%b:
This indicates where the closing price is within Bollinger
bands.
%D: A stochastics indicator that has
had its values smoothed a second time, usually with a
three-period moving average.
5% Confidence: Prior to carrying out
statistical tests, an analyst must select a confidence
level that will be used to determine when to accept the
null hypothesis.
A 5% confidence level indicates that one is not willing
to accept the null hypothesis when the average net return
calculated from the sample could have occurred in only
five of 100 samples if the null hypothesis were true.
A
A Priori: Refers
to known ahead of time.
Abandoned Baby Pattern: A rare candlestick pattern in
which an upside gap doji star is followed by a downside
gap black candlestick.
ABC: ABC refers to the Elliott wave terminology
for a three-wave countertrend price movement.
Accumulation: An addition to a trader's
original market position.
Accumulation/Distribution Line: See Chaikin
Oscillator.
Actuals: Actual physical commodities,
as distinguished from futures.
ADA: A computer programming language,
used by the Department of Defense.
Adaptive Filter: This is smoothing and/or
forecasting prices with continuously updated weighting
of past prices.
Advance-Decline Line: A line on a graph
representing the advance-decline index over a period of
time.
The direction of the advance-decline line is used to confirm
movements in a stock or the market.
Adverse Excursion: Loss attributable
to price movement against the position in any one trade.
AKA: Abbreviation for "automated knowledge
acquisition".
This refers to the use of programs to create knowledge
needed by other programs.
Alpha: The premium that an investment
portfolio earns above a given point of reference.
American Depository Receipts
(ADRs): ADRs are certificates that are
issued by a bank of US origin and traded in the US as
domestic shares.
Amortization: An accounting method in
which an asset's cost is spread out.
Analysis of Variance
(Anova): This is the partitioning of
total sum of squares into the sum of squares explained
by the model and the remaining sum of squares unexplained.
Anaume: It is one of the candlestick
formation.
Anchoring-and-Adjustment: The behavioral
finance having the tendency to evaluate current decisions
in the context of past events.
Annealing (Simulated): This is
a process, in artificial intelligence under which a neural
network searches for a set of weights to minimize errors;
the search constantly shrinks as the weights find better
values.
Annual Earnings Change: The percentage value
for the historical earnings change between the most recently
reported fiscal year earnings and the preceding.
Annual Net Profit Margin: The percentage
value that a firm earned from gross sales for the most
recent fiscal year.
Annual Sales Change: The percentage change
in sales between the most recently reported fiscal year
and the preceding.
Annualized: Translating the figures for
a given year into an annual rate.
Antithetic Forecasts: Two forecasts whose
errors are negatively correlated.
Arbitrage: The simultaneous purchase
and sale of two different, but related, securities to
take advantage of a disparity in their prices.
ARIMA: See AutoRegressive Integrated
Moving Average.
ARMAX (AutoRegressive Moving Average eXogenous
variables model): The combination of fundamental
variables outside the particular market that correlates
with the independent variable added with the ARMA modeling
of the remaining residuals.
Arms Index: A market indicator showing
the ratio between the average volume of declining stocks
and the average volume of advancing stocks.
Artificial Intelligence: A branch of
computer science that studies how to endow computers with
capabilities of human intelligence.
Assign: To transfer to another to whom
property is assigned.
Astrophysical Cycle: This is any earthly
cycle, such as a market cycle, that has been scientifically
related to the physics of the planetary system.
Attenuation: The loss in power of electromagnetic
signals between transmission and reception points.
At-the-Money: An option whose strike
price is closest to the current price of the underlying
deliverable.
Autocorrelation: Correlation of the error
terms from different observations of the same variable.
Also called serial correlation.
Autoregressive: Using historical data
to predict future data.
AutoRegressive Integrated Moving Average (ARIMA):
A linear stochastic model forecasting methodology described
by Box and Jenkins in their book “Time Series Analysis,
Forecasting and Control”.
Average Directional Movement Index (ADX):
An indicator to measure market trend intensity.
Average True Range: A moving average of the true
range.
B
Back Month: A month furthest from expiration
referring to trading futures or options on futures Back-Propagation
Network: A feed forward multilayered neural network
used in neural network paradigm.
Back-Testing: A process whereby a strategy
is tested on historical data and then the strategy is
applied to new information to test if the results are
consistent.
Balanced Mutual Fund: A mutual fund
that seeks a combination of capital appreciation and
current income as a return.
Bandpass Filter: Filter with a single
transmission band or passband with relatively low attenuation
extending from a lower band-edge frequency greater than
zero to a finite upper band- edge frequency.
Bank Investment Contracts (BICs): BICs
are the negotiated-term deposits issued by a commercial
bank.
Bar Chart: A charting method which
consists of four significant points: the high and the
low prices, which form the vertical bar, the opening
price, which is marked with a horizontal line to the
left of the bar, and the closing price, which is marked
with a little h Basis: The difference between cash prices
and the futures contract price.
Basis Points: These refer to the yield
on bonds, with each percentage point of the yield on
the bond equaling 100 basis points.
Basket Trades: Large transactions made
up of a number of different stocks.
Bayes Decision Rule: A rule stating
that the strategy chosen from those available is that
for which the expected value of payoff is the greatest.
Bear Market: A securities market characterized
by declining prices.
Beta: A regression of the estimated
coefficient that belongs to a particular variable.
Beta (Coefficient): Beta is the measure
of a fund's volatility relative to the market.
Bias: The difference between the expected
value of an estimator and the actual value to be estimated.
Bid and Ask: The bid is the highest
price a person is willing to pay for a security.
The ask is the lowest price at which someone is willing
to sell a security.
Bimodal Distribution: In statistics,
a bimodal distribution is a distribution with two different
peaks - there are two distinct values that measurements
tend to center around.
Black Box: A proprietary, computerized
trading system whose rules are not disclosed.
Black-Scholes Option Pricing Model:
This is a statistical formula developed to estimate
the market value of a publicly traded stock option.
Block Trades: Large transactions of
a particular stock sold as a unit.
Blow-Off Top: A steep and rapid increase
in price followed by a steep and rapid drop in price.
Bonds: Long-term debt securities with
a stated interest rate and fixed due dates.
Boolean: A field of mathematical logic,
which allows a database searcher to combine concepts
in a keywords search using three commands.
Box-Jenkins Linear Least Squares: The
additive structure of Box-Jenkins models with a polynomial
structure.
Box-Jenkins Method: The method refers
to the use of autoregressive integrated moving averages
(ARIMA), which fit seasonal models and non-seasonal
models to a time series.
Box-Jenkins Nonlinear Least Squares:
These are the multiplicative structure of Box-Jenkins
models using the Gauss-Newton algorithm with numerical
derivatives.
Bozu: A situation during which a trading
cycle opens or closes on a high or low.
Bracketing: A trading range market
or a price region that is non-trending.
Breakaway Gap: A price gap which occurs
in the beginning of a new trend, many times at the end
of a long consolidation period.
Breakout: The point when the market
price moves out of the trend channel.
Broker-Dealer: A securities firm that
is acting as a broker or intermediary and/or a dealer
or principal in a transaction.
Bull Market: A securities market characterized
on rising or high prices.
Buy and Hold: Acquisition of a tradable
for the long term rather than quick turnover.
C
C Language: A widely used systems development
language, with more facilities to control the machine
at the level of the hardware.
Call Option: A contract which gives
the buyer the right, but not the obligation, to buy
a specific futures contract at a predetermined price
within a limited period of time.
Calmar Ratio: This is a return/risk
ratio.
Return (numerator) is defined as the Compound Annualized
Rate of Return over the last three years.
Risk (denominator) is defined as the Maximum Drawdown
over the last three years.
Candlestick Charts: A chart
that indicates the trading ranges for the day as well
as the opening and closing price.
Capital Gains Distribution: Payments to mutual
fund shareholders of profits from the sale of securities
in a fund's portfolio.
Capital Losses: Losses resulting from
selling at a loss.
CBOT: Acronym for Chicago Board of
Trade.
Central Limit Theorem: A statistical
theorem explaining that the distribution of sample means
taken from a large population approaches a normal, Gaussian,
curve.
Chaikin Oscillator: An oscillator created
by subtracting a 10-day EMA from a three-day EMA of
the accumulation /distribution line.
Channel: In charting, a price channel
contains prices throughout a trend.
Chaos Theory: The theory of non-linear
functions, such that small differences in the input
of the function can result in large and unpredictable
differences in the output.
Charts: A display or picture of a security
that plots price and/or volume.
Chi Square: A statistical test to determine
the probability that an observed deviation from the
expected event or outcome occurs solely by chance.
Christmas Tree Spread: The simultaneous
purchase and writing of options with either a different
strike price or expiration date or combination of the
two.
Classifier Systems: In artificial intelligence,
these systems perform a type of machine learning that
generates rules from examples.
Clone Fund: A fund which tries to copy
the strategy of a successful, existing fund.
Closed Trades: The positions that have
been either liquidated or offset.
Closed-End Funds: The mutual funds
that do not sell unlimited shares.
Clustering: Locating the presence of
groups of vectors that are similar in some fashion.
CME: Acronym for Chicago Mercantile
Exchange.
Coefficient: A number expressing the
amount of some change or effect under certain conditions.
Coefficient of Determination: A measure
of the total variance in a dependent variable that is
explained by its liner relationship to an independent
variable.
It is usually denoted R2 and lies between zero and unity;
the closer to unity, the greater the explanatory power.
Coincidence: In the Gann theory, coincidence
is a projected reversal point.
Colinear: See Multicolinearity.
Combined Forecast: The weighted average
of two or more forecasts.
Commodity Futures Trading Commission (CFTC):
The federal regulatory agency that oversees the futures
and options on futures markets in the United States.
Comparative Relative Strength: An index
which compares the price movement of a stock with that
of its competitors, industry group or the entire market.
Comparitor: A device of some kind that
compares two inputs.
Compounding: The process by which income
is earned on income that has previously been earned.
Confidence Factor: A measure of the
degree of likelihood that a rule is correct.
Confidence Level: The degree of assurance
that a specified failure rate is not exceeded.
Confirmation: The indication that at
least two indices, in the case of Dow theory the industrials
and the transportation, corroborate a market trend or
a turning point.
Congestion Area or Pattern: A sequence
of trading days in which there is no visible progress
in price.
Consolidation: A pause that allows
participants in a market to reevaluate the market and
sets the stage for the next price move.
Consumer Price Index: The gauge of
US inflation.
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.
This facilitates the transition of one contract to the
next.
Contract: An agreement as in options
in which rights are exchanged by law.
Convergence: A situation when futures
prices and spot prices come together at the futures
expiration.
Conversion Arbitrage: A transaction
where the asset is purchased and buys a put option and
sells a call option on the asset purchased, each option
having the same exercise price and expiry.
Coppock Curve: A long-term price momentum
indicator.
Correction: Any price reaction within
the market leading to an adjustment by as much as one-third
to two-thirds of the previous gain.
Correction Wave: A cycle of waves moving
against the current impulse trend's direction.
Correlation Coefficient: A numerical
value that identifies the strength of relationship between
variables.
Correlogram: A measure of spatial dependence
(correlation) of a regionalized variable over some distance.
Cost Basis: The cost of a given share
or group of stock shares.
Countermove: A price bar showing movement
opposite to the direction of the prior time period.
Covariance: A measure of the relation
between two variables.
The correlation coefficient is equal to the covariance
of x and y divided by the product of the standard deviation
of x and the standard deviation of y.
Cover: Purchasing back a contract sold
earlier.
Covered Write: The sale of a call option
against an existing long (short) position in the underlying
contract.
Crack Spreads: The spread between crude
oil and its products.
Credit Spread: The difference in value
of two options, where the value of the one sold exceeds
the value of the one bought.
Cross Correlations: The extent to which
the revenue streams of individual traders within a single
enterprise tend to exhibit similar patterns over time.
CTI2: Market profile terminology for
commercial clearing members.
Cup and Handle: An accumulation pattern
observed on bar charts, which lasts from seven to 65
weeks.
Current Ratio: Current assets divided
by current liabilities.
This ratio indicates the extent to which the claims
of short-term creditors are covered by assets expected
to be converted to cash in the near future.
Curve: The continuous image of the
unit interval.
Curve-Fitting: Developing complicated
rules that map known conditions.
CUSIP: The number assigned by the Committee
of Uniform Security Identification Procedure that appears
on all securities documents.
Cutoff Frequency: That frequency beyond
which no appreciable energy is transmitted.
Cycle: A variation where a point of
observation returns to its origin.
D
Daily Range: The difference between
the high and low price during one trading day.
Data Preprocessing: Altering data
to some extent to be more accurately analyzed.
Dead Cat Bounce: A rebound in a market
that sees prices recover and come back up somewhat.
Debit Spread: An option spread in which
the premium of the bought option is greater than the
premium of the one sold.
Deductive Logic: Logic traditionally
used in expert systems, which defines a method for reasoning
from the general to the specific.
Deep-in-the-Money: A call option which
has the strike price of the option well below the current
price of the underlying instrument.
Degrees of Freedom: The number of
observations minus the number of parameters to be estimated.
Delay: The amount of time that elapses
between a change in an input event and the resultant
change in a related output event or time series.
Delta: A statistical measure of the
relationship between an option contract's price movement
to the price movement of the underlying futures contract
or stock price.
Delta Neutral: An option portfolio
delta-hedged such that it has no exposure to small moves
in the price of the underlying.
Delta Position: A measure of option
price vs.
the underlying futures contract or stock price.
Delta-Hedged: An option approach which
saves an option against small price fluctuations in
the option's underlying instrument.
Demand Index: A leading indicator which
combines volume and price data in such a way as to indicate
a change in price trend.
Density Function: A function describing
the "density" of a variable at a point.
Dependence: A relationship between
two different experimental results in which the first
result does not directly influence the chances of the
second result occurring, but instead, the two results
are indirectly related because they are subject to influences
from a c Derivatives: Instruments, such as options and
futures contracts, which derive their value from the
value of an underlying security, group of securities
or an index.
Deterministic: Known in advance when
the sum of one-step ahead forecast mean squared errors
is zero.
Deterministic System: In mathematics,
a deterministic system is a system in which no randomness
is involved in the development of future states of the
system.
Detrend: To remove the general tendency
of a set of statistical data as related to time.
Difference-in-Means Test: A statistical
test that indicates the likelihood of observing the
difference if the true difference were zero.
Differencing: Subtracting previous
from current values to obtain a stationary (detrended)
time series: P stationary = Pt - Pt-1.
Diffusion Equation: A partial differential
equation, used in solving a random walk problem.
Diffusion Index: An index that calculates
the percentage of individual series that are positive
compared with the aggregate group.
Directional Movement Index (DMI): An
index which measures market trend.
Distribution: Any set of related values
described by an average, which identifies its midpoint,
a measure of spread and a measure of its shape.
Divergence: When two or more averages
or indices fail to show confirming trends.
Dividend: Stockholder payment of a
share of a company's profits.
Dividend Reinvestment Plan: A plan
offered by some companies where the shareholder’s dividends
are used to purchase additional shares in the company.
Doji: Single candlestick pattern that
forms when the open and close are equal or almost equal.
Dollar Cost Averaging: Investing a
set amount of money, at regular intervals, over a long
period of time.
Double Bottom (Top): A reversal pattern
consisting of two price troughs: The market declines
to a new low, retraces, then falls again to the approximate
price level of the first trough and retraces again.
The implication is that by failing to break below the
first price low, Double-Smoothed: A price series that
has been smoothed by a mathematical technique such as
a moving average.
Drawdown: The reduction in account
equity as a result of a trade or series of trades.
Drunkard's Walk: See Random Walk.
Durbin-Watson Statistic: The probability
that first order correlation exists.
Dynamic Data Exchange: Ability to automatically
update an application from within another application.
Dynamic Linked Language: Refers to
programming code that can be used by the main program
while running under Windows.
E
Early Entry: A large price movement
in one direction within the first 15 minutes after the
opening of the daily session.
Earnings Estimates: The estimated
earnings projected for a company for a fiscal year.
Efficient Market Theory: A theory stating
that stock prices perfectly reflect all market information
that is known by all investors.
Elasticity: The ability to recover
an original configuration.
Electronic Communications Network:
Independent execution systems set up by brokerage firms.
Elliott Wave Theory: The basis of
a technical analysis technique for predicting the behavior
of the stock market.
It is based on the belief that markets exhibit well-defined
wave patterns that can be used to predict market direction.
Engulfing Pattern: In candlestick terminology,
a reversal signal with two opposing-color real bodies
making up the pattern.
Entry: The point at which a trader
gets into a position in the market.
Envelope: Lines surrounding an index
or indicator that is, trading bands.
Equilibrium Market: A price region
that represents a balance between demand and supply.
Equivolume Chart: A chart that measures
the relationship between price and volume.
Price is measured on the vertical axis and volume is
measured on the horizontal axis.
ERISA: The Employee Retirement Income
Security Act.
Estimated EPS Change: (%) Change in
estimated mean earnings for the current fiscal year
from the last month, last three months and last six
months to the current month.
Eurodollar: US currency held in banks
outside the US, primarily in Europe.
Evening Star Pattern: The bearish counterpart
of the morning star pattern; it should be acted on if
it arises after an uptrend.
Exchange-Traded Funds: These are not
mutual funds in the traditional sense; rather, they
are hybrid instruments combining aspects of common stocks
and mutual funds and offering many of the benefits of
both.
Ex-Dividend Date: The day on or after
which the right to receive a current dividend is not
automatically transferred to a buyer.
Exercise: The process by which the
holder of an option makes or receives delivery of shares
of the underlying security.
Exit: The point at which a trader
closes out of a trade.
Expert Systems: Systems in which human
expertise is held in the form of rules which enable
the system to diagnose situations without the human
expert being present.
Expiration: The last day on which an
option can be traded.
Explained: The relative reduction in
the variation of variable Y that can be attributed to
a knowledge of variable X and its relationship to Y.
Extreme: The highest or lowest price
during any time period, a price extreme.
F
F Statistics: The ratio of the variance
explained by treatments to the unexpected variance.
Fade: Selling a rising price or buying
a falling price.
Failure: In Elliott Wave 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 subwaves.
Failure Swings: The failure of price
to reaffirm a new high in an uptrend or a new low in
a downtrend.
Fair Values: The theoretical prices
generated by an option pricing model.
Fast Fourier Transform: An efficient
algorithm to compute the discrete Fourier transform
(DFT) and it’s inverse.
They are of great importance to a wide variety of applications,
from digital signal processing to solving partial differential
equations to algorithms for quickly mul Fast Market:
Rapid movement in a market caused by strong interest
by buyers and/or sellers.
Federal Deposit Insurance Corporation:
A self-sustaining, independent executive agency established
to insure deposits of all US banks entitled to federal
deposit insurance.
Federal Open Market Committee: The
policymaking committee of the Federal Reserve Bank.
Federal Reserve Bank: The governing
central bank of the US.
Feed forward Computation: Neural network
in which neurons receive data only from the previous
layer and send outputs only to the following layer.
Fibonacci Ratio: The ratio between
any two successive numbers in the Fibonacci sequence,
known as phi (f).
Fibonacci Sequence: The sequence of
numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,
233.), which is the mathematical basis of the Elliott
wave theory, where the first two terms of the sequence
are 0 and 1 and each successive number in the sequence
is the sum of the pre Fill: An executed order.
Fill Order: An order that must be filled
or canceled immediately.
Filter: A device or program that separates
data, signals or information.
Filter Point: The time at which a portfolio
insurance program makes an adjusting trade.
Fire: (verb) In expert system programming,
ordinarily used to describe the "triggering" or "activation"
of a rule.
A rule is "fired," "triggered" or "activated" when its
conditions have been met, and its "consequents" (resultant
facts) are added to the knowledg Fit Criterion: A quantitative
comparable measure used to minimize model errors.
Flaglike: Sideways market price action
that has a slight drift in price counter to the direction
of the main trend; a consolidation phase.
Flash Fill: Order filled immediately
by hand signal on the trading floor.
Float: The number of shares currently
available for trading.
Floor Traders: Employees of brokerage
firms working on exchange trading floors.
Flyers: Speculative or high-risk trades.
Forecast Origin: The most recent historical
period for which data is used to build a forecasting
model.
Forward-Rate Agreements (FRAs): Cash
payments are made daily as the spot rate varies above
or below an agreed -upon forward rate and can be hedged
with Eurodollar futures.
Fractal Dimension: From fractal geometry,
used to describe the irregular nature of lines, curves,
planes or volumes.
Fractals: Depiction of mathematical
models that may be applied to identify data patterns.
Framing or Frame Dependence: The tendency
to evaluate current decisions within the framework in
which they have been presented.
Frequency: The number of complete
cycles observed per time period Frequency Component:
That part of a time series that may be represented as
a cycle.
Frequency Distribution: An arrangement
of data to show the number of times an event occurs
in a particular way.
Frequency Domain: The analysis of
mathematical functions with respect to frequency.
Frequency Response: A measure of what
frequencies can be reproduced and how accurately they
are reproduced.
Front Month: The first expiration
month in a series of months.
Front-Loaded: Commission and fees
taken out of investment capital prior to beginning work.
Front-Running: Trading ahead of large
orders to take advantage of favorable price movement.
Fundamental Analysis: Research and
examination of a corporation's financial statements
and balance sheets to predict the future price movements
of their securities.
Fundamentals: The 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 in question and its
earnings.
Future Volatility: A prediction of
what volatility may be like in the future.
Fuzzy Systems: A problem-solving process
that can be applied to neural networks, expert systems
and other computing methods.
These systems process inaccurate information inexactly
and describe ambiguity rather than the uncertainty of
an occurrence and are useful in perf
G
Gamma: The degree by which the delta
changes with respect to changes in the underlying instrument's
price.
Gann Theory: Various analytical techniques
developed by legendary trader W. D. Gann.
Gann's Square of 9: A trading tool
that relates numbers, such as a stock price, to degrees
on a circle.
Gap: A day in which the daily range
is completely above or below the previous day's daily
range.
Genetic Algorithms: A class of heuristic
search methods and computational models of adaptation
and evolution based on natural selection.
Genetic Programming: In artificial
intelligence, this form of programming automatically
generates a program from a set of primitive constructs.
Give-up: When a broker executes an
order for another broker's client and the two brokers
split the commission.
Golden Mean or Golden Ratio: The ratio
of any two consecutive numbers in the Fibonacci sequence,
known as phi and equal to 0.
618.
Golden Section: A unique measurement
phenomenon in nature wherein the off-centered proportional
finite value of about 5 to 8 represents a measurement
with infinite values.
Greeks: Jargon; a loose term encapsulating
a set of risk variables used by options traders.
Gross Domestic Product: Value of all
goods and services produced domestically.
Growth Fund: A fund designed to provide
capital appreciation by investing in stocks with growth
potential.
Guaranteed Investment Contracts (GICs):
Product offered by life insurance companies to pension
funds which pay investors a stated rate of return for
a stated term.
H
Hanning Weight: Weight (W) at point
J in window width of N points is determined by this
formula.
Harami: In candlestick terminology,
a small real body contained within a relatively long
real body.
Head and Shoulders: When the middle
price peak of a given tradable is higher than those
around it.
Hedge Fund: A mutual fund involving
speculative investing in stocks and options.
Herrick Payoff Index: This is a commodity
trading tool used for the early spotting of changes
in price trend direction.
The index is used to differentiate trends that are destined
to continue from those that will most likely be short-lived.
Heuristic Bias: The use of rules of
thumb for decisions.
Heuristic Method: Problem solving approached
by trying out several different methods and comparing
which pro vides the best solution.
Heuristics: A problem-solving technique
in which the most appropriate solution is selected using
rules.
Interfaces using heuristics may perform different actions
on different data given the same command.
Hidden Node: Elements that give a
neural network the ability to learn nonlinear patterns.
Hierarchical Neural Network: In artificial
intelligence, a neural network in which predictions
derived from networks at one level of the hierarchy
are incorporated as inputs at another level.
High Pass Frequency Filter: A detrending
filter that lets pass the high frequency noise and rejects
low frequency trend.
High-Ticking: To pay the offered price.
Hines Ratio: A modified put/call ratio
that refines traditional option ratio analysis by including
the open interest figures in the equation and can be
defined as (Total put volume/Total put open interest)
divided by (Total call volume/Total call open interest).
Historic Volatility: Measuring a contract’s
price fluctuation over a past period of time; usually
done with a standard deviation of price changes over
time.
Historical Data: A series of past
daily, weekly or monthly market prices.
Hook Day: 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.
I
Implied Alpha: The excess return expected
from a stock to justify its current weighing in the
portfolio.
Implied Volatility: A measurement of
the market's expected price range of the underlying
currency futures based on the traded option premiums.
Impulse: A sharply defined change
in a series of input data being studied, such as market
prices or volume.
Impulse Wave: A wave or cycle of waves
that carries the current trend further in the same direction.
In Play: A stock that is the focus
of a public bidding contest, as in a takeover or bear
raid.
Income Dividends: The distribution
of earnings to stockholders by a company.
Index Fund: A mutual fund that replicates
the behavior of a given index.
Inductive Logic: The progress from
statements describing particular events to a general
statement.
Inefficient Markets: Driven by frame
dependence and heuristic bias, when market prices stray
from fundamental values.
Initial Balance: The initial auction
of the trading day.
Initial Public Offering: When a stock
is officially available for the public to buy.
Inside Day: A day in which the daily
price range is completely within the previous day's
daily price range.
Interest Rate Swaps: An agreement
to swap interest rate exposures from floating to fixed
or vice versa.
There is no swap of the principal.
Intermarket Analysis: Observing the
price movement of one market for the purpose of evaluating
a different market.
In-the-Money: A put option that has
a strike price higher than the underlying futures price,
or a call option with a strike price lower than the
underlying futures price.
Intrinsic Value: The amount by which
the price of a warrant or call option exceeds the price
at which the warrant or option may be exercised.
Investment Clubs: A group of individuals
who pool money together for investments in the stock
market.
IRA: Individual Retirement Account.
An interest-earning retirement savings account in which
the allowable contributions and earnings are not taxed
until the funds are withdrawn.
Irregular Flat: A type of Elliott wave
correction that has a 3-3-5 wave pattern, where the
B wave terminates beyond the start of wave A.
Island: Electronic communications
network.
J
January Effect: The tendency for securities
prices to recover in January after tax-related selling
is completed before the year-end.
Jumbo Certificate of Deposit: A CD
worth at least $100,000.
K
Kagi: One of three types of Japanese
candlestick charts that does not have time on the horizontal
axis.
Kalman Filters: A linear
system in which the mean squared error between the desired
and the actual output is minimized when the input is
a random signal.
Kelly's Law: Bet bigger when the odds are in
your favor.
Knowledge Base: In artificial intelligence,
a given inventory of knowledge specific to a set of
rules.
Kondratieff, Nikolai: Developer of
a wave theory.
KST: A weighted summed rate of change
oscillator.
Kurtosis: Descriptive measure of how
flat or pointed a distribution is.
L
Lag: The number of data points that
a filter follows.
Latest Quarterly Earnings: The percentage
change from the latest earnings reported compared with
the same quarter a year earlier.
Law of Series: A succession of random
events.
Lead: The number of data points that
a filter precedes the input price data.
LEAPS: 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: A technique
of fitting a curve close to some 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 that
would result in liquidating a position.
Limit Move: A change in price that
exceeds the limits set by the exchange on which the
contract is traded.
Limit Order: An order to buy or sell
when a price is fixed.
Limit Up, Limit Down: Commodity exchange
restrictions on the maximum upward or downward movements
permitted in the price for a commodity during any trading
session day.
Ljung-Box Statistic: A chi-square
test of significance of higher order correlation existence.
Load: Situation in which a front-loaded
mutual fund takes commission and fees out of investment
capital before the money is put to work.
Local: The trader in a pit of a commodity
exchange who buys and sells for his or her account.
Locked Limit: 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 tradable.
Lookback Interval: The number of periods
of historical data used for observation and calculation.
Low Pass Frequency Filter: A data
smoother or filter that lets pass low frequency trend
sinusoids and rejects high frequency noise (see SMA).
Low-Ticking: To sell at the bid price.
M
MACD: See Moving Average Convergence/Divergence.
Macro: A computer method commonly
used in spreadsheets to automate repetitive steps by
recording the necessary keystrokes.
Major Auction: The overall trend of
the market such as might be observed on a bar chart.
Managed Futures: A fund that uses
the futures market as its primary asset.
Mandelbrot Set: A set of complex numbers
that has a highly convoluted fractal boundary when plotted.
Mapping: A function, or relation between
values.
Margin: In stock trading, an account
in which purchase of stock may be financed with borrowed
money.
Marginal Significance Level of Test-Statistics:
The probability distribution used to test the hypothesis
that the beta coefficient does not equal zero.
Marked to Market: At the end of each
business day the open positions carried in an account
held at a brokerage firm are credited or debited funds
based on the settlement price of the open positions
that day.
Market Breadth: The shares of a particular
stock traded during a specific period.
Market If Touched: Resting order with
the floor broker that becomes a market order to be executed
if the trigger price is traded.
Market Maker: A person or firm authorized
to create and maintain a market in an instrument.
Market on Close: An order specification
that requires the broker to get the best price available
on the close of trading.
Market Order: An order to buy or sell
a futures or options contract at whatever price is obtainable
when the order reaches the trading floor.
Market Risk: The uncertainty of returns
attributable to fluctuation of the entire market.
Market Sentiment: A measurement of
bullish or bearish attitudes among investors and traders.
Market Timing: Using analytical tools
to devise entry and exit methods.
Market Value: Company value determined
by investors.
Markov Chain: A set of processes where
the probabilities for the next state are dependent on
the present state.
Martingale: A system that requires
doubling your bet after each loss, so that winning once
you recoup the amount originally bet.
MATIF: The Marche A Terme Des Instruments
Financiers exchange in Paris.
Maxima: The highest or maximum value.
Maximax: Optimistic decision-making
that identifies the decision alternative with the best
possible outcomes.
Maximin: Pessimistic decision-making
that identifies the decision alternative with the worst
possible outcomes.
Maximum Adverse Excursion: A historical
measurement of the closed losing trades versus the closed
profitable trades of a trading system.
Maximum Entropy Method: A tool for
spectrum analysis and a method of adaptive filtering
and trend forecasting.
Maximum Entropy Spectrum Analysis:
See Maximum Entropy Method.
Mean: When the sum of the values is
divided by the number of observation.
Mean Deviation: The average absolute
value of the difference between the population of numbers
and the mean.
Mean P/L: The average profitability
of a trader's account.
Mean Return: The average monthly total
return of a stock.
Mean Reverting: The state when price
is oscillating randomly about some mean value.
Median Line: The line that is drawn
from an extreme that bisects a line drawn through the
next corrective phase after the pivot point.
MEM: See Maximum Entropy Method.
Mental Stop-Loss: A stop-loss order
kept in your head instead of instructing your broker.
MESA: See Maximum Entropy Spectrum
Analysis.
Minima: The lowest or minimum value.
Minor Auction: The latest trend of
the market.
Mode: The most frequently occurring
value.
Model: Equation.
Modern Portfolio Theory: Investing
theory in which portfolio managers estimate and manage
risk and return.
Modified Endowment Contract: Life
insurance in which funds are considered as gross income
and are subject to income tax.
Momentum: Time series representing
change of today's price from some fixed number of days
back in history.
Momentum Filter: A measure of change,
derivative or slope of the underlying trend in a time
series.
Momentum Indicator: A market indicator
utilizing price and volume statistics for predicting
the strength or weakness of a current market.
Money Flow: An indicator that calculates
an indexed value based on price and volume for the number
of bars specified in the input length.
Money Market: The market for short
term debt instruments maturing in one year or less.
Money Market Fund: A mutual fund investing
in short term money market instruments.
Money Stop: A fixed amount of money
that a market participant would lose if a stop were
hit.
Monowave: In Elliott wave theory,
a single wave within a range of waves.
Morning Star: A bottom reversal pattern,
according to Steve Nison a signal that the bulls have
seized control.
Moving Average: A mathematical procedure
to smooth or eliminate the fluctuations in data and
to assist in determining when to buy and sell.
Moving Average Convergence/ Divergence (MACD):
The crossing of two exponentially smoothed moving averages
that are plotted above and below a zero line.
Moving Average Crossovers: The point
where the various moving average lines intersect each
other or the price line on a moving average price bar
chart.
Moving Window: Snapshot of a portion
of a time series at an instant in time.
Multicolinearity: The situation in
which the independent variables used in a regression
analysis are related to each other.
Multiple Linear Regression: More than
one independent variable is used to account for the
variability in one dependent variable.
Mutual Fund: A company that invests
money of its shareholders in a variety of areas, usually
stocks.
N
Naked Put: The writer of a put option
contract who is not short the underlying security.
Narrow Range Day: A trading day with
a smaller price range relative to the previous day's
price range.
National Association of Investors Corporation:
Also known as the National Association of Investment
Clubs.
Near-Month Contract/Far-Month Contract:
Contract whose expiration is near/far.
Near-the-Money: An option with a strike
price close to the current price of the underlying tradable.
Neckline: A trendline drawn along
the support or resistance points of various reversal
and consolidation pattern.
Negative Amortization: A gradual increase
in the mortgage debt that occurs when the monthly payment
is not large enough to cover the entire principal and
interest due.
The amount of the shortfall is added to the unpaid principal
balance to create negative amortization.
Negative Divergence: When two or more
averages, indices or indicators fail to show confirming
trends.
Net Asset Value: The total market worth
of all securities contained in a mutual fund.
Neural Network: An artificial intelligence program that
is capable of learning through a training process of
trial and error.
No-Action Letter: An SEC letter sent
in response to a written request for clarification of
the legality of an activity saying that no civil or
criminal action will be taken against an individual
engaging in the specific activity questioned.
Noise: Price and volume fluctuations
that can confuse interpretation of market direction.
Noisy Signal: A signal in which the
effects of random influences cannot be dismissed.
No-Load: Without any sales charge.
Nonlinear Dynamics Analysis: Analysis
of relationships that start from well-defined outcomes
to complex and chaotic results.
Nonlinear Statistics: Statistics theory
that attempts to define probability distribution from
disorder to either a more orderly state or a sharp trend
reversal.
Non-Seasonal Autocorrelation: Autocorrelation
that shows up other than at 12-month lag intervals.
Non-Trend Day: A narrow range day
lacking any discernible movement in either direction.
Normal Distribution: The normal distribution
(a bell-shaped curve) represents a theoretical frequency
distribution of measurements.
In a normal distribution, scores are concentrated near
the mean and decrease in frequency as the distance from
the mean increases.
Normalized: Adjusting a time series
so that the series lies in a prescribed normal, standard
range.
Notice Day: The day that a notice
of intent to deliver is issued to a futures contract
holder.
Null Hypothesis: The hypothesis that
there is no validity to the specific claim that two
variations (treatments) of the same thing can be distinguished
by a specific procedure.
O
Observer: A concept used in radar
research, applicable to trading, in how often and what
manner detection or radar contact is achieved.
OBV: See On-Balance Volume.
Odd Lot: An order to buy/sell fewer
than 100 shares of stock.
Off Farm: The amount of stocks held
by non-producers including supplies held at mills, elevators,
terminals, and processors.
On Farm: The amount of stocks held
by producers.
On-Balance Volume: Plotted as a line
representing the cumulative total of volume.
One-Tailed T-Test: A statistical test
of significance for a distribution that changes its
shape as N gets smaller.
OPEC: Organization of Petroleum Exporting
Countries.
Open Trades: Current trades that are
still held active in the customer's account.
Opening Call: A period at the opening
of a futures market in which the price for each contract
is established by outcry.
Opening Print: The first price of
a stock that comes across the ticker for the session.
Opening Range: The range of prices
that occur during the first 30 seconds to five minutes
of trading, depending on the preference of the individual
analyst.
Opportunity Costs: Income foregone
by the commitment of resources to another use.
Optimization: Finding the solution
that is the best fit to the available resources.
Option: A security that represents
the right, but not the obligation, to buy or sell a
specified amount of any security at a specific price
before or at a specific time.
Optional Cash Purchase: Buying additional
shares made through the dividend reinvestment account.
Order: The number of days of past
price history used to predict the following day's price.
Oscillator: A technical indicator
that measures the velocity of shorter-term price action
to determine whether a market is overbought or oversold.
Out Trade: A mismatched trade between
two traders in the pit, and which is settled the next
day.
Outdata: The result stemming from
a statistical test.
Outlier: A data point notably further
out from the central value than the others.
Out-of-Sample: An item within the range
of a sample that does not conform to the mean of the
sample.
Out-of-the-Money: A call option is
out-of-the-money if the price of the underlying instrument
is lower than the exercise/strike price.
Outside Reversal Month: A month in
which the recent monthly trading range exceeds the previous
month's range and closes opposite (reverses) the previous
month's close.
Overbought: Market prices that have
risen too steeply and too fast.
Overbought/Oversold Indicator: An indicator
that tries to define when prices have moved too far
and too fast in either direction and are likely to cause
a reaction.
Overfitting: The parameters of a trading
system are selected to return the highest profit over
the historical data.
Overshoot: To pass beyond or over
a specific targeted level.
Oversold: Market prices that have declined
too steeply and too fast.
P
Par: The full principal amount of
an investment instrument.
Parabola: The U-shaped curve in the
plane given by the equation of the form Parameter: A
variable, set of data, or rule that establishes a precise
format for a model.
Pareto's Law: A law that states that
80% of results come from 20% of the effort.
PASCAL: Block-structured programming
language developed originally as an aid to instruction,
now widely used for applications development.
Pennants: A short compact wedge accompanied
by receding volume.
Percentile: A value on the scale of
100 that indicates the percent of a distribution that
is equal to or below it.
Perceptron: A simple computational
model of a biological neuron comprising some input channels,
a processing element, and a single output.
Pessimistic Rate of Return: A statistic
that adjusts the usual wins/losses statistic to estimate
the worst return from trading results.
Phase Delay: The time lag that a filter
falls behind the pre-filtered data.
Phasor: The frequency, amplitude, and
phase of all frequency components of the signal.
Pivot Point: In market activity, a
price reversal point.
Point and Figure Chart: A price-only
chart that plots up prices as Xs and down prices as
Os.
Position Management Ratio: The ratio
of profits extracted on winning transactions versus
losses suffered on trades that liquidate unprofitably.
Premium: The price a buyer pays to
an option writer for granting an option contract.
Preprocessing: The act of processing
data before it is parsed.
Prewhitening: Removing the bulk of
first, second and possibly third order autocorrelations
using non-linear regression.
Price to Sales Ratio: The price of
a stock divided by sales-per-share of the company in
the most recent fiscal year.
Price/Earnings Ratio: Stock price
divided by annual earnings per share.
Probability Density Function: A graph
showing the probability of occurrence of a particular
data point (price).
Profit Margin Expansion: A measure
of a company's net profit margin in the latest reported
quarter divided by profit margin in the fiscal year
previous.
Profit Taking: Selling securities
to take a profit.
Program Trading: Trades based on signals
from computer programs, usually entered directly from
the trader's computer to the market's computer system.
Prospectus: Report published by the
company that operates a mutual fund.
Put Option: A contract to sell a specified
amount of a stock or commodity at an agreed time at
the stated exercise price.
Pyramid: To enlarge one's holdings
on an exchange on a continued rise by using paper profits
as margin to buy additional amounts.
Q
Quarterly Earnings Change: Historical
earnings change between the earnings most recently reported
and the quarter preceding.
Quarterly Net Profit Margin: Net operating
earnings after taxes for the latest quarter divided
by revenues for the quarter.
Quick Ratio: Indicators of a company's
financial strength.
Quotron: A proprietary financial data
service.
R
Rally Tops: A price level that concludes
a short-term rally in an ongoing trend.
Random Shock: The unexplained component
of an equation that models a time series.
Random Walk: An economic theory that
price movements in the commodity futures markets and
in the securities markets are completely random in character
(meaning, past prices are not a reliable indicator of
future prices).
Range: The difference between the
high and low price during a given period.
Range Extension: 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.
Ratio: The relation that one quantity
bears to another of the same kind, with respect to magnitude
or numerical value.
RBAR-Squared: The R-squared value
adjusted for the number of degrees of freedom.
Reaction: A short-term decline in
price.
Realized/Unrealized P/L: The difference
between trading revenues that are generated on positions
that have been offset and closed, versus those associated
with the marking of open positions to current market
prices.
Rectangle: A trading area bounded
by horizontal, or near horizontal, lines.
Recursive: A process that is repetitive
and usually dependent upon the results of the previous
repetition.
Regression (Simple): A mathematical
way of stating the statistical linear relationship between
one independent and one dependent variable.
Relative Return: The annualized return
on an investment in excess of the average three-month
US Treasury bill yield during the same period as the
investment.
Relative Return Standard Deviation:
Measures the amount of variability of the relative return.
Relative Strength: A comparison of
the price performance of a stock to a market index such
as Standard & Poor's 500 stock index.
Relative Strength Index: An indicator
used to determine overbought/oversold and divergent
situations.
Renko: A kind of candlestick chart
that does not take time into account for constructing
the chart.
Representativeness: Judgment by stereotype.
Residual Value: The standard deviation
of the unexplained portion of the monthly return.
Resistance: A price level at which
rising prices have stopped rising and either moved sideways
or reversed direction.
Resistance Line: On a chart, a line
drawn indicating the price level at which rising prices
have stopped rising and have moved sideways or reversed
direction.
Response: The change in value of the
average in response to the impulse.
Resting Order: An order placed with
a condition but not yet executed.
Retention Rate: Percentage of a firm's
aftertax profits that can be put to those earnings retained.
Retracement: A price movement in the
opposite direction of the previous trend.
Return on Assets: The net earnings
of a company divided by its assets.
Return on Equity: The net earnings
of a company divided by its equity.
Reversal Gap: A chart formation where
the low of the last day is completely above the previous
day's range with the close above midrange and above
the open.
Reversal Stop: A stop that, when hit,
is a signal to reverse the current trading position.
Reverse Exponential Moving Average:
An exponential moving average calculated by working
backward through the time series.
Reward-Risk Rank: Stocks ranked in
descending order by reward-risk ratio.
Reward-Risk Ratio: Monthly excess
return to risk comparison.
This is calculated by dividing alpha by standard deviation.
Rich: Price higher than expected.
Risk (Implied): In which the formula
produces the percentage overbought/oversold for a contract
using the price.
Risk-Adjusted Return on Capital (RAROC):
Another measure of risk-adjusted profitability, derived
as the ratio between P/L and value at risk.
Roll: Replacing a far option for a
near option on the same underlying instrument at the
same strike price.
Root Mean Square Percentage Error:
Square root of the average sum of squared errors expressed
as a percentage.
Rotation: Transferring funds from
one sector to another sector of the stock market.
Roth IRA: A type of Individual Retirement
Annuity in which contributions are made with after-tax
(nondeductible) dollars.
R-Squared: The percentage of a fund's
movements that are explained by movements in its benchmark
index and ranges from 0 to 100.
Running Market: A market wherein prices
are changing rapidly in one direction with very few
or no price changes in the opposite direction.
Running Total: Each day's value is
added to yesterday's total or subtracted if the value
is negative.
S
Sales Growth: The growth in sales in
a company.
Sales Load: A service charge of a
mutual fund that is added to the costs of owning a stake
in the fund.
Saucer Base: Similar to a cup and
handle formation, but the saucer base is shallower and
rounder in shape.
Savings and Loan Investment Contracts (SLICs):
A negotiated-term deposit issued by a savings and loan.
Scallop: One of a series of curves
shaped like semicircles that form a border.
Scalp: Purchasing and selling in equal
amounts so there is no net position at the end of the
trading day.
Schwarz-a-tron: A dedicated computer
system for options calculations and simulations.
Seasonal Autocorrelation: Autocorrelation
that shows up at 12-, 24-, 36- and 48-month lag intervals
or at four, eight, 12 and 16 quarterly lags.
Seasonal Trend: A consistent but short-lived
rise or drop in market activity that occurs due to predictable
changes in climate or calendar.
Seasonality: Changes in business,
employment or buying patterns which occur predictably
at given times of the year.
Sector Fund: A mutual fund that concentrates
on trading a range of securities within a particular
industry.
Sector Rotation: When a block of investment
professionals cash out of one industry sector to invest
in another.
Secular Trend: Pertaining to a long
indefinite period of time.
Security Selection Ratio: The percentage
of trades in a given account that liquidate profitably.
Seed: The first value used to start
a calculation.
SelectNet: A Nasdaq execution technology.
Self-Affine Transformation: A rescaling
procedure used in fractal geometry and performed on
a two-variable system.
Selling Short: Investors who sell shares
they do not possess in the hope of buying them back
at a lower price.
Semilog: Scaling method.
Sensitivity: The rate of change of
the moving average in response to the movement of the
underlying data.
Serial Correlation: The systematic
relationship between successive observation of a time
series.
Serially Independent: A number that
is unrelated to the previous number in a given series
in any way.
Settlement: The price at which all
outstanding positions in a stock are marked to market.
Shapiro-Wilkes Test: A statistical
test indicating the likelihood that the sample of simulated
net returns was drawn from a normal distribution.
Shareholder of Record: Share owner
of company stock as registered in company files.
Shaved Candlestick: In candlestick
charting, when the shadows of a candle which mark the
area between the real body and the extremes and give
the appearance of being wicks are absent.
Short Interest: Shares that have been
sold short but not yet repurchased.
Short Interest Ratio: The number of
days it would take to cover the Short Interest if trading
continued at the average daily volume for the month.
Signal: In the context of stock or
commodity time series historical data, this is usually
daily or weekly prices.
Signal Line: In artificial intelligence,
a numeric variable that is prevalued in the knowledge
base.
Signature Medallion Guaranty: Program
used by banks and other institutions to verify a signature.
Significance: The chance of rejection
on the basis of a statistical test and a hypothesis
that there is no validity to the specific claim that
two variations of the same thing can be distinguished
by a specific procedure.
Simple Moving Average: The arithmetic
mean or average of a series of prices over a period
of time.
Simple Regression: A mathematical way
of stating the statistical linear relationship between
one independent and one dependent variable.
Sinewave: A wave whose amplitude varies
as the sine of a linear function of time.
Skew: A descriptive measure of lopsidedness
in a distribution.
Slippage: The difference between estimated
transaction costs and actual transaction costs.
SMA: See Simple Moving Average.
Small Order Execution System (SOES):
Computerized system that automatically routes, executes,
reports, and compares market and limit orders between
100 and 1,000 shares in Nasdaq securities at market
makers' best displayed bid and offer prices.
Smoothing: A mathematical technique
that removes excess data variability.
Specialist: 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 a fair and orderly market.
Specify: To set the parameters and
variables of a given model.
Spectrum: The frequency decomposition
of time series data.
Spike: A sharp rise in price in a
single day or two.
Spline: The linear interpolation between
two adjacent points on a curve.
Spot Month: The current contract month.
Spot Prices: The price at which a
commodity is selling at a particular time and place.
Spread: A trade in which two related
securities are traded to take advantage of the price
differences in between the two.
Spread Rolls: Using a spread order
to bridge the closing of one position and the establishment
of a new one.
Spring: A two-day trend in which on
the first day, the market lowers below a support point,
while the next day sees the market move strongly back
up.
Stair-Stepping: In which market activity
is characterized by a trend, then sideways movements,
followed by another trend and further sideways movement.
Standard Deviation: A measure of the
range of variation from an average of a group of measurements.
Standard Error of the Estimate (SEE):
A measure of absolute fit.
Standardized Unanticipated Earnings: A firm’s mean earnings surprise is compared with analyst
earnings estimates dispersion, and is used to predict
the likelihood of earnings surprises.
Stationarity: A distribution of a quantity
that does not change over time.
Stationary Time Series: No observance
of a trend in the time series.
Statistics: The probability distribution
used to test the hypothesis that a random sample of
n observations comes from a normal population with a
given mean.
Step Function: A function that has
different constant values over adjacent subintervals;
thus it has discontinuities at the ends of each interval.
Stepwise Regression: An incremental
approach to multiple regression where the order of entry
of predictor variables is determine statistically.
Stochastic: Literally means random.
Stochastics Oscillator: An overbought/oversold
indicator that compares today's price to a preset window
of high and low prices.
Stock Index Futures: A futures contract
traded that uses a market index as the underlying instrument.
Stop and Reverse (SAR): A stop that,
when hit, is a signal to reverse the current trading
position.
Stop Loss: The 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.
Stops: Buy stops are orders that are
placed at a predetermined price over the current price
of the market.
Straddle: The buying or selling of
an equal number of puts and calls on an underlying stock
with the same exercise price and expiration date.
Strange Attractor: A call option which
has the strike price of the option well below the current
price of the underlying instrument.
Strangle: An option position consisting
of the purchase or sale of put and call options having
the same expiration but different strike prices.
Street Name: Stock ownership in which
shares are registered to a brokerage.
Strike Price: The price per unit at
which the holder of an option may receive or deliver
the underlying unit.
Strips: 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.
Struck: The price at which an exercised
option delivers the underlying securities.
Sum of Squared Residuals (SSR): Measure
related to the R-squared value and the smaller the number,
the higher will be the R-squared, and the better the
regression.
SuperDot: NYSE execution technology.
Support: A historical price level
at which falling prices have stopped falling and have
moved sideways.
Support Line: On a chart, a line drawn
indicating the price level at which falling prices have
stopped falling and have moved sideways or reversed
direction.
Swaps: The sale of one security to
purchase another with similar features.
Swing Chart: A chart that has a straight
line drawn from each price extreme to the next price
extreme based on a set criteria such as percentages
or number of days.
Swings: The measurement of movement
of the price of a tradable between extreme highs and
lows.
Synergistic Market Analysis: An analytical
method that merges technical and fundamental analysis
with an emphasis on intermarket analysis.
Synthetic Securities: Security created
by buying and writing a combination of options that
imitate the risk and profit profile of a security.
T
Tangibles: Cash equivalents of the
futures contracts.
Tax-Deferred: Description of an investment whose earnings
are not taxed until they are distributed to an investor.
Technical Analysis: A method of evaluating
future security prices and market directions based on
statistical analysis of variables such as trading volume,
price changes, etc.
, to identify patterns.
Telegrapher's Equation: A variation
of the Diffusion Equation that describes minor differences
in the drunkard's walk, in which the random decision
controls the change in direction rather than the direction
itself.
Term Structure: The slope of the term
structure is the yield on long-term government bonds
minus the yield on short-term instruments such as Treasury
bills.
Theta: The measurement of the time
decay of a position.
Thrust: A comparison between the price
difference of successively lower pivot bottoms or higher
pivot tops.
Tick: The minimum fluctuation of a
tradable.
Tick Indicator: The number of stocks
whose last trade was an uptick or a downtick.
Time Domain: The analysis of mathematical
functions, or real-life signals, with respect to time.
Time Series: A collection of observations
made sequentially in time and indexed by time.
Time Value: The difference between
the premium paid for an option and the intrinsic value.
Time-Price Opportunity: A cost that
occurs during designated half-hour periods of trading.
Tradable: Trading instrument.
Trade Facilitation: Liquidity.
Trading Bands: Lines plotted in and
around the price structure to form an envelope, answering
whether prices are high or low on a relative basis and
forewarning whether to buy or sell by using indicators
to confirm price action.
Trading Range: The difference between
the high and low prices traded during a period of time.
Trailing Stop: A stop-loss order that
follows the prevailing price trend.
Transfer Agent: Financial institution
that manages ownership records of company stock.
Transfer Function: The mathematical
relationship between the output of a control system
and its input for a linear system.
Transfer Response: The shape of the
wave coming out of a filter in comparison to the shape
going into it.
Transform: A process to change or convert.
Trend: The general drift, tendency
or bent of a set of statistical data as related to time.
Trend Channel: A parallel probable
price range centered about the most likely price line.
Trend Day: A 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: 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: A 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.
Triangular Moving Average: A moving
average in which each day's data is multiplied by a
weight that increases in worth at regular increments
to a peak value and then lowers to zero at equivalent
increments.
TRIN: The one-period difference of
the triple exponential smoothing operating on the log
of price.
True Range: The largest of the following:
Today's high minus today's low, today's high minus yesterday's
close, today's low minus yesterday's close.
True Strength Index: A momentum indicator
that double-smoothes the ratio of the market momentum
to the absolute value of the market momentum.
T-Test: A test that employs the statistic
(t) to test a given statistical hypothesis about the
mean(s) of a population.
Tulip Sector: A sector that is the
intense focus of speculators at the moment.
Turning Point: The approximate time
at which there is a change in trend.
Tweezers Bottoms and Tops: Candlestick
formations.
U
Uncovered Option: Industry slang for
call or put options that are written and not covered
or have another position that will limit their liability.
Underlying Instrument: A trading instrument
subject to purchase upon exercise.
Underlying Security: In options, a
stock subject to purchase upon exercise of the option.
Uniform Gifts to Minors Acts: A law
that allows minors to own property without the use of
a trust.
Univariate: Involving only one variable.
Upthrust: Occurs when price moves
above a pivot top and a widespread reversal ensues as
follows: a) two previous closes are reversed, b) close
is below pivot top, c) close is below opening and mid-range,
d) daily price range is greater than the previous day's
range
V
Value Area: The price range in which
approximately 70% of the day's trades occurs.
Value at Risk (VaR): The expected loss
from an adverse market movement based on a volatility
estimate.
Value Averaging: In which the average
is taken of a series of values.
Value-Weighted Index: A market average
such as Standard & Poor's 500 Index that takes into
account the market value of each security rather than
calculating a straight price average.
Variable-Length Moving Average: A moving
average where the number of periods selected for smoothing
is based on a volatility measurement of price.
Vega: The amount by which the price
of an option changes when the volatility changes.
Vertical Spread: Any of several types
of option spread involving the simultaneous purchase
and sale of options of the same class and expiration
date but different strike prices, including bull vertical
spreads, bear vertical spreads, back spreads, and front
spreads.
Vesting: The rights that an employee
gains for working at a firm for a specific length of
time.
Volatility: A 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: The shares that are traded
for a given market or tradable within a specified time
period.
Volume Price Trend (VPT): Trend 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.
W
W Formation: A double-bottom formation.
Warrant: A company-issued certificate
that represents an option to buy stock shares at a given
time.
Wasting: A term depicting how an option's
value decreases over time.
Wave: In Elliott wave theory, a sustained
move by a market's price in one direction as determined
by the reversal points that initiated and terminated
it.
Wave Cycle: A single impulse wave
followed by a correction wave.
Wedge: A pattern in which two converging
lines connect a group of price peaks and troughs.
Weighted Average Purchase Price: Multiply
each purchase order bought by the associated purchase
price, add them together and divide the total by the
number of blocks.
The result is the weighted average purchase price.
Weighted Industry Index: An index
where the importance of each stock is related to its
market capitalization.
Weighted Moving Average (WMA): A moving
average that assigns different weights to values or
periods within the total population, as opposed to an
equal weighting as with a simple moving average.
Whiplash: Alternating buy and sell
signals that result in losses.
Whipsaw: Losing money on both sides
of a price swing.
Wildcards: Characters in a quote symbol
or Dos file name that indicates an undefined, but categorized,
value.
Williams' %R: Overbought and oversold
indicator that is used to determine market entry and
exit points.
Window: Set period of time such as
a lookback period for market indicator in question.
Wizard: A preprogrammed step-by-step
procedure to aid the user in accomplishing a specific
task.
Y
Yates's Correction: When a small amount
of data is available for testing, the chi-square formula
is adjusted to account for the small sample base.
Z
Zero-Coupon Government Bonds: Government
bonds that are bought at discount and pay no cash dividend.
Zeta: The percentage change in an
options price per 1% change in implied volatility.
Zigzag: In a bull market, an Elliott
three-wave pattern that subdivides into a 5-3-5 pattern
with the top of wave B noticeably lower than the start
of wave A.In a bear market, this pattern will be inverted. |
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