Glossary
Terms, defined plainly
- DivergenceTechnicals
- Price and an indicator disagreeing, such as a higher price high with a lower RSI high.
- Lesson: RSI and momentum
- DiversificationRisk
- Spreading capital across holdings with different drivers to reduce company-specific risk.
- Lesson: Diversification and the risk you cannot remove
- Idiosyncratic riskRisk
- Risk specific to one company, such as a product failure or fraud. Diversification dilutes it.
- Lesson: Diversification and the risk you cannot remove
- Loss aversionRisk
- The tendency to feel losses more strongly than equal gains.
- Lesson: Cognitive biases that cost traders
- Micro contractFutures
- A smaller version of a standard futures contract, such as MES relative to ES.
- Lesson: Position sizing with ES and MES
- RSITechnicals
- Relative Strength Index: momentum on a 0-100 scale comparing average gains to average losses.
- Lesson: RSI and momentum
- Systematic riskRisk
- Risk affecting the whole market, such as recessions or rate shocks. Diversification cannot remove it.
- Lesson: Diversification and the risk you cannot remove