P1:a/b P2:c/d QC:e/f T1:g
gloss JWBK182-McDowell April 25, 2008 16:35 Printer: Yet to come
Glossary 185diversification Trading or investing in a variety of markets and sectors to reduce
risk. Don’t put all your eggs in one basket!
dividend A payment made to stockholders, usually quarterly, out of a firm’s cur-
rent or retained earnings.
DJIA SeeDow Jones Industrial Average.
dollar cost averaging Averaging the cost per share of a particular security by
investing a fixed sum regularly.
double witching A term used for the day when both options and futures expire.
doubling down Adding on to a losing position.
Dow Jones Industrial Average (DJIA) (Dow) A price-weighted index of 30 blue-
chip U.S. stocks. This index is also known as the Dow.
downtrend A general tendency for declining prices in a given market.
drawdown A decrease in the value of your account because of losing trades or
because of paper losses, which may occur simply because of a decline in value of
open positions. Low drawdown is a desirable performance feature for a trader or
investor.
edge See pay off ratio. This is the advantage you and your system gives you over
the market by dollars earned.
e-mini Used in the futures market to represent a smaller trading market of its
parent market.
earnings per share (EPS) A firm’s total after-tax net earnings divided by the num-
ber of common shares outstanding.
earnings to price ratio (E/P) Ratio of a company’s earnings per share to its share
price. This is the reverse of the price to earnings ratio.
efficient market The theory that the financial markets quickly and efficiently com-
pensate and price in all widely known information.
Elliott wave analysis A method of market analysis based on the theories of Ralph
Nelson Elliott. Although relatively complex, the basic theory is based on the con-
cept that markets move in waves, forming a general pattern of five waves (or market
legs) in the direction of the main trend, followed by three corrective waves in the
opposite direction.
entry The point at which you place or open your trade or investment. This is the
opposite of your exit. When placing your entry you should already know what your
initial exit will be—seestop-loss exit. The distance between your entry and your
exit will determine what your trade size will be.
equities markets Stock markets.
equity The total dollar value of an account.
equity curve The value of your account over time, illustrated in a graph.