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Stock Market Terminology – Definitions and Usage

stock market terminology

ABC

Elliot wave terminology for a three-wave countertrend price movement. Wave A is the first price wave against the trend of the market. Wave B is a corrective wave to Wave A. Wave C is the final price move to complete the countertrend price move. Elliott wave followers study A and C waves for price ratios based on numbers from the Fibonacci series.

Accumulation

Accumulation is the addition to a trader’s original market position. The first of three distinct phases in a major trend in which investors are buying.

Actuals

Actuals refers to actual physical commodities, as distinguished from futures.

Adaptive Filter

Adaptive filter is smoothing and/or forecasting prices with continuously updated weighting of past prices.

Advance Decline Line

Each day’s number of declining issues is subtracted from the number of advancing issues. The net difference is positive or subtracted from the running sum if the difference is negative.

Adverse Excursion

Adverse Excursion is loss attributable to price movement against the position in any one trade.

Andrews Method

Andrews Method is a technique whereby a technician will pick an extreme low or high to use as a pivot point and draw a line, called the median line, from the point that bisects a line drawn through the next corrective phase that occurs after the pivot point.

Arbitrage

Arbitrage is the simultaneous purchase and sale of two different, however closely related securities to take advantage of a disparity in their prices.

At-the-money

Option whose strike price is nearest the current price of the underlying deliverable.

Average Directional Movement Index (ADX)

Average Directional Movement Index was developed by J. Welles Wilder measuring market trend intensity.

Average True Range

Average True Range is a moving average of the true range.

Back Month

Out, or back, contract month, as opposed to current, spot, month; the expiration month farther in the future than the current month.

Back Testing

Back Testing is a strategy tested on historical data and then applied to new data to check for consistency.

Basis

Basis is the difference between spot (cash) prices and the futures contract price.

Basis Points

Basis Points are a measure of yields on bonds and notes (ie. one basis point equals 0.01% of yield).

Basket Trades

Basket trade refers to large transactions made up of a number of different stocks.

Beta

Beta is the measure of volatility that tells how much a stock moves in relation to an index or average.

Black Box

Black Box is a proprietary, computerised trading system whose rules are not disclosed or readily accessible.

Black- Scholes Option Pricing Model

Black- Scholes Option Pricing Model was developed to estimate the market value of option contracts.

Block Trades

Block trades are large transactions of a particular stock sold as a unit.

Blow- Off Top

Blow- Off Top refers to a steep and rapid increase in price followed by a steep and rapid drop in price.

Bracketing

Bracketing refers to the trading range market or a price region that is non- trending.

Breakaway Gap

When a tradable exits a range by trading at price levels that leaves a price area where no trading occurs on a bar chart. These gaps appear at the completion of important chart formations.

Breakout

Breakout refers to the point when the market price moves out of the trend channel.

Call Option

Call option is a contract that gives the buyer of the option the right but not the obligation to take delivery of the underlying security at a specific price within a certain time.

Candlestick Charts

Candlestick charts are a charting method, originally from Japan, in which the high and low are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. If the close is above the open, the body is white. If the close is below the open, the body is black.

Catastrophe Stop

A Catastrophe Stop is an absolute level where positions must be exited because existing exits have not yet activated.

Chakin Oscillator

Chakin Oscillator is an oscillator created by subtracting a 10 day from a three day EMA of accumulation/distribution line.

Channel

In charting, a price channel contains prices throughout a trend. There are three basic ways to draw channels: parallel, rounded and channels that connect lows or highs.

Chaos Theory

Caos theory describes the behaviour of non-linear systems. A subset of non-linear dynamics analysis, chaos theory is a branch of mathematics focusing on irregular and complex behaviour that has an underlying order.

Christmas Tree Spread

Christmas Tree Spread is a simultaneous purchase and writing of option with either a different strike price or expiration date or combination of the two.

Closed Trades

Closed trades are positions that have been either liquidated or offset.

Coincidence

Coincidence in Gann theory, a projected reversal point.

Confidence Factor

Confidence factor measures the degree of likelihood that a rule is correct, which may reflect the percentage of times that it has proven to be correct in the past or just a subjective measure of our confidence in its degree of reliability.

Confirmation

Indication that at least two indices, in the case of Dow theory the industrials and the transportation, corroborate a trend or a turning point.

Congestion Area or Pattern

Congestion area or pattern is a series of trading days in which there is no visible progress in price.

Consolidation

Consolidation is also known as a congestion period. A pause that allows market participants to re-evaluate the market and sets the stage for the next price move.

Continuation Chart

A chart in which the price scale for the data for the end of a given contract and the data for the beginning of the next contract are merged in order to ease the transition of one contract to the next.

Convergence

Convergence is when futures prices and spot prices come together at the expiration.

Coppock Curve

Coppock curve is a long-term price momentum indicator: a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the DJIA.

Correction

Correction is any price reaction within the market leading to an adjustment by as much as one-third to two-thirds of the previous gain.

Corrective Wave

Corrective wave is a wave or cycle of waves moving against the current impulse trend’s direction.

Countermove

Countermove refers to the price bar showing movement opposite to the direction of the prior period (ie. a retracement).

Cover

Cover is repurchasing a contract sold before.

Covered Write

Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realise additional return on the underlying common stock or gain some element of protection from a decline in the value of that underlying stock.

Crack Spreads

Crack Spreads refers to the spread between crude oil and its products, heating oil and unleaded gasoline.

Credit Spread

Credit Spread is the difference in value of two options, where the value of one sold exceeds the value of one purchased.

Cup with Handle

Cup with Handle refers to the accumulation pattern observed on bar charts and lasts from seven to 65 weeks; the cup is in the shape of a U and the handle is usually more than one or two weeks in duration. The handle is a downward drift with low trading volume from the right side.

Curve-Fitting

Curve-Fitting is developing complicated rules that map known conditions.

Cycle

Variation where a point of observation returns to its origin.

Daily Range

Daily Range is the difference between high and low price in one trading day.

Dead-Cat Bounce

Dead-Cat Bounce is a market rebound that sees prices recover and come back up.

Debit Spread

Debit Spread is the difference in value of two options, where the value of the long position exceeds the value of the short.

Deep-in-the-Money

Deep-in-the-Money is a call option with the strike well below the current price of the underlying instrument or a put option with the strike well above the current price of the underlying instrument.

Delta

Delta is the amount by which the price of an option changes for every dollar move in the underlying instrument.

Delta-Hedged

Delta-Hedged an options strategy that protects an option against small price changes in the option’s underlying instrument.

Delta-Neutral

Options/options or options/underlying instrument position constructed so it is relatively insensitive to the price movement of underlying instruments.

Delta Position

Delta Position is the measure of option price vs. underlying futures contract or stock price.

Derivatives

Derivatives are financial contracts the value of which depend on the value of the underlying instrument – commodity, bond, equity, currency or a combination.

Directional Movement Index (DMI)

Developed by J. Welles Wilder, DMI measures market trend.

Divergence

Divergence is when two or more averages or indices fail to show confirming trends.

Double Bottom (Top)

Double Bottom (top) shows price action of a security or market average where it has declined (advanced) two times to the same approximate level, indicating the existence of a support (resistance) level and a possibility that the downward (upward) trend has ended.

Early Entry

Early Entry is a large price movement in one direction within the first 15 minutes after the open of the daily session.

Efficient Market Theory

Efficient Market Theory in which all known information is already discounted by the market and reflected in the price.

Elliott Wave Theory

Elliot Wave Theory refers to pattern recognition technique published by Ralph Nelson Elliott in 1939, holding that the stock market follows a rhythm or pattern of five waves up and three waves down to form a complete cycle of eight waves. Three waves down are referred to as a correction of the preceding five up.

Envelope

Lines surrounding an index or indicator; trading bands.

Equilibrium Market

Equilibrium Market is the price region that represents a balance between demand and supply.

Eurodollar

Dollars deposited in foreign banks, with the futures contract reflecting rates offered between London branches of top US banks and foreign banks.

Exercise

Exercise is the process by which the holder of an option makes or receives delivery of shares of the underlying security.

Exit

Exit is the point at which a trader closes out of a trade.

Expert Systems

Expert Systems are rule-driven systems that cannot learn as the result of new information being fed into its system as opposed to neural networks, which can.

Expiration

Expiration is the last day on which an option can be traded.

Exponential Moving Average

Exponential Moving Average is similar to a simple moving average but gives greater weight to the latest data and responds to changes faster than a simple moving average.

Exponential Smoothing

Exponential Smoothing is a Mathematical statistical method of forecasting that assumes future price action is a weighted average of past periods; a mathematic series in which greater weight is given to more recent price action.

Extreme

Highest or lowest price during any time period, a price extreme; in the CBOT Market Profile, the highest/lowest prices the market tests during a trading day.

Fade

Selling a rising price or buying a falling price. A trader fading an up opening would be short, for example.

Failure Swings

Failure swings is the inability of price to reaffirm a new high in an uptrend or a new low in a downtrend.

Failure

In Elliott theory, a five-wave pattern of movement in which the fifth impulse wave fails to move above the end of the third, or in which the fifth wave does not contain the five sub waves.

Fast Market

Fast Market, a declaration that market conditions in the futures pit are so disorderly temporarily to the extent that floor brokers are not held responsible for the execution of orders.

Fibonacci Ratio

Fibonacci Ratio is the ratio between any two successive numbers in the Fibonacci sequence, known as phi(f). The ratio of any number to the next higher number is approximately 0.618 (known as the Golden Meanor Golden Ratio), and to the lower number approximately 1.618 (the inverse of the Golden Mean), after the first four numbers of the series. Three important ratios that the series provides are 0.618, 1.0 and 1.618.

Fibonacci Sequence

Sequence of numbers (0,1,2,3,5,8,13,21,34,55,89,144,233…) discovered by Italian mathematician Leonardo de Pisa in the 13th century and the mathematical basis of the Elliott wave theory. This occurs where the first two terms of the sequence are 0 and 1 and each successive number in the sequence is the sum of the previous two numbers. Technically a sequence and not a series.

Fill

Fill is an executed order; sometimes the term refers to the price at which an order is executed.

Fill Order

Fill Order is an order that must be filled immediately (or cancelled).

Filter

Filter is a device or program that separates data, signal or information in accordance with specified criteria.

Filter Point

At which a portfolio insurance program makes an adjusting trade.

Flaglike

Sideways market price action with a slight price drift counter to the direction of the main trend (ie. a consolidation phase).

Flash Fill

Flash Fill is an order filled immediately by hand signal on the trading floor.

Floor Traders

Floor Traders are brokerage firm employees working on exchange trading floors.

Forward-Rate Agreements (FRAs)

Forward-Rate Agreements are when cash payments are made daily as the spot rate varies above or below an agreed-upon forward rate and can be hedged with Euro-dollar futures.

Front Month

Front Month is the first expiration month in a series of months.

Fundamental Analysis

Fundamental Analysis is an analytical method by which only the sales, earnings and the value of a given tradable asset may be considered.

Fundamentals

Theory that holds that stock market activity may be predicted by looking at the relative data and statistics of a stock as well as the management of the company and its earnings.

Future Volatility

Future Volatility is a prediction of what volatility may be like in the future.

Gamma

Gamma is the degree by which the delta changes with respect to changes in the underlying instrument’s price.

Gann’s Square of 9

Gann’s Square of 9 is a trading tool that relates numbers, such as a stock price, to degrees on a circle.

Gann Theory

Various analytical techniques developed by legendary trader W.D. Gann.

Gap

Gap refers to day in which the daily range is completely above or below the previous day’s daily range.

Give-Up

Give-Up is when a broker executes an order for another broker’s client and the two brokers split the commission; the client pays nothing extra.

Golden Mean or Golden Ratio

Ratio of any two consecutive numbers in the Fibonacci sequence, equal to 0.618; an important proportion that is a phenomenon in music, art, architecture and biology.

Golden Section

Golden Section refers to any length divided so that the ratio of the smaller to the larger part is equivalent to the ratio between the larger part and the whole and is always 0.618.

Greeks

Jargon; a loose term encapsulating a set of risk variables used by options traders.

Handles

Handles are full-point moves.

Head and Shoulders

heads and shoulders refers to when the middle price peak of a given tradeable is higher than those around it.

Herrick Payoff Index

Index requiring two inputs, one of which is a smoothing factor known as the multiplying factor; the other is the value of a one-cent move.

Historic Volatility

Historic Volatility refers to how much contract price has fluctuated over a past period; usually calculated by taking a standard deviation of price changes over a period.

Hook Day

Hook Day is a trading day in which the open is above/below the previous day’s high/low and the close is below/above the previous day’s close with narrow range.

Implied Volatility

Volatility computed using actual market prices of an option contract and one of a number of pricing models.

Impulse

Impulse is a sharply defined change in a series of input data being studied, such as market prices or volume.

Impulse Wave

Wave or cycles of waves that carry the current trend further in the same direction.

In-the-Money

In-the-Money is a call option whose strike is lower than the stock or future’s price, or a put option whose strike is higher than the underlying tradeable’s price.

Initial Balance

Initial Balance is the first or first two half-hour trading periods in the CBOT Market Profile during which prices tend to converge.

Intrinsic Value

Intrinsic Value is the portion of an option’s premium that is represented when the cash market price is greater than the exercise price; a known constant equal to the difference between the strike price and underlying market price.

January Effect

January Effect refers to the tendency for securities prices to recover in January after tax related selling is completed before the previous year’s end.

Lag

Number of data points that a filter, such as a moving average, follows or trails the input price data. Also, in trading and time series analysis, lag refers to the time difference between one value and another. Though lag specifically refers to one value being behind or later than another, generic use of the term includes values that may be before or after the reference value.

LEAPS

LEAPS is an acronym for long term equity anticipation securities, which are long term listed options, with maturities that can be as long as two and a half years.

Least Squares Method

Least Squares Method is a Technique of fitting a curve close to given points that minimizes the sum of the squares of the deviations of the given points from the curve.

Leg

One side of a spread.

Leg Out

In rolling forward in futures, a method resulting in liquidating a position.

Limit Move

Limit Move is a change in price that exceeds the limits set by the exchange on which the contract is traded.

Limit Order

Order to buy or sell when a price is fixed.

Limit Up; Limit Down

Commodity exchange restrictions on the maximum up or down movements permitted in the price for a commodity during any trading session day.

Load

Load refers to commission and fees taken out of investment capital; that is, the situation in which a front-loaded mutual fund takes commission and fees out of investment capital before the money is put to work.

Local

Local is a trader in a pit of a commodity exchange who buys and sells for his or her own account.

Locked Limit

Locked Limit is a market that, if not restricted, would seek price equilibrium outside the limit but, instead, moves to the limit and ceases to trade.

Long

Establishing ownership of the responsibilities of a buyer of a tradeable (ie. holding securities in anticipation of a price increase in that security).

Lookback Interval

Lookback Interval is the number of periods of historical data used for observation.

Low Ticking

Low Ticking is to sell at the bid price.

MACD

See Moving Average Convergence/Divergence.

Managed Futures

Managed Futures refers to a fund that uses the futures market as its primary asset.

Margin

In stock trading, an account in which purchase of stock may be financed with borrowed money; in futures trading, the deposit placed with the clearinghouse to assure fulfilment of the contract. This amount varies daily and is settled in cash.

Market to Market

At the end of each business day, open positions carried in an account held at a brokerage are credited or debited funds based on the settlement of the open positions that day.

Market If Touched

Resting order with floor broker that becomes a market order to be executed if the trigger is hit.

Market Maker

Market Maker refers to a broker or bank prepared to make a two-way price to purchase or sell for a security or currency.

Market on Close

Order specification that requires the broker to get the best price available on the close of trading, usually during the last five minutes of trading.

Market Order

Instructions to the broker to immediately sell to the best available bid or to buy from the best available offer.

Market Risk

Market Risk refers to the uncertainty of returns attributable to fluctuation of the entire market.

Market Sentiment

Crowd psychology, typically a measurement of bullish or bearish attitudes among investors and traders.

Market Timing

Market timing refers to using analytical tools to devise entry and exit methods.

Market Value

Company value determined by investors, obtained by multiplying the current price of company stock by the common shares outstanding.

Martingale

From roulette, a tactical system that requires doubling your bet after each loss, so that winning once you recoup the amount originally bet.

Maximum Adverse Excursion

Historical measurement of the closed losing trades versus the closed profitable trades of a trading system. Used to determine the stop-loss that can be used that will allow winning trades to remain (ie. the extreme unfavourable price level reached for both profitable and unprofitable trades).

Mathematical Edge

Mathermatical Edge is a calculation to show how your strategy will make money before you ever place a trade.

Mean

Mean or average. When the sum of the values is divided by the number of numbers.

Mean Deviation

Average absolute value of the difference between the population of numbers and the mean.

Mental Stop-Loss

Stop-loss order kept in your head instead of instructing your broker.

Momentum

Momentum is a time series representing change of today’s price from some fixed number of days back in history.

Momentum Filter

Momentum Filter refers to measure of change, derivative or slope of the underlying trend in a time series. Implemented by first applying a low-pass filter to the data and then applying a differencing operation to the results.

Momentum Indicator

Market indicator utilizing price and volume statistics for predicting the strength or weakness of a current market and any overbought or oversold conditions, and to note turning points within the market.

Moving Average

Moving Average is a mathematical procedure to smooth or eliminate data fluctuations and to assist in determining when to buy and sell. Moving averages emphasise the direction of a trend, confirm trend reversals and smooth price and volume fluctuations that can confuse interpretation of the market; sum of a value plus a selected number of previous values divided by the total number of values.

Moving Average Crossovers

Point where the various moving average lines intersect each other or the price line on a moving average price bar chart. Technicians use crossovers to signal price-based buy and sell opportunities.

Moving Average Convergence/Divergence (MACD)

Crossing of two exponentially smoothed moving averages plotted above and below a zero line. Crossover, movement through the zero, and divergences generate buys and sells.

Naked Put

Writer of a put option not short the underlying security.

Narrow Range Day

Narrow Range Day is a trading day with a smaller price range relative to the previous day’s price range.

Near-the-Money

Option with a strike close to the current price of the underlying.

Neckline

Trendline drawn along the support or resistance points of various reversal and consolidation pattern (ie. head and shoulder, double and triple top/bottom formations).

Negative Convergence

Negative Convergence is when two or more averages, indices or indicators fail to show confirming trends.

Net Asset Value

Total market value of all securities contained in a mutual fund; also known as price per share.

Neural Network

Neural Network is an artificial intelligence program capable of learning through a training process of trial and error.

Noise

Noise refers to price and volume fluctuations that can confuse interpretation of market direction.

Non-Trend Day

Non-Trend Day is a narrow range day lacking any discernible movement in either direction.

Normal Distribution

For the purposes of statistical testing, the simulated net returns are assumed to be drawn from a particular distribution. If net returns are drawn from a normal distribution, low and high returns are equally likely, and the most likely net return in a quarter is the average net return.

Notice Day

Day a notice of intent to deliver is issued to a futures contract holder.

Odd Lot

Order to buy/sell fewer than 100 shares of stock.

On-Balance Volume

Plotted as a line representing the cumulative total of volume. The volume from a day’s trading with a higher close when compared with the previous day is assigned a positive value, while volume on a lower close from the previous day is assigned a negative value. Traders look for a confirmation of a trend in OBV with the market or a divergence between the two as an indication of a potential reversal.

Open Trades

Open Trades are current trades that are still held active in the customer’s account.

Opening Range

Opening Range refers to the range of prices that occur during the first 30 seconds to five minutes of trading, depending on the preference of the individual analyst.

Optimisation

Optimisation refers to the methodology by which a system is developed with rules tailored to fit the data in question precisely.

Order

Number of days of past price history used to predict the following day’s price.

Oscillator

Oscillator is a technical indicator used to identify overbought and oversold price regions. An indicator that de-trends data, such as price.

Out-of-Sample

Item within the range of a sample that does not conform to the mean of the sample.

Out-of-the-Money

Out-of-the-Money is a call option whose exercise price is above the current market price of the underlying security or futures contract. For example, if a commodity price is $500, then a call option purchased for a strike price of $550 is considered out-of-the-money

Overbought

Overbought refers to market prices that have risen too steeply and too fast.

Overfitting

Parameters of a trading system are selected to return the highest profit over the historical data.

Oversold

Oversold refers to market prices that have declined too steeply and too fast.

Overbought/Oversold Indicator

Indicator that defines when prices have moved too far and too fast in either direction and thus are vulnerable to a reaction.

Parabolic

Of, having the form of or relating to a parabola.

Parameter

Variable, set of data, or rule that establishes a format for a model.

Pennants

Short compact wedge accompanied by receding volume.

Pivot Point

In market activity, a price reversal point.

Point and Figure Chart

Price-only chart that plots up prices as X’s and down prices as O’s. Minimum price recorded is called the box size. Typically, a three-box reversal indicates a change in the direction of prices.

Position Management Ratio

Position Management Ratio refers to the ratio of profits extracted on winning transactions versus losses suffered on trades that liquidate unprofitably.

Premium

Premium is the price a buyer pays to an option writer for granting an option contract.

Profit Taking

Profit taking refers to selling tradeables that have appreciated since initial purchase to take advantage of the appreciation.

Program Trading

Trades based on signals from computer programs, usually entered directly from the trader’s computer to the market’s computer system.

Put Option

Put Option is a contract to sell a specified amount of a stock or commodity at an agreed time at the stated exercise price.

Pyramid

Pyramid refers to increase holdings that an investor has by using the most buying power available in a margin account with paper and real profits.

Rally Tops

Rally Tops refers to price level that concludes a short-term rally in an on-going trend.

Random Walk

Random Walk is a theory that says there is no sequential correlation between prices from one day to the next.

Range

Range is the difference between the high and low price during a given period.

Range Extension

In the CBOT Market Profile, a price movement beyond the range set by the initial auction.

Rate of Change

In which today’s closing price is divided by the closing price n days ago. Multiply by 100. Subtract 100 from this value.

Ratio

Relation that one quantity bears to another of the same kind, with respect to magnitude or numerical value.

Reaction

Reaction is a short-term decline in price.

Rectangle

Rectangle refers to trading area bounded by horizontal, or near horizontal, lines. It can either be a reversal or continuation pattern, depending on the breakout.

Relative Strength

Relative Strength is a comparison of the price performance of a stock to a market index such as S&P 500 stock index.

Relative Strength Index

Relative Strength Index is an indicator invented by J. Welles Wilder and used to ascertain overbought/oversold situations.

Resistance

Price level at which rising prices have stopped rising and either moved sideways or reversed direction.

Resting Order

Resting Order is an order placed with a condition or qualifier but not yet executed.

Retracement

Retracement is price movement in the opposite direction of the previous trend.

Reward-Risk Ratio

Monthly excess return to risk comparison, calculated by dividing alpha by standard deviation. (A ratio better than 0.4 is excellent).

Reversal Gap

Chart formation where the low of the last day is completely above the previous day’s range with the close above mid-range and above the open.

Reversal Stop

Reversal is a stop that, when hit, is a signal to reverse the current trading position. Also known as stop and reverse.

Risk (Implied)

In which the formula produces percentage overbought/oversold for contract using price, moving average and option’s implied volatility.

Risk-Adjusted Return on Capital (RAROC)

Another measure of risk-adjusted profitability, derived as the ratio between P/L and value at risk.

Rounding Bottom

Rounding Bottom is a pattern describing the process of a company regrouping after a series of business missteps. The rounding bottom is the end of the downtrend.

Saucer Base

Saucer Base is similar to a cup and handle formation, but the saucer base is shallower and rounder in shape.

Scalp

In commodities, purchasing and selling in equal amounts so there is no net position at the end of the trading day; a speculative attempt to make a quick profit by buying at the initial offering price in the hope the issue will increase and can be sold.

Seasonality

Seasonality is consistent and predictable change in market activity that occurs from consistent and predictable events.

Selling Short

Selling a security and then borrowing the security for delivery with the intent of replacing the security at a lower price. In futures trading, selling short is to assume the responsibility of the seller vs. the buyer.

Sensitivity

Sensitivity refers to the rate of change of moving average in response to movement of underlying data. The most sensitive period is that in which the rate of change of the moving average is fastest in response to changes in the sinewave.

Serial Correlation

Serial Correlation refers to systematic relationship between successive observation of a time series.

Settlement

Price at which all outstanding positions in a tradeable are marked to market. Typically, the closing price.

Short Interest Ratio

Ratio that indicates the number of trading days required to repurchase all of the shares that have been sold short.

Simple Moving Average

Arithmetic mean or average of a series of prices over a period.

Slippage

Slippage is the difference between estimated transaction and actual transaction costs.

Smoothing

Simply, a mathematical technique that removes excess data variability while maintaining a correct appraisal of the underlying trend.

Specialist

Specialist refers to a trader on the market floor assigned to fill bids/orders in a specific stock out of his/her own account when the order has no competing bid/order to ensure an orderly market.

Spike

Sharp rise in price in a single day or two; may be as great as 15-30%, indicating the time for an immediate sale.

Spot Month

Spot Month is the current contract month. Also known as the front month.

Spot Prices

Spot Prices are the same as cash price, the price at which a commodity is selling at a particular time and place.

Spread

Trade in which two related tradeables are traded to exploit the relative differences in price change.

Spread Rolls

Spread Rolls refers to using a spread order to bridge the closing of one position and the establishment of a new one.

Spring

Spring refers to a two-day pattern in which on the first day, the market declines below a support point, while the next day sees the market move strongly back up into the congestion area. Also, another term for upthrust; occurs when price moves above a pivot top and a widespread reversal ensues.

Standard Deviation

Square root of the expected value of the square of the difference between a random variable and its mean.

Stochastic Oscillator

Stochastic Oscillator refers to overbought/oversold indicator that compares today’s price to a preset window of high and low prices.

Stops

Buy stops are orders placed at a predetermined price over the current price of the market. Sell stops are orders that are placed with a predetermined price below the current price.

Stop and Reverse (SAR)

Stop that, when hit, is a signal to reverse the current trading position. Also known as reversal stop.

Stop-Loss

Stop-Loss is a risk management technique in which the trade is liquidated to halt any further decline in value.

Stop-Running

After a trend, the market will enter into a trading range and have a tendency to trade to levels where stop- loss orders have been placed.

Straddle

Straddle refers to a purchase or sale of an equivalent number of puts and calls on an underlying stock with the same exercise price and expiration date.

Strangle

Strangle refers to purchase or sale of an equivalent number of puts and calls on an underlying stock with the same expiration date but a different exercise price.

Strike Price

Strike Price is the price per unit at which the holder of an option may receive or deliver the underlying unit; also known as the exercise price.

Strips

Strips refers to an Option strategy in which an investor buys one call and two puts on the same underlying security with the same exercise price and expiration date.

Support

Historical price level at which falling prices have stopped falling and either moved sideways or reversed direction; usually seen as a price chart pattern.

Swing Chart

Chart with a straight line drawn from each price extreme to the next price extreme based on set criteria such as percentages or number of days.

Swings

Swings refers to a measurement of movement of the price of a tradeable between extreme highs and lows.

Technical Analysis

Technical Analysis is a form of market analysis that studies demand and supply for securities and commodities based on trading volume and price studies.

Theta

Theta is the measurement of the time decay of a position.

Thrust

Thrust is the comparison between the price difference of successively lower pivot bottoms or higher pivot tops.

Tick

Minimum fluctuation of a tradeable, most stocks trade in eighths.

Time Series

Time series is a collection of observations made sequentially in time and indexed by time.

Time Value

Time Value is the difference between the premium paid for an option and the intrinsic value. As the option approaches expiration, the time value erodes, eventually to zero.

Trading Range

Trading range is the difference between high and low prices traded during a period (ie. in commodities, the high/low price limit established by the exchange for a specific commodity for any one day’s trading).

Trailing Stop

Stop-loss order that follows the prevailing price trend.

Trend

Trend refers to the tendency of a set of statistical data as related to time.

Trend Channel

Parallel probable price range centred about the most likely price line. Historically, this term has been used to denote the area between the base trendline and the reaction trendline defined by price moves against the prevailing trend.

Trend Day

Trend Day is the day in which the price of a futures contract moves consistently away from the opening range and does not return to the opening range prior to the close.

Trend Following

Trend Following is moving in the direction of the prevailing price movement.

Trending Market

Price moves in a single direction, generally closing at an extreme for the day.

Trendless

Price movement that vacillates to the degree that a clear trend cannot be identified.

Trendline

Line drawn that connects either a series of highs or lows in a trend.

Triangle

A pattern that exhibits a series of narrower price fluctuations over time (ie. top and bottom boundaries need not be of equal length).

Triangular Moving Average

Moving average in which each day’s data are multiplied by a weight that increases in value at steady increments to a peak value and then declines to zero at equivalent increments.

Uncovered Option

Uncovered Option refers to the buy or sale of an option without a position in the underlying futures contract; also known as a naked option.

Upthrust

Upthrust occurs when price moves above a pivot top and a widespread reversal ensues.

Value Area

Value Area is the price range on the CBOT Market Profile in which approximately 70% of the day’s trades occur.

Variable-Length Moving Average

Moving average where the number of periods selected for smoothing is based on a volatility measurement of price.

Vertical Spread

Stock option spread based on simultaneous purchase and sale of options on the same underlying stock with the same expiration months but different strike prices.

Volatility

Volatility is the measure of a stock’s tendency to move up and down in price, based on its daily price history over the latest 12 months.

Volume

Shares traded for a given market or tradeable.

Volume Price Trend (VPT)

In which a running sum is maintained when a day’s total volume is added if the market closes positive or the day’s total volume is subtracted if the market closes lower. See On- Balance volume.

Wave

In Elliott wave theory, a sustained move by a market’s price in one direction is determined by the reversal points that initiated and terminated it.

Wave Cycle

Impulse wave followed by a correction wave, the impulse wave being made up of five smaller, numbered waves of alternating direction designated 1,2,3,4 and 5, and the correction wave being composed of three smaller alternating waves designated a, b and c.

Wedge

Wedge is a pattern in which two converging lines connect a group of price peaks and troughs.

Whipsaw

Whipsaw refers to losing money on both sides of a price swing.

Williams’ %R

Overbought and oversold indicator that is used to determine market entry and exit points.

Zeta

Zeta is the percentage change in an options price per 1% change in implied volatility.

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