| Accumulation |
A situation in which the market is dominated by buyers,
who ýaccumulateý the commodity they are trading. |
| Andrew's Pitchfork |
Three parallel trendlines are drawn linking a major
low or high with a point either side of this marking an intermediate high
or low. The lines are extended to generate support/ resistance levels. The
lines look a bit like the prongs of a pitchfork, hence the indicatorýs name. |
| Bollinger bands |
A system based on the premise that prices revert to
their mean. The standard deviation of the moves away from the mean are used
to form two bands around the price. Whenever the price breaks below or above
the band, it is deemed too extreme a move and therefore liable to correct
back from the standard deviation towards the mean of the price. |
| Breakout |
A sudden breakout of prices from a chart pattern that
has been forming for some time. It marks the end of a period of uncertainty.
The breakout point can often be used to guess how far prices will go in
that direction. |
| Candlesticks |
A Japanese charting system which maps the open- high-low-and
close of periodic price movements. A box is drawn around the open and close,
and painted white if the close is above the open, and black if the close
is below the open. The boxes and their little heads and tails look like
candles and their wicks. Candlestick studies are full of exotic terms like
Morning Star and Dark Cloud Cover; these describe how the black and white
candles look, and can be interpreted as buy or sell signals. |
| Channel |
Like it sounds, a channel in which prices are moving.
Parallel trendlines are drawn along the lows and highs of a price chart,
forming a channel in which prices move. The trendlines form areas of support
and resistance. Depending on the trend, the channel can be a downchannel
or an upchannel. |
| Commodity Channel Index |
CCI measures the variation of an instrument's price
from its mean. High / low values indicate that prices have moved too far
from their mean. The usual range is +/1 100 and anything outside this is
overbought or oversold. |
| Congestion |
When prices trade at similar levels over a period,
the chart becomes cluttered with business at these levels and is referred
to as 'congested'. Congestion areas are often seen as providing support/resistance.
They are the levels at which, rather than breaking into new ground, prices
tend to bog down and become trapped. |
| Consolidation |
All this means is that prices are moving in a broadly
sideways range after a sharp move in one direction. If the prices have risen
sharply, the gains are ýconsolidatedý, often for several days after the
major move. |
| Cycles |
Cycle theory is based on the premise that prices are
affected by an underlying cycle. Some of these are well known: the 54-year
Kondratieff Wave economic cycle. Others are less obvious. Commodity indexes
are affected by a 10 1/2 month futures cycle (individual commodities do
not necessarily follow this). |
| Distribution |
Market is dominated by sellers, who are holding length
and ýdistributingý to the players who need to buy. |
| Double bottom |
A bullish reversal pattern characterized by two lows
at roughly equal value. |
| Double top |
A bearish reversal pattern characterized by two highs
at roughly equal value. |
| Dow theory |
Theory of market movement developed by Charles Dow
that prices move in defined trends of successive higher peaks and higher
troughs in an uptrend, and lower peaks and lower troughs in a downtrend.
Dow divides trends into primary, secondary and minor. Volume patterns are
associated with specific points in a trend. Dow theory is the foundation
of most modern technical theory. |
| Downtrend |
a price pattern characterized by subsequent falling
highs and falling lows |
| Elliott Wave |
a theory developed by Ralph Elliott that prices move
in a main five-wave trend followed by a corrective three- wave trend, the
extent and scope of which are governed by certain commonly seen ratios (see
Fibonacci) |
| Exponentially-smoothed moving average |
An average calculated using a system where a percentage
of today's price is applied to yesterday's moving average value. eg. 9%
MA =(today's close*9%)+(ydy's close*91%). |
| Fibonacci levels |
Commonly observed ratios between the size of a main
trend and retracements. The main ratios are 38.2%, 50%, 61.8%, 100% and
161.8%. These ratios are derived from the number series named after the
Italian mathematician: 1,1,2,3,5,8,13, 21... If the first term is divided
by the one to the right of it, the result gets nearer and nearer to 0.618,
a ratio that recurs in nature and art. Fibonacci levels are used in the
weird and wonderful Elliott Wave Theory. |
| Flag |
A price chart pattern that looks like a flag-pole with
a rectangular ýflagý hanging off it. It is often seen as a sign that the
trend is likely to continue after a brief consolidation. |
| Gann theory |
An eclectic blend of fact and fantasy, the works of
WD Gann caught on in the City in the late 1980s. Their chief virtue seems
to be that they are understood by no-one, and so almost anyone can claim
to be an expert in them without recourse. |
| Head and shoulders |
A reversal pattern characterized by a high, a higher
high, a lower high, and a break below the line joining the lows between
the highs, the so-called neck-line. |
| Inverse head and shoulders |
A bullish reversal pattern characterized by a low,
a lower low, a less low low, and a breakout to the upside. |
| MACD (moving average convergence
divergence) |
A trend following momentum indicator that maps the
difference between two exponential moving averages, the 26 and 12-day. A
nine-day exponential moving average is plotted on top of this as a 'signal'
line to show buy/sell opportunities. |
| Momentum |
The simple difference between the price now and the
price N days ago. Momentum is negative if the price now is below the price
N days ago, and positive if it is above. |
| Moving average |
The mean of prices over a pre-defined period, for instance,
the previous five days. The moving average for different time periods can
be charted to generate short- and medium-term buy/sell signals. For instance,
funds have in the past tended to buy when the price crosses the 40-day moving
average from below, and to sell when it cuts the average from above. |
| Moving average crossover |
The point where a short moving average crosses a longer-moving
average. These are often taken as buy or sell signals. When the shorter
MA crosses the longer from below and both are turning upward, it is called
a Golden Cross, a strong buy signal. |
| Moving average envelopes |
Envelopes use moving averages which are sifted up or
down by a certain percentage to establish a certain 'normal' band in which
the price moves. If prices break out of these, they tend to revert to the
mean. |
| On Balance Volume |
OBV is a momentum indicator relating volume to price
change. If prices rise, volume is considered up-volume; if price, it is
considered down-volume. Up-volume is added to the cumulative total, and
down-volume is subtracted. |
| Open interest |
Open interest is the number of open contracts on a
given future or options contract. Longs or shorts that have not been closed
out are OI. Short-covering/profit-taking will tend to reduce OI. |
| Optimization |
A technique used by technical analysts to decide on
which measures work best in their specific markets. For instance, the 40-day
moving average might generate good signals for oil and commodity markets,
but not foreign exchange markets. BY using optimization software, traders
hope to work out which measures work well for their specific instruments. |
| Oscillator |
The difference between two indicators. For instance,
a moving average oscillator would reflect the difference between two moving
averages. The oscillator ranges around a single line. |
| Pennants |
A price chart pattern that looks like a vertical line
with a small triangle at the top. It is seen as a sign that a trend will
continue after a brief consolidation. |
| Point-and-figure |
A charting system, which ignores time and displays
only the main price changes. They comprise alternate columns of 0s(falls)
and Xs (gains). Parameters used are box-size and reversal size. |
| Puts/calls ratio |
The ratio of puts to calls in an options market. |
| Random walk |
Theory that market prices move randomly around a main
trend, in other words, that the volatility is arbitrary. |
| Rate of Change of Prices |
This is a simple momentum-type indicator. It is the
simple momentum over n days divided by the price n days ago. |
| Relative strength index |
This has become one of the most widely used and popular
of technical indicators. It was invented by Welles-Wilder, and uses a simple
equation comparing the average up moves in the market to the average downmoves
to give a single RSI number for a certain period. The 14-day RSI is widely
used. RSIs of 20-30% tend to indicate the market is oversold, while those
of 70-80% indicate it is overbought. |
| Resistance |
a price at which sellers are likely to enter the market
in an uptrend |
| Retracement |
A temporary move in the opposite direction to that
of the main trend. These are often |
| Spread |
Buying one instrument/commodity and selling another,
with a view to profiting from the change in the gap between the two markets. |
| Stochastics |
The theory of stochastics is based on the premise that
prices close nearer the high in an uptrend, and nearer the low in a downtrend.
%D Slow %D %K %R are all just names for different ways of smoothing the
stochastic measures derived from the uptrend/downtrend theory. |
| Support |
a price at which buyers are likely to start buying
in a downtrend |
| Trend |
The trend is your friend. A trend at its most basic
consists of a situation in which prices move more in one direction than
another. Many technical measures attempt to discern when a price is moving
in a trend, punctuated by minor corrections, and when it is simply trendless.
|
| Trend lines |
Lines drawn on a price chart linking subsequent lows
in a downtrend and subsequent highs in an uptrend. |
| Triangle |
Chart pattern. Prices trade sideways after a main trend,
and the range gets smaller each day. |
| Triple bottom |
A bullish reversal pattern characterized by three highs
at roughly equal value. |
| Triple top |
A bearish reversal pattern characterized by three highs
at roughly equal value. |
| Uptrend |
a price pattern characterized by subsequent rising
highs and rising lows |
| Volatility (Chaikin's) |
Calculate the exponential moving average of the difference
between the daily high and low, let's call this 'range'. Volatility = range
now <<minus>> range n days ago / range n day's ago.. |
| Weighted moving average |
The average of prices over a certain period, but weighted
to give more importance to the latest price. So, if it were a 5-day MA,
the latest price might be weighted by a factor of 5, yesterday's by a factor
of 4, the day before by 3 times, the day before twice, and before that,
the simple price. Different weighting systems can be used. |
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