market is moving against the positions of the trading community
Permabear: A persona who is always bearish, usually driven by some bizarre, Armageddon-type ideology, or suffering from paranoia
Permabull: A person who is always bullish, despite deteriorating fundamental conditions
Picking Up Pennies in Front of a Steamroller: Sell short naked put options
Pump and Dump: Unethical brokers’ run of the prices of small illiquid stocks and then sell them to clients at market tops. The shares usually collapse afterward. See the movie The Wolf of Wall Street.
Resistance Level: A price on a stock chart offering technical resistance to further price appreciation
Sell in May and Go Away: The preference for selling shares ahead of a period of seasonal weakness
Sell the Rip: STR/STFR/STMFR
Short Squeeze: A sharp run-up in share prices that forces short seller to buy to avoid accelerating losses
Smart Money: What the best informed, most experienced investors are doing. Not as smart as they used to be.
Snakebit: A surprise news development that comes out of the blue and costs you money
Spoofing: Entering orders without any intention of executing them and canceling them before they can be executed. It is a common tactic of high-frequency traders.
Spoos: S&P 500 futures contracts
Squawk Box: A small loudspeaker on a desktop in a trading room constantly broadcasting news reports and large trades
Support Level: A price on a stock chart offering significant technical support
Stop Loss: A price at which when reached, a liquidation of the position is automatically triggered
The Trend is Your Friend: Trade with the market direction, not against it
Theta Burn: Time decay on options
Ticker Tape: A white 3/4-inch-wide paper tape used to transmit stock prices by telegraph at the rate of 500 characters a minute that was used until the 1950s to transmit stock prices. See ticker tape parade and delayed tape.
Topping Process: Occurs when a market makes several failed attempts to make a new high, creating a medium-term top
Turnaround Tuesday: The tendency of markets to reverse direction after the markets digest weekend news on a Monday
Yellen Put: An assumption that the Fed will come to the rescue with a monetary easing on any substantial market sell-off