Aggregation

Bid

Black-Scholes

Breakout

A price chart that uses rectangles that range from the opening price to the closing price of each trading session. The rectangle is dark (usually black) if the closing price is lower than the opening price (a down day), or light (usually white) if the close is higher than the open (an up day). Candlestick charts, which originated in Japan, are very similar to bar charts, although they pre-date them by a number of years.

The high and low price extremes extend as vertical lines above or below these rectangles, forming "wicks" to the bodies of the candles represented by the rectangles. Of course, if the high and low of the day are identical to the open and close, no wicks will exist; conversely, if the open and close are the same price, no rectangle (body) will exist. Like bar charts, candlestick charts can be constructed on any time frame.

The actual physical commodity as distinguished from the futures contract based on the physical commodity. Also referred to as Actuals.

Confirmation Statement

A divergence occurs when two markets, or a market and a benchmark index, or a market and an indicator move in opposite directions. Common examples include one stock index (e.g., the Dow Industrials) moving higher while another stock index (e.g., the Dow Transports) moves lower, or when price makes a new high and a momentum oscillator (like the RSI or stochastics) makes a lower high.

The implication is that by moving in the opposite direction, the indicator (or secondary market or index) is not confirming the price move in the market from which it is diverging. Corrections or reversals sometimes result in such circumstances.

Note: Oscillators often produce multiple divergence signals in strongly trending markets before the trend actually reverses; view such signals conservatively.

Electronic Order

As the series progresses, the ratio of a Fibonacci number divided by the immediately preceding number comes closer and closer to 1.618, the "golden mean," a ratio found in many natural phenomena as well as man-made objects like the Parthenon and the Great Pyramid. (The inverse, .618, has a similar significance.) Traders use various permutations of Fibonacci numbers to project retracement levels, among other things.

When the low of the current price bar is higher than the high of the preceding price bar, or the high of the current price bar is lower than the low of the preceding price bar.

Some traders also use the term gap to refer to an opening price that is higher than the high (or lower than the low) of the preceding price bar (an "opening" gap).

High

A pattern that develops near the top of the recent trading range. For example, a consolidation that occurs at the top of an up trend could be called a "high-level consolidation."

A trade order with a specified execution price, e.g., "Buy 100 shares of Microsoft at 147 3/4," or, "Sell 10 June T-bonds at 118 17/32 limit." Your broker cannot pay more than 147 3/4 for your shares or sell for less than 118 17/32 for your contracts.

A standard limit order is good for the remainder of the day it is entered unless you give specific instructions to cancel the order. At the end of the day, your broker will cancel the order automatically, and you will have to place it again the next day if necessary.

For example, to take a second futures or options position opposite to the initial or opening position. TO sell (or purchase) futures contracts of the same delivery month purchased (or sold) during an earlier transaction or make (or take) delivery of the cash commodity represented by the futures market. Also referred to as Offset.

The McClellan oscillator measures the momentum of market breadth by calculating the difference between the 40- and 20-day exponential moving averages of daily advancing issues minus declining issues on the New York Stock Exchange (NYSE).

The idea behind the indicator is that more stocks will advance than decline in bull markets and vice-versa in bear markets. Generally, markets are considered oversold when the oscillator is below -100, and overbought when it is above +100.

The McClellan oscillator is not a stand-alone indicator. It measures the trend strength of advancing and declining issues, and not necessarily market turns. Leadership in a handful of stocks has characterized many bull markets, defying the premise that the broad market must advance for stock indexes to hit new highs.

A price projection based on previous price swings. The idea is that different legs of a price move will be roughly the same length.

For example, if a stock trading at 100 rallies 20 points to 120, then pulls back 5 points to 115, a measured move projection would set a price objective of 135 if and when the rally resumes--another 20 point move from the low of the pullback.

As a general term, momentum refers to the speed or strength of price movement.   It also is the name of a specific technical study that measure the difference between today's closing price and the closing price N days ago. See also Rate of Change.

Moving averages are calculations that smooth price action to reveal the underlying trend. The following discussion uses daily closing prices to illustrate various moving average calculations.

There are several types of moving averages. The most basic is the simple moving average (SMA), which is the sum of closing prices over a particular period divided by the number of days in that period.

For example, a five-day simple moving average would be the sum of the closing prices of the five most recent trading days, divided by five; a 20-day moving average would be the sum of the 20 most recent closing prices divided by 20, and so on. Each day the most recent closing price is added to the equation and the most distant day is dropped off.

A weighted moving average (WMA), the most simple of which is referred to as a linearly weighted moving average, multiplies closing prices by a weighting factor that emphasizes recent price action. The oldest price in the calculation is multiplied by 1, the second oldest by 2, the third oldest by 3, etc.

For example, a standard five-day weighted moving average would multiply the closing price of the fifth most recent trading day (five trading days ago) by one, the fourth most recent trading day by two, the third most recent trading day by three, the second most recent trading day by four, and the most recent trading day by five. These products would be summed and then divided by the sum of the weighting factors (in this case, 1 + 2 + 3 + 4 + 5 = 15) to derive the linearly weighted moving average value for the current day. Other weighting schemes can be used to increase or decrease the emphasis of more recent prices.

An exponential moving average (EMA) is actually a specific type of weighted moving average. It uses a constant (a smoothing factor) between 0 and 1 in the following manner: the current closing price (C) multiplied by the smoothing constant (S) added to the product of the previous day's exponential moving average value (PEMA) and 1 minus the smoothing factor, or:

       Today's EMA = S*C + (1 - S)*PEMA

While the description and formula seems somewhat confusing, the approach is actually simpler to calculate than other moving averages because all you need is today's closing price and yesterday's EMA value.

Final notes: The preceding descriptions use daily closing prices. Moving averages can, of course, be constructed on intra-day, weekly or monthly time frames, and substituting the open, low, high or average price of a bar for the closing price.

One distinct type of moving average is the Adaptive Moving Average (AMA), which dynamically adjusts the number of days in the moving average calculation to current market volatility: In high volatility-periods the number of days would increase (making the average less sensitive and less prone to whipsaws), and in low-volatility periods the number of days would decrease (making the average more sensitive to smaller price swings).

National Futures Association (NFA)

Out Trade

Point and figure chart. The point and figure chart differs from other price charts in that its time axis is not constant--prices are not plotted day by day or week by week, etc. Instead, point-and-figure charts use columns of ascending Xs and descending Os to portray up moves and down moves (of a certain magnitude), respectively, in a market.

For example, every X might represent a .5 point rise (referred to as the "box size") in the stock's price. Price declines would only be denoted by a column of Os if price fell, say, 1.5 points (three boxes, referred to as the "reversal amount"). In this case, if the stock rose from 25 to 25.5 to 26 to 26.5, you would add three Xs to your column of Xs, one for each .5 point rise from 25 to 26.5. If it rose only a quarter point or a half-point, or declined only a point, you would do nothing. Only when price dropped by 1.5 points or more would you stop adding ascending Xs and start a column of descending Os immediately to the right.

The larger the box size and reversal amount you use, the less sensitive your chart will be to smaller price fluctuations. Because a one-point move (or whatever increment you use for your box size) may occur in one hour or two days, the price action depicted in a point-and-figure chart is independent of time.

The actual price or the bid or the ask price of either cash commodities or futures or options contracts at a particular time.

An oscillator based on the position of the current close relative to the absolute price range over the last N days.

Stochastics consists of two lines: %K, which is the basic calculation, and %D, which is a moving average (typically three days) of the %K line. Usually, "stochastics" refers to an additionally smoothed version of the formula, whereby the original %D becomes the new %K line and a moving average of this line becomes the new %D line (this version is sometimes called "slow" stochastics, while the original calculation is called "fast" stochastics).

A trade order placed above or below the market's current price level that is intended either to liquidate a losing trade (a "stop-loss" order) or to establish a new market position.

Stop orders become market orders as soon as their prices are touched. A stop-limit order specifies the worst price at which a stop can be filled, e.g., "sell 100 shares of DAL at 45 on a stop, 43 limit."

A price level that acts as a floor to further price declines. When a market repeatedly declines to a particular level and then rallies, the market is said to be "offering support" at that level.

Support (like resistance) is rarely a precise price; it is more often a relatively contained price range, frequently in the vicinity of past technical patterns.

One of the basic precepts of support and resistance is that once a support level is violated it becomes a likely new resistance level and when a resistance level is penetrated it becomes a new support level.

A volatility calculation developed by Welles Wilder that modifies the standard range calculation by accounting for gaps between price bars. True Range is defined as the largest value (in absolute terms) of:

1. today's high and today's low (the standard daily range calculation);

2. today's high and yesterday's close;

3. today's low and yesterday's close.

Average True Range (ATR) is simply a moving average of true range calculated over N days. True range and average true range are common volatility measurements.