Chapter 1
Start here: what is trading?
You do not need to know anything about money, economics or markets to read this. We start from zero and build up one small idea at a time.
A company, cut into small pieces
Imagine a lemonade business worth $1,000. The owner wants money to grow, so she cuts the business into 100 equal pieces and sells some of them for $10 each. Each piece is called a share (or a stock). If you own one share, you own one hundredth of the business.
Big companies do exactly this, just with millions of shares. When you buy a share of a company, you become a tiny part owner of it.
Why the price moves
A share has no fixed price. Its price is simply the last price someone was willing to pay for it. If more people want to buy than sell, buyers have to offer more and the price goes up. If more people want to sell, sellers have to accept less and the price goes down.
People want a share more when they believe the company will earn more money in the future. Good news (rising sales, a new product) tends to pull the price up. Bad news (losses, scandals, a weak economy) tends to push it down.
A share price is not a judgement of how good a company is today. It is the crowd's best guess of what the company will be worth tomorrow.
Investing vs trading
| Investing | Trading | |
|---|---|---|
| Holding time | Years | Minutes to weeks |
| Main question | Is this a good business to own? | Where is the price likely to go next? |
| Main tools | Company numbers (Part 1) | Charts and indicators (Parts 2 and 3) |
Good traders use both. They want to trade solid companies, and they time their entries and exits with charts. That is why this guide covers both.
How this guide is laid out
- Part 1, The basics: what a company is, its ticker, how it makes money, earnings reports, dividends and past performance.
- Part 2, Reading charts: candlesticks, timeframes, volume, volatility, trend.
- Part 3, Indicators: moving averages, MACD and RSI, with live charts.
- Part 4, Trading wisely: risk, position size and habits that keep you in the game.
Throughout the guide we follow one made-up company, Sunny Lemonade Co., so the numbers stay simple and consistent. All charts use generated sample data so you can see the ideas clearly, not a real stock.
Check yourself: if many more people want to sell a stock than buy it, what happens to the price?
Chapter 2
How a trade actually happens
When you press "buy" in an app, several players work together in a fraction of a second.
Bid, ask and spread
At any moment there are two prices on screen:
- Bid: the highest price a buyer is offering right now.
- Ask: the lowest price a seller will accept right now.
The small gap between them is the spread. If the bid is $11.98 and the ask is $12.00, the spread is 2 cents. Busy, popular stocks have tiny spreads. Quiet stocks can have wide ones, which quietly costs you money every time you trade.
The two orders you must know
When the market is open
The main US exchanges trade from 9:30 am to 4:00 pm Eastern time, Monday to Friday. Some brokers also allow trading before and after these hours, but there are fewer people trading then, so prices jump more and spreads are wider.
Check yourself: you want to buy, but only if the price is $11.50 or lower. Which order do you use?
Chapter 3
The ticker and the company profile
Before looking at any chart, know what you are actually buying.
What is a ticker symbol?
Every listed company has a short code called a ticker. It is how you find the company in any app. Some real examples: AAPL is Apple, MSFT is Microsoft, KO is Coca-Cola. Our made-up company, Sunny Lemonade Co., trades as LEMN.
A ticker can look like the company name or not at all, so always check the full company name before you buy.
The profile: answer these five questions first
Sector and industry
Companies are grouped by what they do. The most common system splits the market into 11 big sectors, such as Technology, Health Care, Financials, Energy and Consumer Staples. Each sector is split further into industries.
This matters because companies in the same industry often move together. If the whole drinks industry has a bad quarter, LEMN will probably fall too, even if it did nothing wrong. Always compare a company to its neighbours, not to everything.
Market capitalisation (market cap)
Market cap is what the whole company is worth at today's price.
Market cap = share price x number of sharesLEMN: $12 x 100 million shares = $1.2 billion.
| Size | Rough market cap | What to expect |
|---|---|---|
| Large cap | Over $10 billion | Steadier, well known, moves slower |
| Mid cap | $2 to 10 billion | In between |
| Small cap | Under $2 billion | Bigger swings, more risk, more room to grow |
The share price alone tells you nothing about size. A $5 stock can be a bigger company than a $500 stock if it has many more shares.
Check yourself: Company A trades at $200 with 10 million shares. Company B trades at $20 with 500 million shares. Which is bigger?
Chapter 4
How a company makes money
The profit and loss statement (the P&L, also called the income statement) is just a story of money coming in and going out.
Follow one year of Sunny Lemonade. It sells $500 million of lemonade. Then costs are taken away, step by step, until we reach what is left for the owners.
The lines, in plain words
| Line | Meaning | LEMN |
|---|---|---|
| Revenue (sales) | All money from selling lemonade. Also called the "top line". | $500M |
| Cost of goods sold | Lemons, sugar, bottles, factory workers. | -$300M |
| Gross profit | What is left after making the product. | $200M |
| Operating expenses | Offices, marketing, salaries, research. | -$120M |
| Operating income | Profit from running the business itself. | $80M |
| Interest and tax | Paid to lenders and the government. | -$20M |
| Net income | Final profit for the owners. The "bottom line". | $60M |
Margins: how much of each dollar is kept
Big numbers are hard to compare, so we turn them into percentages of revenue.
LEMN keeps 12 cents of every dollar it sells. A rising margin over time is a great sign. A shrinking margin means costs are growing faster than sales.
EPS: profit per share
Since you own shares, the number that matters to you is profit per share.
EPS (earnings per share) = net income / number of sharesLEMN: $60M / 100M shares = $0.60 per share. EPS is the single number most watched on earnings day (Chapter 6).
Revenue growing year after year, margins steady or rising, and EPS growing. Growth that comes only from cutting costs, with flat sales, usually does not last.
Check yourself: revenue grew 10% but net income fell. What could explain it?
Chapter 5
Balance sheet and cash: is it healthy?
Profit tells you if a company is doing well this year. The balance sheet and cash flow tell you if it can survive a bad one.
The balance sheet: what it owns and what it owes
- Assets: cash, factories, trucks, stock of lemons.
- Liabilities: loans and bills it must pay.
- Equity: what would be left for shareholders if everything was sold and all debts paid.
Debt: helpful, until it is not
Debt to equity = total debt / equityLEMN has $200M of debt and $600M of equity, so debt to equity is 0.33. Under 1 is usually comfortable. Companies with heavy debt can be crushed when sales slow down, because interest still has to be paid every month.
Cash flow: the truth test
Profit on paper and actual cash in the bank are not the same thing. A company can report a profit while customers have not paid yet. The cash flow statement shows real money moving.
Free cash flow = cash from operations - spending on equipmentLEMN brought in $90M of cash from operations and spent $30M on new machines, leaving $60M of free cash flow. This is the money it can use to pay dividends, pay down debt or buy back shares.
Profits rising every quarter while free cash flow keeps falling. The numbers on paper may not be turning into real money.
Chapter 6
Quarterly and yearly results
Four times a year, a listed company must tell the world how it did. These days can move a stock more than any other.
The reporting calendar
reported around Apr / May
reported around Jul / Aug
reported around Oct / Nov
reported with the year
early next year
What happens on earnings day
Beat, miss and guidance
The market does not react to whether results are good or bad. It reacts to whether they are better or worse than expected.
- Beat: real EPS higher than the estimate (the "consensus"). Usually good for the price.
- Miss: lower than the estimate. Usually bad.
- Guidance: what the company says it expects next quarter or next year. Weak guidance can sink a stock even after a beat.
Analysts expect LEMN to earn $0.15 per share this quarter. It reports $0.17, a beat. But it also says next quarter will be slower because of a lemon shortage. The stock falls 6% the next morning. Guidance mattered more than the beat.
Prices can jump (gap) overnight after a report, straight past any stop loss you set. If you do not want that risk, close or reduce your position before the earnings date. Every broker shows the next earnings date on the stock page.
Check yourself: a company grew profit 30% but the stock fell. How can that be?
Chapter 7
Dividends: getting paid to own
Some companies share part of their profit with shareholders as cash. That payment is a dividend.
LEMN pays $0.06 per share every quarter, which is $0.24 a year. If you own 1,000 shares you receive $240 a year, just for holding them.
The four dates
the amount and dates
to get paid
its list of owners
in your account
On the ex-dividend date the share price usually drops by roughly the dividend amount, because that cash is leaving the company. So buying just before the ex-date to "grab" a dividend is not free money.
Two numbers to check
Dividend yield = yearly dividend / share priceLEMN: $0.24 / $12 = 2%. Like interest on a savings account, but not guaranteed.
Payout ratio = dividends paid / net incomeLEMN: $0.24 / $0.60 EPS = 40%. It pays out 40% of profit and keeps 60% to grow.
A very high yield (say 10% or more) often means the price has crashed because investors fear the dividend will be cut. A payout ratio over 100% means the company pays more than it earns, which cannot last.
Chapter 8
Cheap or expensive? Key ratios
A $12 stock is not cheap and a $500 stock is not expensive. You only know by comparing price to what the company earns.
The P/E ratio
P/E = share price / EPSLEMN: $12 / $0.60 = 20. You pay $20 for every $1 of yearly profit. Put another way, at today's profit it would take about 20 years of earnings to "earn back" the price.
- A high P/E means investors expect strong growth. It also means more disappointment risk.
- A low P/E can mean a bargain, or a business people expect to shrink.
- Only compare P/E between companies in the same industry. A tech company and a utility are not comparable.
The company scorecard
Most stock pages show these numbers. Here is LEMN, and what each tells you.
Growing revenue, positive and steady profit, manageable debt, positive free cash flow, and a P/E that is not far above its industry. A company that passes all five is worth looking at on a chart.
Chapter 9
Past performance and the industry
How did the stock do, and was that good compared with everything else?
Questions to ask about any stock's past
- Return: how much did the price change over 1, 3 and 5 years?
- Total return: price change plus dividends received. For dividend stocks this can be much higher.
- Against the market: did it beat the index? If not, a simple index fund would have done better.
- Against its industry: was the company strong, or was the whole industry just rising?
- The worst fall (drawdown): how far did it drop from a high? Could you have sat through that?
The 52-week range
The lowest and highest price of the last year. A price near the top of the range shows strength; near the bottom shows weakness. Many traders watch the 52-week high closely, because breaking above it often brings in new buyers.
Beta: how jumpy is it?
Beta compares a stock's swings to the whole market. A beta of 1 moves about as much as the market. 1.5 moves about 50% more (up and down). 0.8 moves less. Beginners usually feel more comfortable with lower beta stocks.
Past performance shows how a stock behaved. It does not promise how it will behave. Use it to understand character, not to predict.
Chapter 10
Candlesticks: open, high, low, close
The Japanese candlestick is the most popular way to draw price. One candle squeezes a whole period of trading into four numbers.
The four numbers (OHLC)
- Open: the first price of the period.
- High: the highest price reached.
- Low: the lowest price reached.
- Close: the last price of the period.
How one candle is recorded
During a 15-minute period, the price moves up and down hundreds of times. The chart only keeps four of those prices. Here is a real-looking path and the candle it becomes.
Reading what a candle says
| Shape | What happened | What it can suggest |
|---|---|---|
| Long green body | Buyers pushed hard all period | Strong buying |
| Long red body | Sellers pushed hard all period | Strong selling |
| Long lower wick | Price fell, then buyers pushed it back up | Buyers are defending that low |
| Long upper wick | Price rose, then sellers pushed it back down | Sellers are active at that high |
| Tiny body (doji) | Open and close almost equal | Indecision, a possible turn |
A candlestick chart
A single candle is a clue, not a signal. Patterns mean much more when they appear at an important price level (Chapter 14) and with high volume (Chapter 12).
Check yourself: a candle opens at $10, goes to $11, drops to $9.50 and closes at $10.80. What colour is it, and where are the wicks?
Chapter 11
Timeframes: 15 min, 1 hour, 4 hour, daily
The same price history can be drawn with candles of any length. Changing the timeframe is like zooming a camera in and out.
How bigger candles are built
A bigger candle is just smaller ones joined together. Four 1-hour candles make one 4-hour candle:
Which one should you use?
| Timeframe | Who uses it | Good for |
|---|---|---|
| 1 to 15 min | Day traders | Exact entry timing. Very noisy. |
| 1 hour | Day and swing traders | Planning trades within a day or two |
| 4 hour | Swing traders | Trades lasting days |
| Daily | Swing traders, investors | The main trend. Most reliable. |
| Weekly | Investors | The big picture |
The top-down habit
Staring at the 1-minute chart. Every tiny move looks important, and you end up trading noise. Start with the daily chart.
Chapter 12
Volume: how many people care
Volume is the number of shares traded in a period. It tells you how much conviction is behind a price move.
How to read it
| Price | Volume | Meaning |
|---|---|---|
| Rising | Rising | Strong move. Many buyers agree. |
| Rising | Falling | Weak move. Fewer buyers, may run out of steam. |
| Falling | Rising | Strong selling. Many want out. |
| Falling | Falling | Selling is drying up. May be near a bottom. |
- Breakouts (price pushing past an old high) are far more trustworthy with a big jump in volume.
- Average volume matters too. A stock that trades only a few thousand shares a day is hard to get in and out of at a fair price.
Volume confirms price. A move on high volume is a statement. A move on low volume is a whisper.
Chapter 13
Volatility: how wild the swings are
Volatility is how much and how fast a price moves. It is neither good nor bad, but it decides how much you can win or lose.
ATR: measuring the swing
The Average True Range (ATR) measures how much a stock typically moves in one candle. ATR(14) is the average range of the last 14 candles.
For each candle, the "true range" is the biggest of: high minus low, high minus the previous close, or the previous close minus low. This counts the overnight gaps too.
If LEMN's ATR is $0.30, a normal day moves it about 30 cents. A stop loss only 10 cents away will probably be hit by ordinary noise. Many traders set stops 1.5 to 2 times ATR away.
Volatility usually rises around earnings, big news and market panics, and drops when things are quiet. Quiet periods with tiny candles often end with a big move.
Chapter 14
Trend, support and resistance
Before any indicator, learn to see the two simplest things on a chart: which way it is going, and where it tends to stop.
Trend
- Uptrend: higher highs and higher lows. Each peak and each dip is above the last one.
- Downtrend: lower highs and lower lows.
- Sideways (range): price bounces between a floor and a ceiling.
Support and resistance
Support is a price level where buyers have stepped in before, acting like a floor. Resistance is a level where sellers have appeared before, acting like a ceiling. They form because people remember prices: "it bounced at $10 last time, I will buy there again."
Levels are zones, not exact lines. Price often pokes a little past a level before turning. The more times a level has held, the more important it is.
Check yourself: the last three peaks were $14, $13.5 and $13, and the last three dips $11, $10.5 and $10. What is the trend?
Chapter 15
Moving averages: SMA, EMA and friends
A moving average smooths out the daily noise so you can see the real direction. It is the most used indicator in the world.
SMA: the simple moving average
Add up the last N closing prices and divide by N. Tomorrow, drop the oldest price, add the newest, and do it again. The window "moves" forward, which is where the name comes from.
| Day | Close | 5-day SMA | How |
|---|---|---|---|
| 1 to 5 | 10, 11, 12, 13, 14 | 12.0 | (10+11+12+13+14) / 5 |
| 6 | 15 | 13.0 | drop 10, add 15: (11+12+13+14+15) / 5 |
| 7 | 12 | 13.4 | drop 11, add 12: (12+13+14+15+12) / 5 |
EMA: the exponential moving average
The SMA treats a price from 20 days ago the same as yesterday's. The EMA gives more weight to recent prices, so it reacts faster.
EMA today = previous EMA + k x (today's close - previous EMA), with k = 2 / (N + 1)For a 10-day EMA, k = 2 / 11 = 0.18. Each day, the EMA moves 18% of the way towards the new price. The first EMA value is usually started from a plain SMA.
The whole family
| Type | How it averages | Character |
|---|---|---|
| SMA (simple) | Every price counts equally | Smooth, slow, easy to understand |
| EMA (exponential) | Recent prices count more, fading smoothly | Faster, most popular for trading |
| WMA (weighted) | Weights 1, 2, 3 ... N, newest gets N | Fast, a bit jumpier than EMA |
| SMMA (smoothed, Wilder's) | Like an EMA with k = 1 / N | Very smooth and slow. Used inside RSI and ATR |
| VWAP (volume weighted average price) | Average price weighted by volume, reset each day | Intraday "fair price" for day traders |
Popular periods
- 9 and 20: short-term trend, used on intraday charts.
- 50: medium-term trend on the daily chart.
- 200: the long-term trend. Many traders simply ask: is the price above or below the 200-day average?
Three ways traders use them
- Direction: price above a rising average means uptrend. Below a falling average means downtrend.
- Dynamic support: in an uptrend, price often dips to the 20 or 50 average and bounces.
- Crossovers: a fast average crossing a slow one signals a change in trend.
Moving averages lag, because they are built from past prices. Crossovers come after the move has started, and in a sideways market they give many false signals.
Check yourself: you want an average that reacts quickly to the latest price. SMA or EMA?
Chapter 16
MACD: momentum in one picture
MACD (Moving Average Convergence Divergence) shows whether the short-term trend is speeding up or slowing down compared with the longer-term trend.
How it is built
When the fast average pulls away above the slow one, the MACD line rises: upward momentum is growing. When they come together, momentum is fading.
Reading MACD
- Signal cross: MACD crossing above the signal line is bullish; crossing below is bearish.
- Zero line: MACD above zero means the 12 EMA is above the 26 EMA, so the short-term trend is up.
- Histogram: bars getting taller means momentum is growing; shrinking bars mean it is fading, often before the cross happens.
- Divergence: price makes a new high but MACD makes a lower high. The push behind the move is weakening, a warning of a possible turn.
Signal crosses work best in the direction of the main trend. In an uptrend, take the bullish crosses and be sceptical of the bearish ones.
Chapter 17
RSI: is it stretched too far?
The Relative Strength Index compares the size of recent up moves with recent down moves, on a scale from 0 to 100.
How it is calculated
- For each of the last 14 candles, note the gain (if it closed up) or the loss (if it closed down).
- Average the gains and average the losses (with Wilder's smoothing).
- RS = average gain / average loss.
- RSI = 100 - 100 / (1 + RS).
If every day was up, RSI goes towards 100. If every day was down, it goes towards 0. Equal ups and downs give about 50.
Reading RSI
| RSI | Name | Meaning |
|---|---|---|
| Above 70 | Overbought | Price has risen fast. It may pause or pull back. |
| 30 to 70 | Normal | Above 50 leans bullish, below 50 leans bearish. |
| Below 30 | Oversold | Price has fallen fast. It may bounce. |
In a strong uptrend RSI can stay above 70 for weeks while price keeps climbing. Selling just because RSI is high is one of the most common beginner mistakes. Wait for RSI to turn back down and for price to confirm.
- Divergence: price makes a lower low but RSI makes a higher low. Selling pressure is weakening, a possible bottom.
- In uptrends RSI tends to stay between 40 and 80; in downtrends between 20 and 60. Dips to 40 in an uptrend are often buying chances.
Putting the indicators together
| Tool | Answers |
|---|---|
| Moving averages | Which way is the trend? |
| MACD | Is momentum building or fading? |
| RSI | Has the move stretched too far? |
| Volume | Do many traders agree with the move? |
No indicator is right every time. They are strongest when several of them, plus a support or resistance level, point the same way.
Chapter 18
Risk first: position size and stop loss
Picking good trades matters less than you think. Controlling how much you lose on bad trades matters more than anything.
Why losses hurt more than gains help
| If you lose | You need to gain back |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |
A big loss is very hard to recover from. So professional traders set a small, fixed amount they are willing to lose on each trade, often 1% of the account, and never more than 2%.
The stop loss
A stop loss is a price where you admit you were wrong and exit. Decide it before you enter, and place it where your reason for the trade is clearly broken, for example just below a support level, not at a random round number.
Position size: how many shares to buy
Shares = (account x risk %) / (entry price - stop price)Risk to reward
Compare what you could win with what you could lose. Risking $0.60 to make $1.50 is a reward to risk of 2.5 to 1. With trades like that, you can be wrong more often than right and still make money.
10 trades, 2 to 1 reward to risk, $100 risked each. You win only 4 and lose 6: 4 x $200 = $800 won, 6 x $100 = $600 lost. Still $200 ahead, while being wrong 60% of the time.
Chapter 19
Trading tips and good habits
The habits below are what separate people who last from people who blow up their account in the first year.
Before the trade
- Paper trade first. Most brokers offer a practice account with fake money. Use it for at least a few weeks before risking real money.
- Write a plan. Entry, stop loss, target and the reason, written down before you click buy.
- Trade with the trend. Check the daily chart. Buying in a downtrend is swimming against the current.
- Check the earnings date. Know if a report is coming before your planned exit (Chapter 6).
- Look for agreement. Trend, level, volume and an indicator all pointing the same way is a much better trade than one signal alone.
During the trade
- Always use a stop loss and never move it further away to "give it room".
- Do not add to a losing trade hoping to average down.
- Let winners run a bit: you can move the stop up behind the price as it rises (a trailing stop).
- Do not chase. If you missed the move, wait for the next setup. There is always another one.
After the trade
- Keep a journal. For every trade: why you took it, what happened, what you felt, what you learned. Patterns in your mistakes show up quickly.
- Judge the process, not the result. A good plan can lose and a reckless trade can win by luck. Over many trades, process wins.
- Take a break after big losses. Trying to win it back straight away (revenge trading) usually makes it worse.
Things to avoid as a beginner
- Borrowed money (margin) and leverage. They multiply losses as well as gains.
- Options and other complex products, until you fully understand them (Chapter 20).
- Tips from social media, "guaranteed" signals, and anything that sounds too easy.
- Putting all your money in one stock or one industry.
- Trading money you will need for rent, bills or emergencies.
Things to test for yourself
On a practice account, try these and write down what happens:
- Buying pullbacks to the 20-day EMA in a stock above its 200-day SMA.
- Waiting for a breakout above resistance on high volume.
- Taking MACD crosses only in the direction of the daily trend.
- Buying when RSI dips to 40 in an uptrend, versus waiting for 30.
Do not trust any rule, including these, until you have seen how it behaves over many trades.
Costs that eat profits
- Spread on every trade (Chapter 2).
- Commissions or fees, if your broker charges them.
- Taxes on profits, often higher for short-term trades. Check the rules where you live.
Protect your money first. If you stay in the game long enough while learning, skill will come. If you lose it all early, there is no second lesson.
Chapter 20
Options: paying for time and speed
"I think LEMN goes up to $13 in the next two weeks, and I want to bet on that." That bet is called an option. This chapter shows what you pay for it, and why.
The bet in plain words
- A call is a bet the price goes up. It gives you the right to buy at a set price (the strike) until a set date (the expiry).
- A put is a bet the price goes down. It gives you the right to sell at the strike until the expiry.
- You pay for the bet up front. That payment is the premium. If you are wrong, the premium is all you lose.
not there: the bet is worth 0
Why you have to pay: the whole idea in one picture
Nobody knows where the price will be. But we do know roughly how far it can wander. The blue cone below shows the range of prices LEMN could reasonably reach, starting today. It grows wider the further out you look, and wider still for a fast-moving stock.
The premium is simply how much of that cone reaches past your target. More time or more speed means a wider cone, a bigger chance of reaching the target, and so a more expensive bet.
An option price is the market's estimate of the chance your target is reached in time, multiplied by how far past the target it may go. Time and speed are what widen the cone, so they are what you pay for.
Time and speed together
The same two bets, priced for every combination. Read across for speed, down for time.
Time decay: the bet melts every day
If the price does not move, an option still loses value each day, because there is less time left for the move to happen. This loss is called time decay (traders call it theta). It is slow at first, then speeds up sharply in the last couple of weeks.
What you win or lose on expiry day
Price your own bet
Why most beginners lose with options
- Being right is not enough. You must be right about direction, distance and timing. A move that comes one day after expiry pays nothing.
- Cheap bets are cheap for a reason. A far target with little time costs very little because it almost never happens.
- Speed is already in the price. Before earnings, options get expensive because everyone expects a big move. If the move is smaller than expected, the option can lose value even when you guessed the direction right.
- Selling options is different. The seller collects the premium but can lose far more than they received. Leave that side alone until you understand it fully.
Practise on a paper trading account first, and only ever buy options with money you are ready to lose completely. Trading options usually needs separate approval from your broker.
Check yourself: two calls on the same stock with the same target. One expires in 1 week, one in 6 weeks. Which costs more, and why?
Check yourself: why does a call on a fast-moving stock cost more than on a calm one?
Chapter 21
Glossary
Every term from this guide in one place, with the chapter where it is explained.
| Term | Meaning | Ch |
|---|---|---|
| Ask | Lowest price a seller will accept right now | 2 |
| ATR | Average True Range, typical size of one candle's move | 13 |
| Beta | How much a stock swings compared with the market | 9 |
| Bid | Highest price a buyer is offering right now | 2 |
| Call | A bet the price goes up: the right to buy at the strike until expiry | 20 |
| Candlestick | Chart bar showing open, high, low and close | 10 |
| Debt to equity | Borrowed money compared with owners' money | 5 |
| Divergence | Price and indicator moving in different directions | 16 |
| Dividend | Cash a company pays to its shareholders | 7 |
| Dividend yield | Yearly dividend divided by the share price | 7 |
| EMA | Exponential moving average, weights recent prices more | 15 |
| EPS | Earnings per share, net income divided by shares | 4 |
| Ex-dividend date | Own the share before this day to get the dividend | 7 |
| Expiry | Last day an option is valid | 20 |
| Free cash flow | Operating cash minus spending on equipment | 5 |
| Guidance | What a company expects for the coming period | 6 |
| Implied volatility | The speed the market expects, built into option prices | 20 |
| Limit order | Buy or sell only at your price or better | 2 |
| MACD | Momentum indicator built from EMA 12 and EMA 26 | 16 |
| Margin (profit) | Share of revenue kept as profit | 4 |
| Market cap | Price times number of shares, the company's value | 3 |
| Market order | Buy or sell immediately at the best price available | 2 |
| Net income | Final profit after all costs, the bottom line | 4 |
| OHLC | Open, high, low, close | 10 |
| P/E ratio | Share price divided by earnings per share | 8 |
| Payout ratio | Share of profit paid out as dividends | 7 |
| Position size | How many shares to buy for a chosen risk | 18 |
| Premium | What you pay for an option | 20 |
| Put | A bet the price goes down: the right to sell at the strike until expiry | 20 |
| Resistance | Price level where selling has appeared before | 14 |
| Revenue | All money from sales, the top line | 4 |
| RSI | Relative Strength Index, 0 to 100, overbought / oversold | 17 |
| Sector | Broad group of similar companies | 3 |
| SMA | Simple moving average, plain average of N closes | 15 |
| Spread | Gap between bid and ask | 2 |
| Stop loss | Exit price that caps your loss | 18 |
| Strike | The target price written into an option | 20 |
| Support | Price level where buying has appeared before | 14 |
| Ticker | Short code for a listed company, such as AAPL | 3 |
| Time decay | Value an option loses each day as expiry gets closer | 20 |
| Timeframe | Length of time one candle covers | 11 |
| Volatility | How much and how fast price moves | 13 |
| Volume | Number of shares traded in a period | 12 |
| VWAP | Volume weighted average price for the day | 15 |
This guide is for education only and is not financial advice. Sunny Lemonade Co. (LEMN) and all chart data in this guide are made up for teaching.
For education only, not financial advice. Charts use generated sample data.