Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Abandon

The failure to exercise or offset an option before its expiration.

Absolute Breadth Index

The absolute difference between the number of NYSE advances and declines. Generally, high ABI values suggest market bottoms, and low ABI values suggest market highs.

Absolute Value

The value of a number regardless of its sign (also known as the magnitude of the number). For example, the absolute value of negative 10 is 10; the absolute value of -10 is 10.

Accumulation/Distribution Indicator

A weighted volume indicator based on the one-day change in price divided by the current day’s range. Generally, the ADI moves in the direction of price. For example, if the price drops on a given day, the volume is deemed negative.

Actuals

The physical (cash) commodity or financial instrument rather than a futures or derivatives contract for that commodity or financial instrument.

Adjustments

Certain events such as a stock split or a stock dividend (e.g., a 3-for-2 stock split). An adjusted option may cover more than the usual one hundred shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a corresponding factor. Example: buying 1 call (covering 150 shares) at 4 would cost $600.

Advance-Decline Ratio

The ratio of NYSE advances to declines and one of the standard market indicators that can be used to analyze general market trends. Generally, ADR values above 1.25 indicate oversold conditions; values below .75 indicate overbought conditions.

Algebraic Notation

The most commonly understood method of writing a mathematical formula. A very simple example is 1 + 1 = 2 . TechniFilter Plus lets you enter formulas using this familiar method, but performs the calculation using the faster, more efficient post-fixed notation method.

All or None Order

A type of option order which requires that the order be executed completely or not at all. An AON order may be either a day order or a GTC order.

AmericanDepositary Receipts

American Depositary Receipts are certificates representing shares in a foreign corporation that a U.S. bank issues. The ADRs themselves can be traded on the U.S. stock market. They are a convenient means for U.S. investors to trade shares in non-U.S. companies

American Stock Exchange

The American Exchange located in New York whose lines of business include: stocks, stock options and exchange-traded funds (ETFs). This exchange is primarily open-outcry and the only non-electronic exchange approved to trade security futures products. As of press time, they have not released contract specifications or a list of possible security futures products.

American-Style Option

An option that can be exercised at any time prior to its expiration date. See also European-style option.

Arbitrage

A trading technique that involves the simultaneous purchase and sale of identical assets or of equivalent assets in two different markets with the intent of profiting by the price discrepancy.

Arbitrage Pricing Theory

A theory that if an investor earns a higher-than-normal return, it is because he or she is accepting a higher-than-normal risk.

Arbitration

Dispute resolution technique in which both parties agree to submit their cases to a private individual or body for resolution. A forum for the fair and impartial settlement of disputes. NFA’s arbitration program provides a forum for resolving futures-related disputes.

Arithmetic Combiners

Formula-writing tools that perform arithmetic operations (like multiplication and addition) on two time series to obtain a result series. A simple formula using an arithmetic combiner is C + L, which produces a result series in which each entry is the sum (+) of the close (C) and low (L) for a particular day in the two original time series. Arithmetic combiners include: + (addition), - (subtraction), / (division) and * (multiplication). There are nine arithmetic combiners and nine logical combiners.

Ask

The price at which a seller is offering to sell an option or a stock.

Ask Price

Price at which a seller will sell.

Assigned

Received notification of an assignment by The Options Clearing Corporation.

Assignment

Notification by The Options Clearing Corporation to a clearing member that an owner of an option has exercised his or her rights thereunder. For equity and index options, assignments are made on a random basis by The Options Clearing Corporation.

Associated Person

One who solicits orders, customers or customer funds for a Futures Commission Merchant, an Introducing Broker, a Commodity Trading Advisor or a Commodity Pool Operator and who is registered with the Commodity Futures Trading Commission (CFTC).

At The Money

A term that describes an option with a strike price that is equal to the current market price of the underlying stock.

Attractor

Sunny Harris coined this term to refer to the market's tendency to revert to the mean. An Attractor can be a line of support or resistance, a moving average, or a trendline. The markets tend to return to the Attractors. An Attractor is often a horizontal line or a trendline drawn, not on highs and lows, but at the preponderance of prices. Attractors are drawn around heavy market activity, not on extrema.

Average Bands

Bands placed a user-specified percentage above and below a moving average on a bar or line chart.

Average Directional Movement

The 14-day exponential average of the Directional Movement Indicator (DX).

Average Directional Movement Rating

The average of Average Directional Movement (ADX) today and ADX 14 days ago.

Average True Range

The true range of an issue’s price determined by taking an exponential average of the difference between the higher of today’s high and yesterday’s close, and the lower of today’s low and yesterday’s close.

Average True Range bands

Support/resistance lines that mark off an issue’s average true price range, which is determined by taking an exponential average of the difference between the higher of today’s high and yesterday’s close, and the lower of today’s low and yesterday’s close.

Averaging Down

Buying more of a stock or an option at a lower price than the original purchase so as to reduce the average cost.

B

Back Spread

A delta-neutral spread composed of more long options than short options on the same underlying instrument. This position generally profits from a large movement in either direction in the underlying instrument.

Backtesting

Testing a strategy on a large historical database to evaluate its profitability before risking any money.

Bar Chart

One of chart types produced by TechniFilter Plus. A bar chart is a graphic representation of an issue’s high, low, close and open prices. Prices appear on the vertical axis. Time is on the horizontal axis. For each day, a line is drawn to connect the high and the low. Closes are represented by ticks to the right of the high-low bar; opens are represented by ticks to the left of the bar. When just one time series is charted, a line chart is produced.

Basket Test

An open account test that has two main uses: (1) it lets you buy the top "n" issues from your chosen collection of issues based on some ranked statistic; and (2) it lets you test a strategy on a collection of issues. TechniFilter Plus tracks the basis required to trade the system and uses this number to compute return. Entry and exit fees are tracked (either fixed or percentage). On the General tab (Strategy dialog) enter the basket issues in the Issues to Test box.

Bear Spread

One of a variety of strategies involving two or more options (or options combined with a position in the underlying stock) that will profit from a fall in the price of the underlying stock.

Bear Spread Call

The simultaneous writing of one call option with a lower strike price and the purchase of another call option with a higher strike price. Example: writing 1 XYZ May 60 call, and buying 1 XYZ May 65 call.

Bear Spread Put

The simultaneous purchase of one put option with a higher strike price and the writing of another put option with a lower strike price. Example: buying 1 XYZ May 60 put, and writing 1 XYZ May 55 put.

Bearish

A negative interpretation of the behavior of an equity or the market as a whole based on a prolonged period of falling prices.

Bearish Pattern

A standard point & figure pattern. This Double Bottom variation has an added relationship between the previous two X columns. Namely, the most recent X column must top at a lower price than the previous X column. The Bearish Pattern, which occurs less frequently than the Double Bottom, is considered a stronger bearish signal.

Beta

A measure of how closely the movement of an individual stock tracks the movement of the entire stock market.

Bid

The price at which a buyer is willing to buy an option or a stock.

Black-Scholes Formula

The first widely-used model for option pricing. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.

Bollinger Bands

Curves plotted above and below a moving average of prices using a standard deviation offset. You specify where the bands should be placed in relation to the average.

Bond

Investments that pay interest (often a fixed amount) to investors. They are typically issued by a corporation, government or government agency. Essentially, bondholders have an IOU from the issuer, but no corporate ownership privileges, as stockholders do. Bonds are also called debt or fixed income securities.

Box

Boston Options Exchange Group L.L.C.

Box Spread

A four-sided option spread that involves a long call and a short put at one strike price as well as a short call and a long put at another strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call; simultaneously buying 1 XYZ May 65 put, and writing 1 May 60 put.

Boxsize

The dollar amount used to decide where to plot a new X or O on a point & figure chart. One of the two parameters required to draw a point & figure chart. The other is reversal.

Break Even Point

The stock price(s) at which an option strategy results in neither a profit nor a loss. While a strategy's break-even point(s) are normally stated as of the option's expiration date, a theoretical option pricing model can be used to determine the strategy's break-even point(s) for other dates as well.

Broker

A person acting as an agent for making securities transactions. An "Account Executive" or a "broker" at a brokerage firm deals directly with customers. A "Floor Broker" on the trading floor of an exchange actually executes someone else's trading orders.

Building Blocks

These formula-writing tools are letters that represent a particular time series in formulas. There are 12 building blocks. Six represent price time series (e.g., H represents the high time series in formulas). The rest of the building blocks represent popular volume indicators (e.g., K represents On-Balance Volume in formulas.

Bull Flag

A bull flag pattern is a chart pattern that occurs when a stock is in a strong uptrend. It is called a flag pattern because when you see it on a chart it looks like a flag on a pole and since we are in an uptrend it is considered a bullish flag.

Bull Spread

One of a variety of strategies involving two or more options (or options combined with an underlying stock position) that will profit from a rise in the price of the underlying stock.

Bull Spread Call

The simultaneous purchase of one call option with a lower strike price and the writing of another call option with a higher strike price. Example: buying 1 XYZ May 60 call, and writing 1 XYZ May 65 call.

Bull Spread Put

The simultaneous writing of one put option with a higher strike price and the purchase of another put option with a lower strike price. Example: writing 1 XYZ May 60 put, and buying 1 XYZ May 55 put.

Bullish

A positive interpretation of the behavior of an equity or the market as a whole based on an extended rise in prices. An adjective describing the opinion that a stock, or the market in general, will rise in price -- a positive or optimistic outlook.

Bullish Pattern

A standard point & figure pattern. This Double Top variation has an added relationship between the previous two O columns. Namely, the most recent O column must bottom at a higher price than the previous O column. The Bull Pattern, which occurs less frequently than the Double Top, is considered a stronger bullish signal.

Butterfly Spread

A strategy involving four options and three strike prices that has both limited risk and limited profit potential. A long call butterfly is established by: buying one call at the lowest strike price, writing two calls at the middle strike price, and buying one call at the highest strike price. A long put butterfly is established by: buying one put at the highest strike price, writing two puts at the middle strike price, and buying one put at the lowest strike price. For example, a long call butterfly might be: buying 1 XYZ May 55 call, writing 2 XYZ May 60 calls and buying 1 XYZ May 65 call.

Buying Power

One of two preliminary indicators used to compute the Demand Index. Buying power tries to measure that part of the trading volume that comes from buying the issue. This indicator uses price-movement measurements to weight the volume as either up-volume or down-volume. Its companion indicator is selling pressure.

Buy-Write

A covered call position in which stock is purchased and an equivalent number of calls written at the same time. This position may be transacted as a spread order, with both sides (buying stock and writing calls) being executed simultaneously. Example: buying 500 shares XYZ stock, and writing 5 XYZ May 60 calls. (See also Covered call writing.)

C

Calendar Spread

An option strategy which generally involves the purchase of a farther-term option (call or put) and the writing of an equal number of nearer-term options of the same type and strike price. Example: buying 1 XYZ May 60 call (far-term portion of the spread) and writing 1 XYZ March 60 call (near-term portion of the spread). Also known as calendar spread or horizontal spread.

Call Option

An option contract that gives the owner the right to buy the underlying stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a call option, the contract represents an obligation to sell the underlying stock if the option is assigned.

Candlestick Chart

One of the chart types produced by TechniFilter Plus. A candlestick (or candle) chart clearly displays the relationship between an issue’s current-day opening and closing prices. A line is drawn to connect each day’s high price with each day’s low price and a rectangle (called the candle body) is drawn over the bar. The height and location of the candle body is determined by the opening and closing prices. The top of the body is always at the higher of the open and the close. The bottom of the body is always at the lower of the open and the close. A solid black body indicates that the close is lower than the open. A solid white body indicates that the close is higher than the open. This simple construction makes it very easy to see up-days (solid white bodies) and down-days (solid black bodies).

Capital Appreciation

The growth in value of your investment when the price of your stocks or bonds increases.

Carry

The interest expense on money borrowed to finance a securities position. Cash settlement: The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying instrument. cash settlement amount (See Exercise settlement amount.)

Cash Secured Put

Cash secured put is an option strategy in which a put option is written against a sufficient amount of cash (or T-bills to pay for the stock purchase if the short option is assigned.

Cash Settlement

The process by which the terms of an option contract are fulfilled through the payment or receipt in dollars of the amount by which the option is in-the-money as opposed to delivering or receiving the underlying instrument.

Chicago Board Options Exchange

Established the Chicago Board Options Exchange in 1973. The first exchange to list standardized, exchange-traded stock options began its first day of trading on April 26, 1973, in celebration of the 125th birthday of the Chicago Board of Trade.[2][3] The CBOE is regulated by the Securities and Exchange Commission and owned by Cboe Global Markets.

Class of Options

A term referring to all options of the same type -- either calls or puts -- covering the same underlying stock.

Close

A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

Closing Price

The final price of a security at which a transaction was made.

Closing Transaction

A reduction or an elimination of an open position by the appropriate offsetting purchase or sale. An existing long option position is closed by a selling transaction. An existing short option position is closed by a purchase transaction. This transaction will reduce the open interest for the specific option involved.

Collar

A protective strategy in which a written call and a long put are taken against a previously owned long stock position. The options may have the same strike price or different strike prices and the expiration months may or may not be the same. For example, if the investor previously purchased XYZ Corporation at $46 and it rose to $62, a "collar" involving the purchase of a May 60 put and the writing of a May 65 call could be established as a way of protecting some of the unrealized profit in the XYZ Corporation stock position. The reverse -- a long call combined with a written put -- might also be used if the investor has previously established a short stock position in XYZ Corporation.

Collateral

Securities against which loans are made. If the value of the securities (relative to the loan) declines to an unacceptable level, this triggers a margin call. As such, the investor is asked to post additional collateral or the securities are sold to repay the loan.

Combination

A trading position involving out-of-the-money puts and calls on a one-to-one basis. The puts and calls have different strike prices, but the same expiration and underlying stock. A long combination is when both options are owned, and a short combination is when both options are written. Example: a long combination might be buying 1 XYZ May 60 call, and buying 1 XYZ May 55 put.

Combiners

These formula-writing tools perform mathematical operations on two time series to compute a third time series (also called the result series). There are two types of combiners: arithmetic and logical.

Commercial Paper

A debt instrument issued by a corporation that normally must be paid back in 270 days or less. Corporations typically use commercial paper to meet their short-term financial needs.

Commodity Channel Index

An indicator that measures how much the current typical price varies from an average typical price. Typical price is just the sum of the high, low and close divided by 3. CCI, which oscillates around zero, can be as large as 250 or as small as -250. Most of the time it ranges between 100 and -100. When the indicator is outside of this range, an overbought or oversold condition exists and you can expect a price correction.

Condor Spread

A strategy involving four options and four strike prices that has both limited risk and limited profit potential. A long call condor spread is established by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth (highest) strike.

Constants

In addition to the 12 building blocks, you can use constants within formulas. Basically, constants perform the same function as building blocks, representing a time series in which each entry is a fixed number. A simple formula using a constant is C > 50, or "Is the close (C) greater than (>) 50?"

Contingency Order

An order to execute a transaction in one security that depends on the price of another security. An example might be: " Sell the XYZ May 60 call at 2, contingent upon XYZ stock being at or below $59 1/2."

Contract Size

The amount of the underlying asset covered by the option contract. This is 100 shares for one equity option unless adjusted for a special event, such as a stock split or a stock dividend, or otherwise special by the listing exchange.

Conversion

An investment strategy in which a long put and a short call with the same strike price and expiration are combined with long stock to lock in a nearly riskless profit. For example, buying 100 shares of XYZ stock, writing 1 XYZ May 60 call, and buying 1 XYZ May 60 put at desirable prices. The process of executing these three-sided trades is sometimes called "conversion arbitrage."

Cover

To close out an open position. This term is used most frequently to describe the purchase of an option or stock to close out an existing short position for either a profit or loss.

Covered Call

An option strategy in which a call option is written against an equivalent amount of long stock. Example: writing 2 XYZ May 60 calls while owning 200 shares or more of XYZ stock.

Covered Option

An open short option position that is fully offset by a corresponding stock or option position. That is, a covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements.

Covered Straddle

An option strategy in which one call and one put with the same strike price and expiration are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 60 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully "covered" strategy because assignment on the short put would require purchase of additional stock. Covered combination: A strategy in which one call and one put with the same expiration, but different strike prices, are written against each 100 shares of the underlying stock. Example: writing 1 XYZ May 60 call and 1 XYZ May 65 put, and buying 100 shares of XYZ stock. In actuality, this is not a fully "covered" strategy because assignment on the short put would require purchase of additional stock.

Credit

Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.

Credit Spread

Spread strategy that increases the account's cash balance when it is established. A bull spread with puts and a bear spread with calls are examples of credit spreads.

Cumulative Advance-Decline

The running sum of the difference between NYSE advances and declines. As with any indicator computed as a running sum, the actual values depend on when the sum begins. CADL signals are triggered by curve direction and relationships between points on the curve. Look for divergence between CADL and a market average (like the Dow Jones Industrials). For example, if CADL is making new highs but the average is not, the situation is considered bullish. The opposite divergence is bearish.

Cumulative Volume

A daily sum of the difference between NYSE up-volume and down-volume. This indicator is usually compared to a market index, such as the S&P 500, for divergence.

Curvature

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying stock.

Cycles

1. The expiration dates applicable to the different series of options. Traditionally, there were three cycles: 2. Available expiration months. 3. The periodicity upon which something tends to change or something new begins. For instance, the cycle of the moon is 28 days.

D

Daily Volume Indicator

One of the weighted volume indicators. To calculate DVI, TechniFilter Plus picks an arbitrary value and, on each successive day, adjusts the indicator up or down depending on where that day’s close is located relative to the day’s trading range. For example, if the price closes nearer to the high price of the day than to the low price of the day, the volume is deemed positive. Look for breakouts and divergence between DVI and price.

Day Order

A type of option order which instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order is first entered.

Day Trade

A position (stock or option) that is opened and closed on the same day.

Dead Cat Bounce

A rebound in a market that sees prices recover and come back up somewhat.

Debit

Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.

Debit Spread

A spread strategy that decreases the account's cash balance when it is established. A bull spread with calls and a bear spread with puts are examples of debit spreads.

Decay

A term used to describe how the theoretical value of an option "erodes" or reduces with the passage of time. Time decay is specifically quantified by theta.

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 deep-in-the-money call option has the strike price of the option well below the current price of the underlying instrument. A deep-in-the-money put option has the strike price of the option well above the current price of the underlying instrument.

Degrees Of Freedom

The number of independent observations; 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.

Delivery

The process of meeting the terms of a written option contract when notification of assignment has been received. In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock.

Delta

A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock.

Delta-Hedged

An options strategy that protects an option against small price changes in the option’s underlying instrument. These hedges are constructed by taking a position in the underlying instrument that is equal in magni tude but opposite in sign (+/-) to the option’s delta.

Delta Neutral

This is an "options/options" or "options/underlying instrument" position constructed so that it is rela tively insensitive to the price movement of the underlying instruments. This is arranged by selecting a calculated ratio of offsetting short and long positions.

Delta Position

A measure of option price vs. the underlying futures contract or stock price.

Demand Index

A leading indicator to changes in price trends (designed by James Sibbet). The DI calculation uses volume and price movement to quantify two ideas: buying power and selling pressure. When the DI crosses zero, buying power and selling pressure cross. An up-cross is a buy signal; a down-cross is a sell signal.

Density Function

For any measure m , a function that gives rise to m when integrated with respect to some other specified measure. A probability density function is a function whose integral over any set gives the probability that a random variable has values in this set.

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 common outside factor.

Derivative

A financial security whose value is determined in part from the value and characteristics of another security, the underlying security.

Deterministic

Known in advance when the sum of one-step ahead forecast mean squared errors is zero. The fundamental continuous effect of an exogenous variable such as money supply that can be deter mined to be explanatory.

Deterministic System

A system in which the outcome is determined by an equation; a system in which cause and effect is easily determined.

Detrend

To remove the general drift, tendency, or bent of a set of statistical data as related to time.

Diagonal Spread

A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates. Example: buying 1 May 60 call and writing 1 March 65 call.

Difference-In-Means Test

A statistical test that indicates the likelihood of observing the difference if the true differ ence were zero. A large value of this statistic leads to nonacceptance of the null hypothesis that the true difference is 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 measures the percentage of individual series that are positive compared with the aggregate group that is, the percentage of S&P groups that are above their 30-week moving average.

Directional Movement Index (DMI)

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

Directional Movement Indicator

Directional movement is family of indicators developed by J. Welles Wilder to study and quantify the strength of trends and trending issues. Specifically, the Directional Movement Indicator (DX) combines the values from a Percentage of Uptrend (+DI) formula and a Percentage of Downtrend (-DI) formula to measure the strength of a trend. Regardless of direction, the higher the number, the stronger the trend. Welles Wilder’s suggested time period is 14 days.

Discount

An adjective used to describe an option that is trading at a price less than its intrinsic value (i.e., trading below parity).

Discretion

Freedom given by an investor through his or her Account Executive to use judgment regarding the execution of an order. Discretion can be limited, as in the case of a limit order which gives the Floor Broker 1/8 or 1/4 point from the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held-order. to top.

Distribution

Any set of related values described by an average (that is, mean), which identifies its midpoint, a measure of spread (that is, standard distribution) and a measure of its shape (that is, skew or kurtosis).

Distributor

A registered broker/dealer that assists a mutual fund in selling its shares to the general public.

Divergence

Two curves are said to diverge when one curve makes a significant new peak (or valley) but the other curve does not. Divergence is an important part of many technical indicators. The following three classic examples all look for divergence between the price of an issue and an indicator based on the issue. In each case, divergence usually signals a change in price trend. They are: price and OBV, price and RSI, price and a stochastic. Divergence also helps you study market indexes, like the S&P 500, and market indicators, like the Advance/Decline Line. You can identify divergence simply by looking at a chart because your eyes automatically can pick out significant peaks, often ignoring many smaller peaks in the process. However, it is difficult to create a computer algorithm that ignores insignificant peaks. TechniFilter Plus’s solution is the divergence combiner formula-writing tools.

Divergence Combiner

Formula-writing tool used to mathematically join two time series. The divergence combiner looks for four types of divergence between the two original series, entering either 1, -1, 2, -2 or 0 in the result series, depending on the type of divergence found (i.e., positive divergence on the high side, positive divergence on the low side, negative divergence on the high side and negative divergence on the low side). 0 indicates no divergence.

Dividend

Stockholder payment of a share of a company’s profits.

Dividend Reinvestment

Using your dividends to buy additional shares of a stock or mutual fund, instead of taking the money as a cash payment.

Dividend Reinvestment Plan

A program offered by a publicly held company in which dividends are used to buy more shares of the company.

Dividends

Payment to shareholders of income from interest or dividends generated by a fund's investments.

Doji Candle

 A candle that is small in height, a narrow trading range, with open and close very close together. Often indicates a reversal. 

Double Bottom

A standard point & figure pattern. The last column is an O column that goes below the previous O column. It is the first indication of a bearish situation. On the day this pattern is formed, strategies include exiting long positions and entering short positions. However, you may want to wait for a stronger bearish pattern before entering short positions.

Double Top

A standard point & figure pattern. The last column is an X column that exceeds the previous X column. It is the first indication of a bullish situation. On the day this pattern is formed, strategies include taking long positions and exiting short positions. However, you may want to wait for a stronger bullish pattern before entering long positions.

Double-Smoothed

A price series that has been smoothed by a mathematical technique such as a moving average. This first series of smoothed price data is then smoothed a second time.

Double Top

See Double Bottom. A price pattern seen on a chart. The patterns occurs when prices rise to a resistance level on significant volume, retreat to a support level, and subsequently return to the resistance level on decreased volume. Prices then decline and break through the support level, marking the beginning of a new downtrend in the price of the stock.

Dow Theory

The Dow theory is an approach to trading developed by Charles H. Dow who, with Edward Jones and Charles Bergstresser, founded Dow Jones & Company, Inc. and developed the Dow Jones Industrial Average in 1896. Dow fleshed out the theory in a series of editorials in the Wall Street Journal, which he co-founded. The Dow theory is a financial theory that says the market is in an upward trend if one of its averages (i.e. industrials or transportation) advances above a previous important high and is accompanied or followed by a similar advance in the other average. For example, if the Dow Jones Industrial Average (DJIA) climbs to an intermediate high, the Dow Jones Transportation Average (DJTA) is expected to follow suit within a reasonable period of time. Technical Analysts often use the 50-day and 200-day moving averages to alert to trend changes.

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. With a range between zero and 4, the closer to 2.0, the lower the probability is.

Dynamic Data Exchange

Ability to automatically update an application from within another application.

Dynamic Linked Language

Refers to programming code that can be used ("called") by your main program while running under Windows.

E

Early Entry

A large price movement in one direction within the first 15 minutes after the open of the daily session.

Early Exercise

A feature of American-style options that allows the owner to exercise an option at any time prior to its expiration date.

Earnings Estimates

The estimated earnings projected for a company for a fiscal year.

Efficient Market Theory

All known information is already discounted by the market and reflected in the price due to market participants acting upon the information.

Elasticity

The ability to recover an original configuration.

Electronic Communications Network

Independent execution systems set up by brokerage firms, matching new retail limit orders with compatible orders already in the system.

Elliott Wave Theory

The term Elliott Wave Theory refers to a theory in technical analysis used to describe price movements in the financial market. The theory was developed by Ralph Nelson Elliott after he observed and identified recurring, fractal wave patterns. Waves can be identified in stock price movements and in consumer behavior. Investors trying to profit from a market trend could be described as riding a wave. The theory identifies impulse waves that set up a pattern and corrective waves that oppose the larger trend. Each set of waves is nested within a larger set of waves that adhere to the same impulse or corrective pattern, which is described as a fractal approach to investing. The wave pattern occurs in sets of 5 waves followed by 3 waves, in a bull market, and the opposite in a bear market. We can observe that waves 1, 3, and 5 trend upwards with waves 2 and 4 correcting the impulse waves. When the 5-wave completes we expect 3 corrective waves: a, b and c, with a and c trending down and b correcting to the upside.  

EMA

See Exponential Moving Average.

Emerging Market

A country whose stock or bond market is still developing, typically in Asia, Latin America, Eastern Europe or Africa.

Engulfing Pattern

In candlestick terminology, a multiple candlestick line pattern; a major reversal signal with two opposing-color real bodies making up the pattern. (Also referred to as tsutsumi. )

Envelope

Lines surrounding an index or indicator that is, trading bands.

Entry

The point at which a trader gets into a position in the market.

Equal Test

A type of "fixed" test that lets you invest an equal dollar amount at each position, which makes it easier to compare test results among issues that trade in different ranges. The equal test is similar to the percentage test with the following difference: In a percentage test, the amount invested in each position is the initial amount plus or minus prior gains or losses. In an equal test, the amount invested in each position is the same.

Equilibrium Market

A price region that represents a balance between demand and supply.

Equity

In a margin account, this is the difference between the securities owned and the margin loans owed. It is the amount the investor would keep after all positions have been closed and all margin loans paid off.

Equity Options

An option on shares of an individual common stock or exchange traded fund.

Equivalent Strategy

A strategy which has the same risk-reward profile as another strategy. For example, a long May 60-65 call vertical spread is equivalent to a short May 60-65 put vertical spread.

Equivolume Chart

Created by Richard W. Arms, a chart in which the vertical axis is the high-low range for each day, while the horizontal axis represents the volume of shares of stock or the number of contracts traded for the day. The purpose of the chart is to highlight the relationship between price and volume.

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

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

European-Style Option

An option that can be exercised only during a specified period of time just prior to its expiration.

Evening Star Pattern

The bearish counterpart of the morning star pattern; a top reversal, it should be acted on if it arises after an uptrend.

Ex-Dividend Date

The day on or after which the right to receive a current dividend is not automatically transferred to a buyer.

Exchange-Traded Funds

Collections of stocks that are bought and sold as a package on an exchange, principally the American Stock Exchange (AMEX), but also the New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE).

Exponential Moving Average

A moving average that gives more weight to recent price values and less weight to earlier price values within its time span. Unlike the other moving averages, exponential averages use all available closing price data. The other two moving averages are simple and weighted.

Ex-Date

The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the "ex-date," and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming "ex-date" as part of their stock tables.

Ex-Dividend Date

The day before which an investor must have purchased the stock in order to receive the dividend. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend (rounded up to the nearest eighth) because purchasers of the stock on the ex-dividend date will not receive the dividend payment. This date is sometimes referred to simply as the "ex-date," and can apply to other situations; for example, splits and distributions. If you purchase a stock on the ex-date for a split or distribution you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming "ex-date" as part of their stock tables.

Expense Ratio

The portion of a mutual fund's assets that is deducted from the assets of the fund to pay expenses.

F

FAANG Stocks

In finance, “FAANG” is an acronym that refers to the stocks of five prominent American technology companies: Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX); and Alphabet (GOOG) (formerly known as Google).

Fair Value

A reasonable price for a security that buyers and sellers would accept in the market where the security usually trades.

Filter Report

A spreadsheet-like technical report that will search through your database and pick out issues that meet conditions you specify. Each column in the report can define a condition for which you want to filter.

Flag Combiner

One of the formula-writing tools used to join two time series to form a result series. The flag combiner locates distinct, nonoverlapping signals, entering 0s (no flag), -1 (flag) or 1 (flag).

Floating Point Values

Numbers that may contain a decimal point.

Formula Charts

A graphic representation of the results of a selected formula.

Formula Set

A collection of formulas grouped together for a strategy or a filter report.

Formulas

Mathematical constructions that identify specific trading patterns. Some of these formulas are integral parts of trading systems; others are not tied to any particular system and interpretation depends on what is being analyzed. You also can build your own formulas using the three basic formula-writing tools: combiners, building blocks and modifiers.

Futures Test

A type of test that mimics how you would normally trade futures contracts, buying and selling on margin. It considers leverage, initial margin requirements and maintenance margin requirements. You enter margin requirements and TechniFilter Plus tracks the basis required to trade the system and uses this number to compute return. When a position is opened, the rule specifies the number of contracts involved. You can make partial liquidations (specifying a percentage or a specific number of contracts) or close the entire position. Entry and exit fees are tracked (either fixed or percentage).

G

Geometric Volume indicator

A type of volume indicator derived from an iterative multiplicative calculation. Geometric volume indicators attempt to track "smart money" in the market. The Negative Volume Indicator and the Positive Volume Indicator are geometric volume indicators.

H

Head-and-Shoulders

A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal. The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.

Hierarchy of Operations

Rules that govern the order in which mathematical calculations are done. In TechniFilter Plus formulas, integer division and modulus operations are performed first; followed by multiplication and division, then addition and subtraction; greater and lesser; equal and not equal; less than or equal to and greater than or equal to; greater than and less than; and and or; flag and divergence.

High

An issue’s highest price of the day. When recorded over a length of time, the high prices form a time series, represented in formulas by the building block H.

Horizontal Lines

A support/resistance line that you can plot at your specified price level. For example, draw support lines at a recent low price and resistance lines at a recent high.

I

Indexing

A style of investing that tries to match the returns of a stock or bond index before deducting expenses. This is typically done by holding all — or a representative sample of — the securities in that index.

Individualized Report

In the standard filter report, all the issues use the same column formulas. In an individualized report, each issue could use a different number as the parameter. To create an individualized report, you first go through the steps to create a standard report, then you individualize the formulas by changing parameters.

Integer Division

One of the formula-writing tools used to mathematically join two time series to form a result series. For each day in the two original time series, the integer division combiner enters a nonfractional value in the result series.

Interest

Money paid by a bond issuer to investors who, in effect, loaned the issuer money by buying its bonds.

Investment Advisor

A person or entity who is paid to manage a portfolio of securities, such as a mutual fund.

IPO

An IPO (Initial Public Offering) is a route adopted by private companies to go public by offering new shares to institutional as well as retail investors. Apart from opening the gateway for huge and relatively lower cost financing, an IPO confers indirect benefits as well. The increased transparency mandated for a public listing helps the company to raise debt at favorable terms. On the other hand, the company may have to face pushback such as compliance with stricter disclosure norms and yielding to pressure from market participants, who clamor for short-term gains. Success of an IPO depends on several factors such as the company delivering on its promise and managing investor expectations with efficient forecasting, according to Ernst & Young. External factors such as competition, geopolitical conditions, macroeconomics and market sentiment also have a big role to play in the post-IPO performance of stocks.

J

Julian Dates

Day counts. For example, if today has Julian date 25001, then tomorrow has Julian date 25002.

K

Kondratieff Wave

The Soviet economist Nikolai Kondratiev (also written Kondratieff or Kondratyev) was the first to bring these observations to international attention in his book The Major Economic Cycles (1925) alongside other works written in the same decade.[5][6] In 1939, Joseph Schumpeter suggested naming the cycles "Kondratieff waves" in his honor. The underlying idea is closely linked to organic composition of capital. In economics, Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy.[1] The phenomenon is closely connected with the technology life cycle.[2]It is stated that the period of a wave ranges from forty to sixty years, the cycles consist of alternating intervals of high sectoral growth and intervals of relatively slow growth.[3]Long wave theory is not accepted by most academic economists.[4] Among economists who accept it, there is a lack of agreement about both the cause of the waves and the start and end years of particular waves. Among critics of the theory, the consensus is that it involves recognizing patterns that may not exist.

L

Least-Squares-Fit Lines

Unique straight lines that best approximate the values (highs, lows, etc.) under study. Lines with an upward slope bullish, while lines with a downward slope are bearish. LSF lines are also called linear regression lines. (Technically, LSF are not support/resistance lines, although they are often grouped with those analytic tools.)

Linear Price Scale

On a chart, this scale type shows distances between moves based on actual dollar changes.

Logical Combiners

Formula-writing tools that answer some true or false question (such as "Did the price rise?") for a time series. The result is another time series made up of 0s and 1s, which are called truth values (1 for true and 0 for false). Often, we’ll use logical results in an arithmetic manner, such as adding up the 1s and 0s to find out how many times an event is true or false. There are nine logical combiners, including: > (greater than), < (less than), = (equal to) and < > (not equal to). A simple formula that uses a logical combiner is C > Y1, or "Did the price (C) rise (>) from yesterday (Y1)?" There are also nine arithmetic combiners.

Low

An issue’s lowest price of the day. When recorded over a length of time, the low prices form a time series, represented in formulas by the building block L.

M

Market Price

The last reported price of a security on the market where it is bought and sold.

MAV

See Moving Average

Maximum Location

A formula-writing tool that produces a time series in which each typical entry is the number of days since the largest value of the original series over the most recent n days. In other words, the number of days since the maximum occurred.

Maximum Modifier

A formula-writing tool that picks the largest value over the given number of days. It produces a time series in which each typical entry is the largest value of the original series over the entire range of loaded data or over the most recent n days (including the current day).

McClellan Oscillator

An overbought or oversold technical indicator. MO values below 20 are oversold, and values above 70 are overbought. When the oscillator breaks up across zero, it is bullish for stocks; the opposite break is bearish.

McClellan Summation Index

A running sum of the McClellan Oscillator. MSI breaking above zero is bullish. MSI breaking below zero is bearish.

Medallion Signature

A stamp or seal from an approved financial institution that guarantees your signature is authentic.

Minimum Location

A formula-writing tool that produces a time series in which each typical entry is the number of days since the smallest value of the original series over the most recent n days. In other words, the number of days since the minimum occurred.

Minimum Modifier

A formula-writing tool that picks the smallest value over the given number of days. It produces a time series in which each entry is the smallest value of the original series over the entire range of loaded data or over the most recent n days (including the current day).

Modified Series

A type of time series resulting from the action of one of the modifier tools. The modified series gets its values from the original series through some calculation or algorithm as defined by the modifier used. There are more than 40 modifiers, including time offset, relative strength, standard deviation, extreme values and summation.

Modifiers

Formula-writing tools that use a calculation or algorithm to change the values in an original time series to create a new, modified time series. There are more than 40 modifiers, including time offset, relative strength, standard deviation, extreme values and summation. For example, CY2 produces a modified series in which each entry is the value of the close series two days ago. That is, today’s value of CY2 is the value of C two days ago. Y is the time-offset modifier. C is the building block that represents the close time series.

Modulus Operator

This integer division companion combiner yields the integer amount that remains following an integer division operation. It is often called the remainder operator.

Money Flow Index

A volume indicator that combines the ideas of positive and negative volume with the RSI calculation. Money flow is defined as the typical daily price times today’s volume. This quantity is tracked from day to day, and averages of up-money flow days and down-money flow days over some specified period of time are computed. MFI is defined as the percentage of the total money flow that is up.

Money Market Instruments

Short-term, liquid investments (usually with a maturity of 13 months or less) which include U.S. Treasury bills, bank certificates of deposit, repurchase agreements, commercial paper and bankers' acceptances

Moving Average

A succession of individual averages for an issue’s price over a given time period. Averaging techniques take into account several entries in the original time series; which means that the influence of a single entry from the original series on a single entry in the modified series is reduced. The modified series, therefore, produces a smoother graph than the original series. For this reason, averaging is sometimes referred to as smoothing. Five basic moving averages: simple, weighted, exponential, centered and geometric.

Multiline Formulas

A series of referenced formulas treated as one formula, with the last formula in the series defining the value of the multiline formula. Prior formula reference usually plays a part in the final computation. In effect, multiline formulas let you break complex calculations into a series of more simple calculations, which can help you translate your more intricate analytic ideas into a form that your software can use. You also can create recursive multiline formulas.

N

Named Formula Reference

You can refer to a standard formula by name within a formula body using the format: name(param). For example, in the Formula box on the Custom Formula dialog, you would enter a reference to the One-Day Acceleration formula as: Accel(CA30). When referenced in this way, the named formula serves the same function as a building block, and you can use other formula-writing tools to compute, for example, moving averages of named formulas. You must include the parameter parentheses even for formulas that do not have parameters. Simply use a pair of parentheses with nothing inside. You cannot use point & figure, recursive or multiline formulas in this way.

Natural Numbers

The positive integers (whole numbers) 1, 2, 3, etc., and sometimes zero as well.

Negative Divergence

When Curve 1 is making new lows or new highs but Curve 2 is not.

Negative Volume

Negative volume implies that current market activity will make the price of the issue decrease, which is a bearish sign. Negative volume exists when money is moving out of the stock. Technicians also use the term distribution for negative movement.

Negative Volume Indicator

A geometric volume indicator that measures price movement on days that the volume has declined, beginning at an arbitrary value of 100. The value of NVI only changes if the volume declines. If the volume declines, the new value of the indicator is 1 times the old value of the indicator plus the percentage change in price. It is bullish for NVI to be above its long-term average because that situation indicates that, in the long run, smart money is entering the issue.

Net Asset Value

The price of a single share of a mutual fund. It is calculated daily by adding the value of all the fund's assets, subtracting the fund's liabilities, and dividing that by the total number of fund shares

O

Omnibus Account

A single account held by an investment professional on behalf of many investors.

On-Balance Volume Indicator

A weighted sum of volume where the weights are 1 (bullish volume) or -1 (bearish volume). The simplest method of determining bullish volume and bearish volume is to check the price. If today’s close is higher than yesterday’s close, consider today’s volume positive. If today’s close is lower than yesterday’s close, consider today’s volume negative. If you keep a running tally of positive volume minus negative volume, you get the volume indicator known as On-Balance Volume, or OBV. In formulas, you can use the building block K to represent OBV.

Open

The price at which an issue begins trading. When recorded over a length of time, the open prices form a time series, represented in formulas by the building block O.

Open 10 Trading Index

A modification of the Short-term Trading Index (TRIN). 10TRIN uses 10-day sums of the components, instead of just the components (which are used in the TRIN calculation). Values above 1 are bearish; values below 1 are bullish.

Open Interest

The number of outstanding futures contracts. When recorded over a length of time, the open interest values form a time series, represented in formulas by the building block I.

Optimizing

Varying parameters in a test to see which variation would have been the most profitable. You are, in effect, asking "What if...?" "What if I changed the time period of this average?" "What if I used a simple average instead of a weighted average?" "What if I calculated over a different length of time?" The goal is to see if one variation might be more profitable than another-which variation is optimal. You can optimize signals and formulas that use parameters.

Overbought

An unstable pricing situation for a security or a market. There has been an unexpectedly sharp price rise and a price drop (or correction) is expected.

Oversold

An unstable pricing situation for a security or a market. There has been an unexpectedly sharp price decline and a price rise is expected.

P

Parallel Lines

Support/resistance lines that define an area of trading activity, known as a linear trading band. The lines can be drawn parallel to trendlines, horizontal lines and least-squares-fit lines.

Parameters

The most commonly used parameters are parts of formulas or signals that you may need to change, like time periods, time series or some other fixed values. When used in this way, they simplify formula and signal variation, letting you quickly and easily change elements without editing the formula or signal body. (For example, parameters are required for optimizing strategies and for individualized reports.) You can have up to nine parameters in formulas. Parameter locations are marked with placeholders (&1, &2, &3,…, &9). There also are two special instances where parameters do not follow the rules described above. One type is used in point & figure formulas; the other in basket tests. Point & figure formulas require two parameters: a boxsize and reversal, which do not use corresponding placeholders in the formula body. For basket tests, a special stop item (RankScore) requires that you specify a formula number as a parameter. This formula parameter does not require a matching placeholder in the signal body.

Peak

A peak is defined as a point on the curve that is higher than the point to its immediate right, and at least as high as the point to its immediate left. Making a succession of higher price peaks is a bullish signal. One way to identify higher peaks is to look at the slope of the trendline determined by the peaks. If the slope is up, the peaks are rising. If it is down, then they are falling.

Percentage Test

A type of test that mimics how mutual funds are traded, letting you trade a closed system that starts with a fixed amount of money. The test then tracks the profit from this investment. When a position is open, the entire balance in the account is encumbered and no new position can be taken. Entry and exit fees are tracked (either fixed or percentage). You can specify an interest rate to be paid on the account while it is not invested. Because percentage tests start with a fixed dollar amount and do not allow money to be added, the ending balance can be used to quantify performance.

Pip

One unit of price change in the bid/ask price of a currency. It stands for "price interest point." For most currencies, it denotes the fourth decimal place in an exchange rate and represents 1/100 of one percent (.01%).

Placeholders

Characters used to hold up to nine parameter locations within formulas and signals. The placeholders are &1, &2, &3, &4, &5, &6, &7, &8, &9. (Point & figure formula parameters do not require matching placeholders in the formula body.)

Point & Figure Chart

One of the chart types produced by TechniFilter Plus. A point & figure (P&F) chart consists of alternating columns of Xs (increasing prices) and Os (decreasing prices). When demand overwhelms supply, you see a price rise revealed by a breakout to the upside, graphically shown as a long column of Xs. When supply exceeds demand, you see a price drop revealed by a breakout to the downside, graphically shown as a long column of Os. Unlike other charts, time is not a factor.

Point & Figure Formulas

Logical formulas designed to search for point & figure patterns. They require two parameters: a boxsize and a reversal. P&F formulas return a 1 for any day the formula is true and a 0 for any day the formula is false. To override this default and use another time series, you must insert a special line as the first line in your P&F formula.

Positive Divergence

When Curve 1 is making new highs or lows but Curve 2 is not.

Positive Volume

Positive volume implies that current market activity will make the price of the issue increase, which is a bullish sign. Positive volume exists when money is moving into the stock. Technicians also use the term accumulation for positive movement.

Positive Volume Indicator

A geometric volume indicator that measures price movement on days that the volume has increased, beginning at an arbitrary value of 100. The value of PVI only changes if the volume increases. If the volume increases, the new value of the indicator is 1 times the old value of the indicator plus the percentage change in price. It is bullish for PVI to be above its long-term average because that situation indicates that, in the long run, smart money is entering the issue.

Post-Fixed Notation

A method of writing a mathematical formula that offers straightforward calculations of very complex formulas. Some software lets you enter formulas using the familiar algebraic method, but performs the calculation using the faster, more efficient post-fixed notation method.

Preponderance of the Evidence

Preponderance of the evidence is one type of evidentiary standard used in a burden of proof analysis. Under the preponderance standard, the burden of proof is met when the party with the burden convinces the fact finder that there is a greater than 50% chance that the claim is true.

Preservation Of Capital

The preservation of the value of your investment.

Price/Volume Trend

A weighted sum of volume where the weights are the percentage change in price. PVT is a variation of the cumulative volume theme. In this case, PVT is adjusted by a percentage of the volume and is interpreted in much the same way as OBV. OBV makes the assumption that the day’s volume is either all positive or all negative. PVT adds or subtracts a percentage of the day’s volume. In formulas, you can use the building block P to represent PVT.

Prior Formula Reference

When working with a collection of formulas (like in a strategy or report), later formulas sometimes will depend on earlier formulas. When this happens, it is more efficient to refer to the prior formula rather than rewrite it. When you want to use a prior formula, place its formula number inside square brackets, [ ]. When a formula number is enclosed within square brackets, it serves the same function as a building block.

R

Range Bound Trading

Range-bound trading is a trading strategy that seeks to identify and capitalize on securities, like stocks, trading in price channels. After finding major support and resistance levels and connecting them with horizontal trendlines, a trader can buy a security at the lower trendline support (bottom of the channel) and sell it at the upper trendline resistance (top of the channel).

Real Estate Investment Trust

A security that invests directly in real estate trust (either by owning property or through mortgages) and is bought and sold like a stock on a stock exchange.

Rebalance

To maintain a target mix of stocks, bonds and other assets by buying or selling securities that have increased or decreased in value.

Recursive Formulas

Formulas that derive their current value from the previous value of the formula. As a result, recursive formulas must be computed every day because you need to know yesterday’s value to get today’s value. For example, exponential averages are recursively defined formulas. Today’s value of a 10% exponential average is 10% of today’s price plus 90% of yesterday’s exponential average value. Recursive formulas begin with an initial value (perhaps the close) and hold the recursion values each day thereafter.

Relative Strength Index(RSI)

An indicator created by J. Welles Wilder that measures the internal strength of a price curve by determining how much of the recent price movement is up-movement ("recent" depends on the parameter n). The calculation returns a number between 0 and 100.

Resistance

Resistance occurs where an uptrend is expected to pause temporarily, due to a concentration of supply.

Result Series

A type of time series. When two time series are combined through a mathematical operation, a result series is formed.

Reversal

An integer used to decide when to change columns in a point & figure pattern. The reversal is one of the two parameters required to draw a P&F chart. The other is boxsize.

S

SEC

The Securities and Exchange Commission.

Selling Pressure

One of two preliminary indicators used to compute the Demand Index. Selling pressure tries to measure that part of the trading volume that comes from selling the issue. This indicator uses price-movement measurements to weight the volume as either up-volume or down-volume. Its companion indicator is buying power.

Semilog Price Scale

On a chart, this scale type shows distances between moves based on percentage changes. Semilog scales show price moves of the same percentage the same physical distance on the chart, regardless of the actual price.

Short-Term Trading Index

The quotient of the ratio of NYSE advances to declines divided by the ratio of up-volume to down-volume. TRIN values above 1 are bearish, and values below 1 are bullish.

Simple Moving Average

A moving average that gives equal weight to each price value in its time span. For example, if the closing prices of a particular stock have been recorded for the last 12 trading days, then the average closing price of the 12-day span is the sum of the 12 prices divided by 12. By calculating this simple average, you can determine if the price is above or below its average value over the last 12 days. The other two moving averages are weighted and exponential.

Small Company Stock

Generally, stock in a company whose total invested capital is between $250 million and $1 billion.

Smoothed Short-Term Trading Index

An overbought or oversold indicator similar to Zwieg’s Breadth Thrust Indicator. STIX high values are bullish; low values are bearish.

SPAC

A special purpose acquisition company (SPAC) is a corporation without any actual commercial operations. Essentially a shell company, the SPAC is formed for one specific reason: to raise money through an initial public offering (IPO). The only purpose of the capital raised in the IPO is for acquiring an existing company. SPACs have also come to be known as "blank check companies."

Speed-Resistance Lines

Line segments drawn at an angle from the starting point of a trendline. They represent support when an up-trendline is broken and resistance when a down-trendline is broken.

Spread-Type Analysis

Taking a long position on one issue and a short position on a second issue, buying and selling both at the same time. You take profit based on the difference (i.e., the spread) between the two positions; you don’t really care about actual contract prices. Generally, spread trading (also called straddling) is less risky than trading actual contract prices because you are both long and short at the same time. As a result, it is also less profitable.

Standard Deviation

A measure of how much the numbers in a modified series vary from the arithmetic mean (simple average) of the numbers. Think of it as a measure of dispersion, or volatility, of the modified series.

Stochastics

A family of overbought/oversold indicators based on position in range. The curves produced reflect where the current price is in relation to the trading range over a period of time. The values vary between 0 and 100. Values above 80 are overbought, and values below 20 are oversold.

Stock Test

A type of test that mimics how common stocks are traded, buying and selling in fixed-share blocks. In each transaction, you buy or sell a number of shares, paying or receiving the total cost of each purchase or sale when it takes place, including any commissions. When a position is opened, the rule specifies the number of shares involved. You can make partial liquidations based on a percentage or a specific number of shares, or close the entire position. Multiple positions are allowed. Entry and exit fees are tracked (either fixed or percentage).

Stock(s)

Investments that represent a share of ownership in a company. Stocks are traded on markets or exchanges where their prices can go up or down. Some stocks also pay dividends.

Strategy

A plan or system for making trading decisions. Strategies consist of formulas, which are technical indicators; signals, which define logical relationships among the formulas; and rules, which tell TechniFilter Plus how to manage the trading process.

Strong Double Bottom

A standard point & figure pattern. This Double Bottom variation has an extra condition placed on the relationship between the tops of the last two O columns. Namely, the last O column must top at the same level as the previous O column. The Strong Double Bottom, which occurs less frequently than the Double Bottom, is considered a slightly stronger bearish signal.

Strong Double Top

A standard point & figure pattern. This Double Top variation has an extra condition placed on the relationship between the bottoms of the last two X columns. Namely, the last X column must bottom at the same level as the previous X column. The Strong Double Top, which occurs less frequently than the Double Top, is considered a slightly stronger bullish signal.

SunnyBands

While Bollinger Bands are built around an exponential moving average and bands drawn at 2 standard deviations from the exponential moving average, Sunny has taken a much more sophisticated look at why the markets are moving, and has incorporated her proprietary Dynamic Moving Average and two Average True Range bands from the SDMA average. The ATR tells you where the market is moving, based on its current activity. Sunny says: "The market tends to move where the market tends to move." ATR tells you that. Standard Deviations, by contrast, tell the market where it "should" go. Because of the elegance of Sunny's DMA, and it's uncanny way of avoiding whipsaw, SunnyBands are excellent trading tools. Click Here to see a picture.

Support/Resistance Lines

Straight lines constructed from past trading patterns. A support line designates a price level above which an issue’s price is expected to remain. A resistance line designates a price level below which an issue’s price is expected to remain. After a support or resistance line is breached, it often changes to the opposite designation. For example, in the case of a support line breakout, some buyers at the support level could have been left holding stock that they would rather be without. So, when the price returns to this level, they become willing sellers. In the case of a broken resistance line, buyers who missed the initial breakout remain willing to buy when the price returns to the previous resistance level, thus making it a support line.

Swing Index

Using the high, low, close and open on two consecutive days, this indicator attempts to determine the "real" market price of a security by measuring the price swing.

Syntax

The structure of a software formula. To create a valid formula, you must be familiar with the parts of a formula (e.g., building blocks, modifiers) and how they must be arranged.

T

Tilde Expressions

To use a fixed issue in a TechniFilter Plus formula, you enclose the issue’s symbol within tilde expressions, ~< and >~. For example, to compute the relative strength of an issue to the S&P 500 index (symbol SPX), you could use the formula (( C/~<SPX>~)/TY00)*100. This formula takes the issue’s close, and divides it by the close of SPX. The result then is divided by the quantity at the beginning of the time series. Finally, the ratio is multiplied by 100.

Time Series

When recorded over a length of time, each pricing element (high, low, close, open, open interest, volume) determines its own time series. There is also a family of technical indicators that combine price and volume to form new time series known as volume indicators. You study time series using formulas designed to identify specific technical patterns. Each time series is represented by a single letter known as a building block, one of the three formula-writing tools (e.g., the high time series building block is H; the On-Balance Volume building block is K). The other formula-writing tools are combiners and modifiers.

T-Operator

A special building block that represents the most recently computed quantity within the current formula. For example, (H+L+C)/TY10 is the ratio of (H+L+C) to the same value 10 days ago. The T represents the quantity on the other side of the combiner, a division sign. (H+L+C)/TY10 evaluates the same as (H+L+C)/(H+L+C)Y10, but without the T-operator the H+L+C calculation must be done twice. In recursive formulas, T refers to the result time series. So, TY1 is the previous day’s result.

Total Return

The total gain or loss of a mutual fund, including all dividends, interest and capital gains. It is expressed as a percentage of the original investment, and reflects the reinvestment of dividends and interest.

Tracking Error

The amount the performance of an index fund differs from the index it tries to match.

Transfer Agent

An independent third-party firm who facilitates purchases, sales and exchanges on behalf of a mutual fund company.

Trendlines

Diagonal support/resistance lines that indicate upward or downward price movement. Support trendlines are drawn below the issue’s price and trend upward. Resistance trendlines are drawn above the issue’s price and trend down. Breakthrough of either trendline, particularly on large volume, is a signal that the trendline is no longer viable.

Triple Bottom

A standard point & figure pattern. The most recent column is an O column that is lower than the previous two O columns. Because it takes five columns to form, it is considered a stronger bearish signal than the Double Bottom, the Strong Double Bottom and the Bear Pattern formations.

Triple Top

A standard point & figure pattern. The most recent column is an X column that exceeds the previous two X columns. Because it takes five columns to form, it is considered a stronger bullish signal than the Double Top, Strong Double Top and Bull Pattern formations.

U

Units

A generic term used to refer to individual blocks of time in your data, since you could be following the issue daily, weekly, monthly or quarterly. Sometimes we use the phrase time units.

Utility Functions

A family of modifiers used for a variety of analytic functions such as absolute value, log, exponential, sine, cosine and extreme values. The parameter (0 through 99) determines which function is applied to the original series. Many calculations for the U-modifiers can be done using logical combiners such as > and <. Among other things, U-modifiers make it possible to count and to determine where curves cross.

V

Valley

A point on the curve that is lower than the point to its immediate right and at least as low as the point to its immediate left. Making a succession of lower price valleys is a bearish signal. One way to identify lower valleys is to look at the slope of the trendline determined by the valleys. If the slope is down, the valleys are falling. If it is up, then they are rising.

VantagePoint Software

READY TO UTILIZE A TRADING TOOL THAT CONSISTENTLY FORECASTS THE MARKETS WITH UP TO 87.4% ACCURACY? Founded in 1979 by Louis B. Mendelsohn (Lane's father), a prominent technical analyst and trading software pioneer, Vantagepoint A.I. was the first trading software developer in the world to introduce strategy back testing capabilities in trading software for personal computers. Tell Lane I sent you. He is amenable to special favors for Sunny Harris students.

Vertical Lines

A line tool that lets you see price values as you move the line across a displayed chart.

Volume

The daily total of shares bought and sold. When recorded over a length of time, the volume figures form a time series, represented in formulas by the building block V.

Volume Indicators

A family of technical indicators that combine price and volume to form time series that can be used in formulas. In theory, volume leads price, so you should be able to predict where price is going by examining volume. Volume indicators try to capitalize on this belief. In formulas, On-Balance Volume is a volume indicator represented by the building block K .

Volume Spike

Unusually large volume, graphed on a bar chart as a spike. To locate volume spikes, you compare a single day’s volume to average volume. If one day’s volume is two to three times the average volume, it will appear as a spike. Unusually large volume often foreshadows a major change in price trend.

W

Weighted Moving Average

A moving average that gives more weight to recent price values and less weight to earlier price values within its time span. The time span must be less than (or equal to) the number of units read from disk. The other two moving averages are simple and exponential.

Weighted Volume Indicator

A type of volume indicator formed by looking at a running sum of volume multiplied by some quantity that depends on price. The multiplier (the weight) denotes how bullish volume and bearish volume is defined for the particular indicator. The built-in weighted volume indicators include On-Balance Volume, Price Volume Trend, Accumulation Distribution Indicator and Daily Volume Indicator.

Y

Yield

Income (interest or dividends) earned by an investment, expressed as a percentage of an investment's price.

Z

ZigZag Functions

A family of modifiers that look for major moves in a time series and ignore the moves that you have deemed insignificant with the parameter. For example, the time series HZ5 is based on the high price time series and ignores moves of less than 5%. To compute HZ5, TechniFilter Plus looks through the high curve, marking peaks and valleys that are at least 5% apart. Generally, the Z-modifier works with major moves and ignores minor curve fluctuations, making it especially useful in divergence studies.

Zwieg’s Breadth Thrust Indicator

The 10-day average of the ratio of NYSE advancing issues to the sum of advancing issues and declining issues. (Also known as BTI.)