Key Concepts & Terminology
Order types, bid/ask spread, volatility, liquidity.
Understanding the basics is the first step to becoming a confident and consistent day trader. Below are the core concepts every trader must know before entering the markets. We'll keep it simple and include pictured examples to help everything click.
Order Types
Market Order
Buys or sells instantly at the current price.
Great for speed, but you might get a less favorable price during fast moves.
Executes instantly at the best available price.
Pros:
-
Fastest way to enter or exit a trade
-
Ideal for highly liquid stocks
-
Great for getting in during fast-moving setups
Cons:
You may get a worse price (slippage)
Not ideal for low-volume stocks
Can trigger poor fills in volatile conditions
Limit Order
Sets a specific price you're willing to buy or sell at.
Your order only fills if the market hits that price. Great for control.
Executes only at your chosen price or better.
Pros:
Full control over your entry or exit price
Avoids slippage
Great for planning entries around support/resistance
Cons:
May not fill if the price doesn’t reach your level
Slower than market orders in fast conditions
Stop-Loss Order
Automatically sells your position if the price drops to a certain level.
Helps manage risk and avoid large losses.
Automatically closes your position at a set loss level.
Pros:
Protects your capital
Helps manage emotions and risk
Essential for risk/reward planning
Cons:
Can trigger during normal price noise
May cause premature exits in volatile conditions
Not guaranteed to fill at your stop price during gaps
Bid/Ask Spread
This is the difference between what buyers are willing to pay (Bid) and what sellers are asking for (Ask).
-
Bid = The highest price someone is willing to pay.
-
Ask = The lowest price someone is willing to sell for.
-
Spread = Ask - Bid
A smaller spread is better—it means higher liquidity and less slippage.
BullishBobLIVE Education
Pros of a Tight Spread:
Better pricing and faster fills
Lower trading costs
Indicates strong liquidity
Cons of a Wide Spread:
Harder to get filled at a fair price
Higher chance of slippage
Often found in low-volume or penny stocks
Volatility
Volatility refers to how much a stock moves in price over a short period. High volatility = bigger price swings.
-
High Volatility = More opportunities but higher risk.
-
Low Volatility = Slower, more stable price action.
Some traders thrive on fast-moving stocks, while others prefer slower setups.
How much price moves over a short period. High volatility = big moves.
Pros:
More trading opportunities
Larger potential profits
Great for scalping and momentum strategies
Cons:
Higher risk and unpredictability
Easier to get stopped out
Can trigger emotional trading
Volatility
Volatility refers to how much a stock moves in price over a short period. High volatility = bigger price swings.
-
High Volatility = More opportunities but higher risk.
-
Low Volatility = Slower, more stable price action.
Some traders thrive on fast-moving stocks, while others prefer slower setups.
How easily you can buy or sell without affecting the price.
Pros:
More trading opportunities
Larger potential profits
Great for scalping and momentum strategies
Cons:
Higher risk and unpredictability
Easier to get stopped out
Can trigger emotional trading
Final Thoughts
These core concepts are the pillars of smart trading. Understanding how to use different order types, how spreads affect your fills, and why volume and volatility matter will set the stage for your success. Make sure you review these regularly and practice identifying each on live charts.
Next Lesson:
Education Hub
Learn at your own pace
Community Support
Real traders sharing real trade ideas