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Alternative Market Glossary

The Devil's Dictionary was compiled by American satirist Ambrose Bierce in the 19th century.

We present you with Norgate's 21st century version of the Devil's Dictionary for financial markets.

Analyst recommendations:
Strong Buy - Buy
Buy - Hold
Hold - Sell
Sell - It's too late.

Arbitrageurs: Large traders who feed on plankton.

Averaging down: Lowering the average price of entry by adding to a losing position. Averaging down should only be attempted when you are really angry at a market.

Back-testing: The art of adjusting trading system parameters so as to ensure maximum profit in the past and zero in the future.

Black-box system: A trading system that is available for sale, but is so good that its rules can't be disclosed. Black-box systems are generally only available for sale because the vendors have a sense of philanthropy.

BTFD: An exhortation used to encourage belief that a price downturn is only temporary due to FUD and that FOMO should supplant FOLE - but DYOR!

Blockchain/cryptocurrency: We were away the day they explained all this in school. It's to do with digital.

Cancel-if-close: A limit order that is cancelled if it appears likely to be hit. Some brokers do not accept cancel-if-close orders.

Capper: A capper is a market participant who offers to sell a significant line of stock at a price somewhat above the prevailing price. The purpose of capping is to discourage buyers in order to obtain the stock at a lower price. Therefore a capper is really a buyer in disguise. Unfortunately, it is difficult to distinguish cappers from genuine sellers. The following may be used as a rule of thumb; if the stock in question is a wonderful stock, then the seller must be a capper, as selling would otherwise be inexplicable.

Central Banks: Big market players, with no stop-losses. The Bank of Thailand once bet 40% of its foreign reserves in a day. It lost.

Charting: "join-the-dots" for adults.

Computerized system testing: Torturing the data until it confesses. See: back-testing.

Computerized trading: Trading that is handled automatically by a machine or robot according to an algorithm. "Robot" is frequently abbreviated to "bot". This is because "robot" has two syllables whereas "bot" only has one. Bots were invented to upset and bewilder retail-level screen-watchers by repeatedly flinging small, odd-numbered parcels of shares at them. See: They.

Contrary opinion: The idea that when the market dumps a security, you should look to buy it. The trick appears to be to make sure that the market has finished doing the dumping, and is not just waiting for you to buy so that it can really start dumping. See: Institutional investor.

Cycle analysis: A method of analysis that allows losing trades to be organised into regular patterns.

Day-trading: An activity that takes place in between meaningful periods of employment.

Dead cat bounce: A short-lived price recovery in a bear market. The idea is that if you throw a dead cat off a 50 story building, it might bounce when it hits the pavement, but its still a dead cat. We were unable to verify such a bounce.

Derivatives: Securities that are identified by acronyms. CHIPS, COBRAS, LEAPS, STEERS, TRIPS, ZEPOS - all of these things are derivatives, or were at one time. Unfortunately, little else is known about them. bubble: Tulip-mania for the X-generation.

Dow Jones Industrial Average: A widely reported stock index that was designed in the late 11th century and has stood the test of time.

Drawdown: A figure that immediately grows when a trading system transitions from paper trading to real trading.

Eurodollars: U.S. Dollars, of course.

False Break: An actual break of a trend-line that triggers a losing trade. False breaks confirm the usefulness of trend-line analysis. Only those breaks that are false cause problems, and those breaks don't count, because they are false.

Fast market: An official market condition, during which brokers may scalp you with impunity. At other times, they have to be careful about it. See: Slippage.

Figures: Market-sensitive measures of economic activity, such as "Non-Farm Payrolls" and "Durable Goods Orders", that are published every day in the U.S., much to the annoyance of players on the other side of the world, who can't get to sleep.

Float: See IPO

Forex market: A private casino run by large international banks, mainly so that they can have some fun.

Fundamental analysis: A method of analysis that provides compelling reasons for why a stock shouldn't fall in price when it does.

"Fundamentally sound": The condition in which an economy finds itself immediately after a stock market collapse.

Global Financial Crisis: Does greater return mean greater risk? Let's see about that. Oops. Bail-out please.

Gold carry trade: In the gold carry trade, institutions called gold banks borrow gold from the central bank at the gold lease rate, which may be 1%. They can then sell this gold and invest the proceeds in Treasury Bills, which may yield 3%. The central bank keeps the gold on its books, figuring that it can trust a gold bank. Of course, the gold bank is "short" the gold until it pays it back, and must take care that the gold price doesn't get away from it. This may, or may not, explain a lot about the gold market.

Greeks, the: Delta, Gamma, Rho, Theta and Vega. In option pricing models, the Greeks are partial derivatives that express local sensitivities. Just remember the names of about two or three, and then slip them into the conversation occasionally. No one will pick you up on it.

Hedge Fund: A fund that pools money from rich investors in order to play with it. Hedge Funds are private concerns, which means that they can play wherever they like. Mutual Funds, on the other hand, accept money from the public, and can only play where they are supervised.

Hedger: A guy you can't beat when you're playing him at futures. When a hedger loses a bet in the futures market, he makes up for it in the cash market. When a speculator loses a bet in the futures market, he really loses it.

High Frequency Trading: Formerly known as "front-running", under which name it was considered to be an ungentlemanly practice, or even the work of scoundrels.

Index Funds: Funds with no sense of fun.

In-house analyst: An employee of a broking house who dresses mutton up as lamb and advertises it on special.

Initial Public Offering: Stock that is offered to you because other people have turned it down. The guiding principle in relation to IPOs is as follows: "never participate in an IPO that you are able to participate in."

Institutional investor: Someone who dumps a stock big-time, a day or two after you've bought it, for no apparent reason.

Liquidity risk: You've got bills to pay but no-one shows up at your garage sale. See: Global Financial Crisis.

Live feed: A technology that enables the instant incorporation of bad ticks into a charting program.

Long Term Capital Management: A large hedge fund, whose capital only managed to last for a short time.

Lunch: When you ring your broker on a Friday afternoon to be told he's still at lunch, it means he's still drinking.

Market Depth (Order book): A trading screen that shows orders queued up on both sides of a market. Unfortunately, it doesn't show the orders belonging to people who don't like to queue.

Market report: A concise explanation of why a market traded up or down. 99% of market reports are drawn from other market reports. The remainder are whimsical.

Money-management: The art of hiding trading losses from a spouse.

Non-executive Director: A person whose job it is to fill a chair at a Board meeting, so that no chairs are empty.

Option Pricing Model: A mathematical model that can calculate the fair price of an option. If the market price differs from the fair price, you can bet accordingly. If the market price then moves further away from the fair price, you can say: "Hey, that's not fair!".

Over-bought: A market is considered to be in an over-bought condition when everyone else appears to have bought it, but you haven't.

Position trade: A short-term trade that is in deficit, and will be closed out as soon as it breaks even, however long that takes.

Price/Earnings Ratio: A ratio that indicates whether the price of a stock is attractive relative to previous earnings. A low number indicates a bargain. However a low number can also indicate a lemon. If a company starts going down the toilet, its stock price will appear to be very attractive in relation to previous earnings. The P/E Ratio is a versatile indicator.

Quantitative Easing: A vigorous exercise of monetary policy that sees central bankers sweep through a financial district in order to gather up any stray paper, thus restoring a sense of civic pride.

Random Walk Theory: The theory that market prices follow a random walk, much like that of a drunken sailor. The weakness of the theory lies in the fact that little scientific research has been done concerning drunken sailors.

Rumours: The time-honoured basis for the making of trading decisions. Rumours about stocks tend to get thicker as they are spread.

Seasonal analysis: The assumption that other people who trade Heating Oil Futures know nothing about winter.

Short-seller: A disreputable market participant who presumes to question the value of stocks that honest citizens have bought on the basis of astute tips.

Slippage: The difference between the price at which you expect a market order to be filled and the price at which it is actually filled. See: Orange Juice Futures.

Spoofing: The practice of entering orders with no intention other than to cancel them immediately. Spoofing is really just one computer playing a practical joke on another.

Stochastics: A technical indicator so-named because the name sounds technical.

Stock forum: A place on the internet where investors meet to cheer on stocks that they have already bought. In the event that a stock becomes impervious to praise, it is generally agreed that the price is being manipulated by scoundrels. See: Capper.

Stop-loss: The trader's equivalent of a condom. It's something you know you should have used after it's too late.

Support: A line drawn on a chart, the breaking of which is deemed to be extremely significant, even if the volume was generated by a drunken sailor and amplified by a wayward bot. See: Trend-line analysis, Random Walk Theory.

Support/Resistance: Supposed allies that flee at the first sign of trouble.

Tankan Index: A closely watched figure, that measures the extent to which the Japanese economy is tanking.

Technical analysis: Subjective analysis of the markets dressed up in a lab coat.

Technical indicator: A transformation of a price series that contains less information than the series itself. Different technical indicators throw away information in different ways.

Tech wreck: The end of the bubble. Surprisingly enough, many observers predicted the wreck in advance. As time went on, more and more of these observers came forward.

Text-mining algorithm: An algorithm that shorts a stock whenever it finds any of these phrases on a Stock forum -
The fundamentals haven't changed.
Time to back up the truck.
Could be finding support.
For every seller there's a buyer.

They: The members of a powerful international conspiracy who target retail-level traders in order to make their lives miserable. For instance, "they ran the market to my stop and then turned it around".

Trading floor: The traditional venue for the negotiation of securities, now made redundant by screen trading. Trading floors that remain open serve a valuable purpose as colourful backdrops to market reports on television.

Trading genius: A reckless spirit in a bull market.

Trend-line analysis: A form of analysis that works best on a computer screen, where lines can be erased and re-drawn without trace.

Zero-sum game: A game in which the players slug it out and the broker wins.

Copyright © 2002 NorgateData Pty Ltd, with revisions.