Bar: A graphical representation of a stock's movement that usually contains the open, high, low and closing prices for a set period of time.
Bear Market: A market condition in which the prices of securities are falling or are expected to fall.
Bearish Engulfing Pattern: A chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one.
Breakaway Gap: A breakaway gap represents a gap in the movement of a stock price supported by levels of high volume.
Breakdown: A price movement through an identified level of support, which is usually followed by heavy volume and sharp declines.
Breakout: The price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. Once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback. A breakout is the bullish counterpart to a breakdown.
Bullish Engulfing Pattern: A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses or "engulfs" the previous day's candlestick.
Call Option: An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.
Channel: The technical range between support and resistance levels that a stock price has traded in for a specific period of time.
Chartist: Another name for a technical analyst. This is a person who uses charts to identify patterns that can suggest future activity.
Chaikin Oscillator: An oscillator created by subtracting a 10-day EMA from a 3-day EMA of the accumulation/distribution line. This indicator is named after its creator, Marc Chaikin.
Circuit Breaker: Refers to any of the measures used by stock exchanges during large sell-offs to avert panic selling. Sometimes called a "collar." After an index has fallen a certain percentage, the exchange might activate trading halts or restrictions on program trading.
Cup and Handle: A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a "U" and the handle has a slight downward drift.
Derivative: In finance, a security whose price is dependent upon or derived from one or more underlying assets. Futures contracts, forward contracts, options and swaps are the most common types of derivatives.
Descending Channel: A downward moving channel formed by two parallel, downward sloping trendlines. The upper trendline connects a stock's highs over a period of time, with each subsequent high price lower than the previous. Conversely, the lower trendline connects the stock's lows, with each subsequent low price lower than the previous.
Descending Triangle: A bearish chart pattern used in technical analysis that is created by drawing one trendline that connects a series of lower highs and a second trendline that has historically proven to be a strong level of support.
Divergence: When the price of an asset and an indicator, index or other related asset move in opposite directions. In technical analysis, traders make transaction decisions by identifying situations of divergence, where the price of a stock and a set of relevant indicators are moving in opposite directions.
Doji: A name for candlesticks that provide information on their own and also feature in a number of important patterns. Dojis form when a security's open and close are virtually equal. A doji candlestick looks like a cross, inverted cross, or plus sign. Alone, doji are neutral patterns
Double Bottom: A charting pattern used in technical analysis. It describes the drop of a stock (or index), a rebound, another drop to the same (or similar) level as the original drop, and finally another rebound.
Double Top: A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
Equity Market Capitalization: A measure of the total market value of an equity market. The measure is calculated by taking the market capitalization of all companies in the equity market and adding them together to arrive at the capitalization for the market as a whole.
Exponential Moving Average (EMA) : A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. Also known as "exponentially weighted moving average".
Forward Contract: A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.
Futures Contract : A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future.
Gap: A break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between.
Hammer: A price pattern in candlestick charting that occurs when a security trades significantly lower than its opening, but rallies later in the day to close either above or close to its opening price. This pattern forms a hammer-shaped candlestick.
Harami Cross: A trend indicated by a large candlestick followed by a doji that is located within the top and bottom of the candlestick's body. This indicates that the previous trend is about to reverse.
Head and Shoulders Pattern: A technical analysis term used to describe a chart formation in which a sock’s price:
1 Rises to a peak and subsequently declines
2.Then, the price rises above the former peak and again declines.
3.And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head.
Inverse Head And Shoulders: A chart pattern used in technical analysis to predict the reversal of a current downtrend. This pattern is identified when the price action of a security meets the following characteristics:
- The price falls to a trough and then rises.
- The price falls below the former trough and then rises again.
- Finally, the price falls again, but not as far as the second trough.
Inverse Saucer: A technical chart formation that indicates the stock's price has reached its high and that the upward trend has come to an end. An inverse saucer is characterized by a steady flattening of the uptrend.
Limit Order: An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled.
Limit Order Book: A record of unexecuted limit orders maintained by the specialist.
Limit-On-Close Order: A type of limit order to buy or sell shares near the market close only if the closing price is trading better than the limit price. This order is an expansion of the market-on-close order, adding to it a limit condition, which places a maximum on the entry price and minimum on the selling price.
Limit-On-Open Order: A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of order is good only for the market opening and does not last for the whole trading day.
Long (or Long Position): The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.
In the context of options, the buying of an options contract. For example, an owner of shares in McDonald's Corp. is said to be "long McDonald's" or "has a long position in McDonald's".
Midcaps: A company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company's shares outstanding by its stock price. Mid cap is an abbreviation for the term "middle capitalization".
Moving Average (MA): An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define areas of possible support and resistance.
Moving Average Convergence Divergence (MACD): A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
Market Capitalization: The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. Frequently referred to as "market cap".
Company size is a basic determinant of asset allocation and risk-return parameters for stocks and stock mutual funds.
The stocks of large, medium and small companies are referred to as large-cap, mid-cap, and small-cap, respectively. Investment professionals approximate categories of market capitalization are:
Large Cap: $10 billion plus
Mid Cap: $2 billion to $10 billion
Small Cap: Less than $2 billion
Market Psychology: The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment.
Market Share: The percentage of an industry or market's total sales that is earned by a particular company over a specified time period. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period.
Momentum: The rate of acceleration of a security's price or volume. Once a momentum trader sees an acceleration in a stock's price, earnings, or revenues, the trader will often take a long or short position in the stock with the hope that its momentum will continue in either an upwards or downwards direction.
Over-The-Counter (OTC): A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.
Overbought: this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback.
Oversold: A situation in technical analysis where the price of an asset has fallen to such a degree - usually on high volume - that an oscillator has reached a lower bound. This is generally interpreted as a sign that the price of the asset is becoming undervalued and may represent a buying opportunity for investors.
Pattern: the distinctive formation created by the movement of security prices on a chart. It is identified by a line connecting common price points (closing prices, highs, lows) over a period of time. Chartists try to identify patterns to try to anticipate the future price direction.
Also known as "trading pattern".
Pennant: A continuation pattern in technical analysis formed when there is a large movement in a stock, the flagpole, followed by a consolidation period with converging trendlines, the pennant, followed by a breakout movement in the same direction as the initial large movement, the second half of the flagpole.
Pivot: A price level established as being significant either because the market fails to penetrate it or because a sudden increase in volume accompanies a move through that price level. the pivot price is similar to resistance or support levels. If the price is exceeded, a breakout is expected to occur.
Pullback: A falling back of a price from its peak. This type of price movement might be seen as a brief reversal of the prevailing upward trend, signaling a slight pause in upward momentum.
Put-Call Ratio: A ratio of the trading volume of put options to call options. It is used to gauge investor sentiment.
Range: A stock's low price and high price for a particular trading period, such as the close of a day's trading, the opening of a day's trading, a day, a month, or a year.
Relative Strength: A measure of price trend that indicates how a stock is performing relative to other stocks in its industry.
Relative Strength Index (RSI) : A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:
RS = Average of x days' up closes / Average of x days' down closes.
Resistance: The price at which a stock or market can trade, but not exceed, for a certain period of time.
Often referred to as "resistance level".
Retracement: A reversal in the movement of a stock's price, countering the prevailing trend.
Reversal: A sudden change in the price direction of a stock, index, commodity, or derivative security. Also referred to as a "trend reversal", "rally" or "correction".
Rising Bottom: A pattern on a security's chart that results from the daily low price rising over time, creating a series of ascending troughs. Technical traders use this pattern to confirm that the trend of the underlying security is heading upward.
Rounding Bottom: A chart pattern used in technical analysis, which is identified by a series of price movements that, when graphed, form the shape of a "U". Rounding bottoms are found at the end of extended downward trends and signify a reversal in long-term price movements.
Rounding Top: A chart pattern used in technical analysis which is identified by price movements that, when graphed, form the shape of an upside down "U". A rounding top may form at the end of an extended upward trend and indicates a reversal in the long-term price movement.
Saucer: A technical charting formation that indicates that a stock's price has reached its low and that the downward trend has come to a close.
Sensex: An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most actively-traded stocks on the BSE. Initially compiled in 1986, the Sensex is the oldest stock index in India.
The index is calculated based on a free-float capitalization method when weighting the effect of a company on the index. This is a variation of the market cap method, but instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders that can't be readily sold
To find the free-float capitalization of a company, first find its market cap (number of outstanding shares x share price) then multiply its free-float factor. The free-float factor is determined by the percentage of floated shares to outstanding. For example, if a company has a float of 10 million shares and outstanding shares of 12 million, the percent of float to outstanding is 83%. A company with an 83% free float falls in the 80-85% free-float factor, or 0.85, which is then multiplied by its market cap (e.g., $120 million (12 million shares x .$10/share) x 0.85 = $102 million free-float capitalization).
Shooting Star : A type of candlestick formation that results when a security's price, at some point during the day, advances well above the opening price but closes lower than the opening price.
Sideways Trend: Describes the horizontal price movement that occurs when the forces of supply and demand are nearly equal.
Simple Moving Average (SMA): A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.
Small cap: Refers to stocks with a relatively small market
Trendline: A line on the price or value chart of a security depicting the general direction in which the security is headed.
Support: The price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock. The price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock.
Triple Bottom: A pattern used in technical analysis to predict the reversal of a prolonged downtrend. The pattern is identified when the price of an asset creates three troughs at nearly the same price level. The third bounce off the support is an indication that buying interest (demand) is outweighing selling interest (supply) and that the trend is in the process of reversing.
Triple Top: This pattern is identified when the price of an asset creates three peaks at nearly the same price level. The bounce off the resistance near the third peak is a clear indication that buying interest is becoming exhausted. It is used by traders to predict the reversal of the uptrend. |
