Archives for October 2013

Stock Technical Analysis Glossary Terms S-Z

Selling climax
After a move downwards, prices push sharply lower on heavy volume. If prices move higher from these levels, a selling climax has occurred.

The downward movement of prices.

The extreme price movement outside the body of a candle (see candlestick patterns) creates the shadows. The lower shadow extends from the bottom of the body to the low price of the day. The upper shadow extends from the top of the body to the high price of the day.

Shaven bottom
A candlestick with no lower shadow.

Shaven head
A candlestick with no upper shadow.

Simple moving averages
The smoothing of price data where prices are added together, and then averaged. The term moving is included due to the fact that as each new day’s information is added to the numbers, the oldest data is dropped.

When prices break below a congestion area, and then spring right back above the broken support area, it has produced a bullish signals.

A small body that gaps away from the previous long body. A star indicates the reduction of force illustrated by the previous long candle. A star following a long black body is called a raindrop.

An oscillator that measures the relative position of closing prices compared to the trading range over a specified period of time. %K indicates the fast stochastic, %D indicates the slow stochastic.

Support level
An obvious level where buyers are shown to step in and hold prices above that level.

Tick volume
The number of trades occurring during a specific time interval.

Time filter
A price level that prices have to stay above or below for a specific period of time to confirm that a technical level has been broken.

A price’s prevalent directional movement.

A line that can be drawn along a series of highs or lows. This requires at least two points for a line to be drawn. The more points that are associated with the line, the more strength the trend-line carries. More details – click here

Trend reversals (or reversal indicators)
Price action that indicates the high probability of a trend reversing its direction.

Tweezer tops or bottoms
Highs or lows of a trend that are duplicated in back to back trading days or within the next few sessions. The name is derived from the price movement to those levels forming a tweezer-like visual. It is a minor reversal signal, however, its significance becomes greater if the highs or lows are touched with long shadows or if the identical bottoms are part of another reversal signal.

A gap in prices to the upside.

The price movement that carries prices through and above observed resistance areas. If these new price levels do not hold and prices pull back under the breached resistance level, it is called an upthrust. It now becomes a bearish signal.

Prices that are trading higher.

V bottom or top
A sharp reversal forming a V pattern at the bottom of a trend or an inverted V at the top of a trend.

The total number of shares or contracts trading in a given day on that trading entity.

Weighted moving average
A moving average where the most recent data is given greater value than the oldest data.

The same as a Western gap. Windows can indicate the beginning of a strong trend as well as the end of a trend, exhaustion window. As Western technicians say that prices will always fill the gap, the Japanese expect to close the window.

Yin and Yang
The Chinese name for the black (Yin) and the white (Yang). Good and bad, positive and negative.

Be sure to begin with Western and Japanese technical stock terms or continue on to the options trading terms.



Stock Market Trading Glossary Terms M-R

Related to the velocity of a price move. The most recent close is compared to a specific number of closes in a specific time frame.

Morning attack
A Japanese definition for a large buy or sell order on the opening that is designed to significantly move the market.

Moving Average Convergence-Divergence oscillator (MACD)
A combination of three exponentially smoothed moving averages.

The level that indicates the lows of the head in the head and shoulders formation or the high points in an inverse head and shoulders formation.

Night attack
A large order placed at the close to move the market.

The term for closing trades. Longs are said to liquidate. Shorts are said to cover.

On-Balance Volume (OBV)
A cumulative volume figure. If prices close higher than the prior trading session, the volume for the higher day is added to the OBV. Conversely, volume is subtracted from the OBV on days when prices close lower than the previous day.

Open interest
Pertains to future contracts. It is the number of contracts that are still outstanding. It will be equal to the total number of long and short positions, not the combination of the two.

An indicator based upon a momentum formula that moves above or below a zero line or on a chart grid between 0 and 100 percent. They depict overbought and oversold conditions and positive or negative divergences; r measures the velocity in a price movement.

A term associated with specific oscillators to denote when a price has moved too far, too fast in an upward direction.

The same as the overbought definition except for it being in the downward direction.

Paper trading
A popular method using real-life trade circumstances and trading with imaginary trading funds.

Petrifying pattern
Another name for the Harami cross.

Protective stop
An order placed to limit losses on an existing position. If prices move to that level, a trade is initiated to liquidate the position avoiding further loss potential.

Another name for the star formation.

Usually a strong upward price movement.

A price movement that moves opposite the current trend.

Real body (or body)
The boxed area from the open to the close is what forms the body of the candle (see candlestick patterns). When the close is lower than the open, a black body is produced. A close above the open causes a white body to be formed.

Relative Strength Index (RSI)
An oscillator developed by Welles Wilder. It compares the ratio of positive closes to negative closes over a specific time period.

Resistance level
A trading level where obvious selling keeps the prices from advancing any further.

The price movement in the opposite direction of the recent trend.

Reversal session
After a move experiences a new high (or low), the next close is below (or above) the previous day’s close.

Rickshaw Man
A long-legged Doji where the body, although small, is in the center of the formation.

Stay tuned for more stock technical analysis market trading glossary terms S-Z to assist with your stock analysis.

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Stock Trading Terms Glossary E-L:

Elliot wave
Ralph Nelson Elliot developed a system for forecasting price movements based upon oscillations in investor sentiment. The basis of the theory revolves around five waves in a general direction (five-wave upmove) followed by three corrective waves in the opposite direction (three-wave downmove).

Exponential moving average
A moving average calculated by exponentially weighted input.

Fibonacci numbers
The series of numbers that are derived by adding the two previous numbers to obtain the next number. That number added to the previous number results in the next number. The series of numbers produces ratios used extensively by Elliot wave advocates, 38 percent, 50 percent, and 62 percent.

Filling the Gap
A gap becomes filled when prices move back into the black area of trading. Candlestick Patterns and candlestick terminology describes this as “closing the window”.

A price void where the trading range between one time period does not overlap with a price trading of the next time period.

Golden cross
A bullish signal created by the short-term moving averages crossing above the long-term moving averages.

A group of candlesticks with long upper and/or lower shadows. This grouping of formations foretells a market turn.

Implied volatility
A measure for the market to forecast future volatility.

Inside session
This is a trading session where the high and the low of a trading period remains within the high and the low of the previous trading session.

Trading periods that begin and end within a one-day time frame.

A formation created at the end of a trend where prices gap away from the current trend, trade for two or more days at those levels, and then gap back in the opposite direction. This leaves an island of trading at the end of the trend. Commonly known as island reversals. Strong reversal indicator.

Floor traders that make their living by trading a particular entity.

Lower shadows
The trading range below the body of a candle.

Stay tuned for next week’s blog with more stock market trading terms.



Western and Japanese Technical Stock Terms: Glossary A-D


The following is a list of terms used in association with Japanese Candlestick Analysis. Some terms are purely of Western origin; others are purely of Japanese origin. Many are used for description in both Western and Japanese techniques, becoming intermingled through the years. Read below to further your stock analysis education.

Bar Charts
The conventional graphic depiction of price activity. The trading range is illustrated with a vertical line representing the high to low prices during a time period. Open price is shown by a short horizontal line attached to the left side of a vertical line, the close is a horizontal line to the right side. Price is represented on the vertical scale of the chart. Time is represented on the horizontal scale

A topping or bottoming action. Occurring at the end of an extended move. Prices move sharply and rapidly in the direction of the current trend on high volume. If the price reverses direction after this movement, a blow-off has occurred.

Breakaway gap
When prices gap away from a technically defined area, such as a congestion area or a trendline.

The movement that pushes through a resistance level or a support level.

When a move or an indicator substantiates the anticipated action resulting from another indicator.

Congestion area
Trading activity where the price movement stays within an observable trading range for an extended period of time.

Trading in a range of the congestion area with the implication that the trend is resting and will resume the direction of the current trend.

Continuation patterns
A pattern that has been observed to indicate that the current trend will continue.

Dead cross
When short-term moving averages cross under the longer-term moving averages and a bearish signal is given.

Deliberation pattern
Also known as a stalling pattern, prices are coming to a point of a reversal.

The disparity between indicators when a price action has made a move. One indicator confirms that the move was correct, the other shows the opposite. For example, if prices hit high and the relative strength index does not, a divergence has occurred.

Double bottoms
An easily recognized technical pattern illustrated by a W-shaped bottom where prices reverse at approximately the same lows.

Double tops
Price movement that resembles an M where the highs are approximately the same.

Prices gap down in the next time period to levels below the total trading range of the previous time period.

Prices trading lower usually represented by lower lows and/or lower highs.

Stay tuned for next week’s Stock Trading Terms Glossary with Terms E-L.



Spinning Top

Spinning Tops are depicted with small bodies relative to the shadows. This demonstrates some indecision on the part of the bulls and the bears. They are considered neutral when trading in a sideways market. However, in a trending or oscillating market, a relatively good rule of thumb is that the next days trading will probably move in the direction of the opening price. The size of the shadow is not as important as the size of the body for forming a Spinning Top.

spinning top

Candlestick patterns are clear and easy to identify demonstrating highly accurate turns in investor sentiment. Japanese candlestick patterns consist of approximately 40 reversal and continuation patterns which all have credible probabilities of indicating correct future direction of a price move. However the twelve major candlestick patterns provide more than enough trade situations to most investors. There are only twelve major patterns that should be committed to memory but this does not mean that the remaining secondary patterns should not be considered. In fact those signals are extremely effective for producing profits. Reality however demonstrates that some of them occur very rarely. In order to utilize candlestick analysis to its fullest all patterns, including the spinning top should be used and understood.

The twelve candlestick patterns illustrate the major signals. The definition of “major” means two things. First, they occur in price movements often enough so that they are beneficial to producing a supply of profitable trades. Second, they clearly indicate price reversals with strength enough to warrant placing trades. The twelve major candlestick patterns are listed below and as you can see each candle formation has a unique name. Some have Japanese names while others have English names.

Twelve Major Candlestick Patterns: Doji, Bullish Engulfing, Bearish Engulfing, Hammer Signal and Hanging Man, Piercing Pattern, Dark Cloud Cover, Bullish Harami, Bearish Harami, Morning Star, Evening Star, Kicker Signals (Bearish and Bullish), Shooting Star, and Inverted Hammer.

Recognizing and understanding the psychology that forms the spinning top and the major candlestick patterns will provide completely new insights for investors to understand optimal times to buy and sell. Japanese rice traders realized that prices do not move based on fundamentals but instead that they move based on the investor perception of those fundamentals. The Doji signal is one of the most predominant reversal indicators. It is very effective in all-time frames whether using a one-minute, five-minute, or fifteen-minute chart for day trading or daily, weekly, and monthly charts for the swing trader and long-term investor.