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

A Priori

Known ahead of time.

Abandon

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

Abandoned Baby Pattern

A rare candlestick pattern in which an upside gap doji star (where the shadows do not touch) is followed by a downside gap black candlestick where the shadows also do not touch; considered a major top reversal signal.

ABC

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

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.

Adaptive Filter

Smoothing and/or forecasting prices with continuously updated weighting of past prices.

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.

Adverse Excursion

The loss attributable to price movement against the position in any one trade.

AKA

An acronym for “automated knowledge acquisition.” Refers to the use of programs to create knowledge needed by other programs (usually expert systems).

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.

Alpha

Premium that an investment portfolio earns above a given point of reference; a measure of stock performance independent of the market.

Amalgamation

An amalgamation is the combination of two or more companies into an entirely new entity. Amalgamations are distinct from acquisitions in that none of the companies involved in the transaction survives as a legal entity. Instead, a completely new entity, with the combined assets and liabilities of the former companies, is born.

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.

Amortization

Accounting method in which an asset’s cost is spread out.

Analysis of Varience

(Anova) The partitioning of total sum of squares into the sum of squares explained by the model and the remaining sum of squares unexplained.

Anaume

Candlestick formation. An exceptional exhaustion pattern (meaning “gap filling”) composed of five candles. The anaume occurs when the gap is filled in after a market price has changed directions. This pattern coupled with the other patterns indicate a strong potential for a bullish reversal and price advance.

Anchoring and Adjustment

Behavioral finance. The tendency to evaluate current decisions in the context of past events.

Andrews Method

A technique whereby a technician will pick an extreme low or high to use as a pivot point and draw a line, called the median line, from this point that bisects a line drawn through the next corrective phase that occurs after the pivot point. Lines parallel to the median line are drawn through the high and low points of the corrective phase. The parallel lines define the resistance and support levels for the price channel.

Annealing (Simulated)

Generally a metallurgical process, in artificial intelligence a process in which a neural net work searches for a set of weights to minimize errors; the search constantly shrinks as the weights find better values, analogous to the rearrangement of the molecules in a heated metal bar as the bar cools.

Annual Earnings Change

(%) The historical earnings change between the most recently reported fiscal year earn ings and the preceding.

Annual Net Profit Margin

(%) The percentage that the company earned from gross sales for the most recently reported 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

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.

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

Also known as TRading INdex (TRIN). An advance/decline stock market indicator. A reading of less than 1.0 indicates bullish demand, while greater than 1.0 is bearish. The index is often smoothed with a simple moving average.

Artificial Intelligence (AI)

The field of computer science dedicated to producing programs that attempt to mimic the processes of the human brain.

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.

Assign

To transfer to another to whom property is assigned.

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).

Astrophysical Cycle

Any earthly cycle, such as a market cycle, that has been scientifically related to the physics of the planetary system.

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.

Attenuation

The fractional part of reduced energy or lost power due to smoothing or filtering.

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.

Autocorrelation

The correlation between the values of a time series and previous values of the same time series.

Autoregressive

Using previous 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 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 Index (ADX)

Indicator developed by J. Welles Wilder to measure market trend intensity.

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 Month

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

Back-Propagation Network

A feedforward multilayered neural network that is a commonly used neural network paradigm.

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.

Backwardation

Backwardation is when the current price, or spot price, of an underlying asset is higher than prices trading in the futures market. Backwardation can occur as a result of a higher demand for an asset currently than the contracts maturing in the coming months through the futures market. Traders use backwardation to make a profit by selling short at the current price and buying at the lower futures price.

Balanced Mutual Fund

A mutual fund that seeks a return that is a combination of capital appreciation and current income, generally by building a portfolio of bonds, preferred stocks and common stocks.

Bandpass Filter

An oscillator that accentuates only the frequencies in an intermediate range and rejects high and low frequencies. Implemented by first applying a low pass filter to the data and then a high pass filter to the resulting data (e.g., two SMA crossover system).

Bank Investment Contracts (BICs)

A negotiated-term deposit issued by a commercial bank. See Guaranteed Investment Contracts (GICs).

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.

Basis

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

Basis Points

The measure of yields on bonds and notes; one basis point equals 0.01% of yield.

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.

Basket Trades

Large transactions made up of a number of different stocks.

Bayes Decision Rule

A rule that states the strategy chosen from those available is that for which the expected value of payoff is the greatest.

Bear Market

A securities market characterized thus based on declining prices.

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 (Coefficient)

A measure of the market/nondiversifiable risk associated with any given security in the market. A ratio of an individual’s stock historical returns to the historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock’s beta would be 1.2.

Bias

The difference between the expected value of an estimator and the actual value to be estimated.

Bid

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

Bid and Ask

Highest price and lowest price that an investor will pay for a tradable.

Big Point Value (BPV)

The dollar value represented by a full point of price movement. In the case of stocks, the Big Point Value is usually 1, in that 1 point of movement represents 1 dollar, however it may vary. For example, the Big Point Value for the S&P EMini Futures is 50, where 1 point of price movement represents 50 dollars. The Big Point Value for a stock such as JDSU is 1, where 1 point of movement represents 1 dollar.

Bimodal Distribution

In which observations are displayed as having two distinct peaks.

BitCoin Halving

Bitcoin operates on a deflationary model, where the reward for mining new blocks is halved every 210,000 blocks, or approximately every four years, a process known as the "halving." This event is significant because it reduces the rate at which new bitcoin are generated, thereby limiting supply. Bitcoin is the only asset in human history to have a fixed supply that never increases, making it the hardest currency ever known.

Black Box

A proprietary, computerized trading system whose rules are not disclosed or readily accessible.

Black Swan Event

A black swan event in the stock market is often a market crash that exceeds six standard deviations, making it exceedingly rare from a probabilistic standpoint. Some have argued that stock prices are "fat-tailed" and that such events are, in reality, more frequent than the statistics would let on.

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.

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.

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.

Boolean

Describes a variable that may have one of only two possible values: true or false. After George Boole, English logician, credited with the invention of “Boolean logic”.

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.

Box-Jenkins Linear Least Squares

The additive structure of Box-Jenkins models with a polynomial structure.

Box-Jenkins Method

From G.E.P. Box and G.M. Jenkins, who authored Time Series Analysis: Forecasting and Control. The method refers to the use of autoregressive integrated moving averages (ARIMA), which fit seasonal mod els and nonseasonal models to a time series.

Box-Jenkins Nonlinear Least Squares

The multiplicative structure of Box-Jenkins models using the Gauss-Newton algorithm with numerical derivatives.

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.

Bozu

Literally “bald” or “monk” in Japanese; in candlestick terminology refers to a situation during which a trading cycle opens or closes on a high or low, indicating a victory for the bulls or the bears.

Bracketing

A trading range market or a price region that is non-trending.

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.

Breakaway Gap

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

Breakout

The point when the market price moves out of the trend channel.

Broadening Formation

A broadening formation is a price chart pattern identified by technical analysts. It is characterized by increasing price volatility and diagrammed as two diverging trend lines, one rising and one falling. It usually occurs after a significant rise, or fall, in the action of security prices. It is identified on a chart by a series of higher pivot highs and lower pivot lows. The pattern looks like a megaphone.

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.

Broker's Deck

Orders physically held by the floor broker in th etrading pit.

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 Market

A securities market characterized thus on rising prices.

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.

Buy and Hold

The acquisition of a tradable for the long term rather than quick turnover.

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.

Calmar Ratio

Takes the average rate of return for the last 36 months and divides it by the maximum drawdown for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the last three years.

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.

Capital Gains Distribution

A distribution to investment company shareholders from net long-term capital gains realized by a regulated investment company on the sale of portfolio securities.

Capital Losses

Losses resulting from selling at a loss.

CBOT

Chicago Board of Trade.

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.

Central Limit Theorem

From statistics, the theorem 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. There are three basic ways to draw channels: parallel, rounded and channels that connect lows (bear trend) or highs (bull trend).

Chaos Theory

Describes the behavior of nonlinear systems. A subset of nonlinear dynamics analysis, chaos theory is a branch of mathematics focusing on irregular and complex behavior that has an underlying order. In the stock market, chaos theory seeks to forecast the future path of stock prices, including sudden changes that occur during periods of intense market activity.

Charts

A display or picture of a security that plots price and/or volume (the number of shares sold). The chart is the foundation of technical analysis, and over the years, many different types of charts have been developed.

Chi-Squared Test

A chi-squared test (also chi-square or χ2 test) is a statistical hypothesis test used in the analysis of contingency tables when the sample sizes are large. In simpler terms, this test is primarily used to examine whether two categorical variables (two dimensions of the contingency table) are independent in influencing the test statistic (values within the table).

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.

Christmas Tree Spread

The simultaneous purchase and writing of options with either a different strike price or expi ration date or combination of the two.

Class of Options

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

Classifer Systems

In artificial intelligence, these systems perform a type of machine learning that generates rules from examples.

Clone Fund

A smaller version of a retail mutual fund, it is offered as a subaccount in a variable annuity. The daily price of a clone fund is different among variable annuities that carry it because each clone fund starts on a different date and with a base price of $10.

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.

Closed-End Funds

A mutual fund that does not sell unlimited shares; one with a specific number of outstanding shares.

Closed Trades

Positions that have been either liquidated or offset.

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.

Clustering

Locating the presence of groups of vectors that are similar in some fashion.

CME

The Chicago Mercantile Exchange

Coefficient

A constant used to multiply another quantity or series; as in 3 xand ax, 3 and a are coefficients ofx.

Coefficient of Determination

R-squared. The proportion of the variation in the data explained by the model.

Coincidence

In Gann theory, a projected reversal point.

Colinear

see Multicolinearity.

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.

Combined Forecast

The weighted average of two or more forecasts.

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.

Commodity Futures Trading Commission (CFTC)

A commission that oversees the commodity exchanges in the US.

Comparative Relative Strength

Compares the price movement of a stock with that of its competitors, industry group or the entire market. This is distinct from J. Welles Wilder’s Relative Strength Index, which compares current price movement to previous price movement of the same instrument.

Comparitor

A device of some kind that compares two inputs.

Compounding

The payment, through interest, based on the sum of the original principal amount and its accrued interest.

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.

Confidence Factor

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

Confidence Level

The degree of assurance that a specified failure rate is not exceeded.

Confirmation

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 series of trading days in which there is no visible progress in price.

Consolidation

Also known as a congestion period. A pause that allows participants in a market to reevaluate the market and sets the stage for the next price move.

Contango

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.

Futures contract supply and demand affect the futures price at each available expiration. In contango, investors are willing to pay more for a commodity in the future. The premium above the current spot price for a particular expiration date is usually associated with the cost of carry. Cost of carry can include any charges the investor would need to pay to hold the asset over a period of time. With commodities, the cost of carry generally includes storage costs and depreciation due to spoiling, rotting, or decay in some cases. 

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?"

Consumer Price Index

The gauge of US inflation.

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".

Continuation Chart

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

Contract

An agreement as in options in which rights are exchanged by law. Correlation Coefficient-When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and Y to the square root of the product of the variance of X and the variance of Y.

Contract for Differences (CFD)

A contract for differences (CFD) is an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade prices are cash-settled. There is no delivery of physical goods or securities with CFDs. Contracts for differences is an advanced trading strategy used by experienced traders and is not allowed in the United States.

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.

Convergence

When futures prices and spot prices come together at the futures expiration.

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".

Coppock Curve

Also Coppock Guide. A long-term price momentum indicator: a 10-month weighted moving aver age of the sum of the 14-month rate of change and the 11-month rate of change for the Djia.

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

Correlation Coefficient

Degree to which two series of numbers plot as a straight line. A correlation coefficient of 1 (or -1) indicates that the two series of numbers plot exactly along a straight line. A correlation coefficient of zero indicates that there is no straight line relationship between the two series of numbers. As applied to two portfolios, a high correlation coefficient for the relative returns indicates that the portfolio values have moved in tandem and a low correlation coefficient means the opposite. When the correlation coefficient is high, one portfolio could have been used as a surrogate or a hedge for the other.

Correlogram

A numerical and graphical display of the test statistics of an autocorrelation diagnostic routine.

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; a retracement.

Covariance

Multiplies the deviation of each variable from its mean, adds those products and then divides by the number of observations.

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.

Covered Write

Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock.

Crack Spreads

The spread between crude oil and its products: heating oil and unleaded gasoline plays a major role in the trading process.

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.

Cross Correlations

The extent to which the revenue streams of individual traders within a single enterprise tend to exhibit similar patterns over time.

CT12

Market Profile terminology for commercial clearing members, as opposed to CTI1, local floor traders.

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.

Cup with Handle Pattern

A cup and handle is a technical chart pattern that resembles a cup and handle where the cup is in the shape of a "u" and the handle has a slight downward drift. A cup and handle is considered a bullish signal extending an uptrend, and it is used to spot opportunities to go long.

Current Ratio

The current assets of a company divided by its current liabilities. Balance-sheet strength indication.

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.

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. Each security is given a number so that it is easily identifiable.

Cutoff Frequency

A point where higher frequency cycles will not pass through a filter (e.g., a 10-day SMA will eliminate cycles of 20 days or less).

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 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; smoothing, reducing unwanted data, removing trend. Processing data is mathematically transforming the data from one form into another with the goal of amplifying pertinent information for traders.

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.

Death Cross

A death cross is a market chart pattern that occurs when a short-term moving average falls below a long-term moving average, indicating a potential shift in market sentiment and a possible downward trend.

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.

Depositary Receipt (DR)

A depositary receipt (DR) is a negotiable certificate issued by a bank. It represents shares in a foreign company traded on a local stock exchange and gives investors the opportunity to hold shares in the equity of foreign countries. It gives them an alternative to trading on an international market.

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. 

Dollar Cost Averaging

Using the same amount of funds to regularly invest (often quarterly or monthly) and not take into consideration whether the securities being purchased are high or low in price. By using this method, an investor will see an average between their investment costs and the market’s up and down movements.

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-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.

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).

Exercise

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

Exhaustion Gap

An exhaustion gap is a technical signal marked by a break lower in prices (usually on a daily chart) that occurs after a rapid rise in a stock's price over several weeks prior. This signal reflects a significant shift from buying to selling activity that usually coincides with falling demand for a stock. The implication of the signal is that an upward trend may be about to end soon.

Exit

The point at which a trader closes out of a trade.

Expense Ratio

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

Expert Systems

Dynamic but not adaptable, expert systems are rule-driven systems that cannot learn as the result of new information being fed into its system as opposed to neural networks, which can.

Expiration

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.

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.

Exponential Smoothing

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

Extreme

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

F

F Statistics

The ratio of the variance explained by treatments to the unexpected variance.

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).

Fade

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

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 inability of price to reaffirm a new high in an uptrend or a new low in a downtrend.

Fair Value

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

Fast Fourier Transform

A method by which to decompose data into a sum of sinusoids of varying cycle length, with each cycle being a fraction of a common fundamental cycle length.

Fast Market

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

Federal Deposit Insurance Corporation (FDIC)

A self-sustaining, independent executive agency established to insure deposits of all US banks entitled to federal deposit insurance, as stated by the Federal Reserve Act.

Federal Open Market Committee

The policymaking committee of the Federal Reserve Bank. They meet on a regular basis to make decisions on economic policy.

Federal Reserve Bank

The governing central bank of the US.

Feedforward Computation

Neural network in which neurons receive information 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). The ratio of any number to the next higher number is approximately 0.618 (known as the Golden Mean or Golden Ratio), and to the lower number approximately 1.618 (the inverse of the Golden Mean), after the first four numbers of the series. The three important ratios the series provides are 0.618, 1.0 and 1.618.

Fibonacci Sequence

The sequence of numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...), discovered by the Italian mathematician Leonardo de Pisa in the 13th century and 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 previous two numbers. Technically, it is a sequence and not a series.

Fill

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

Fill Order

An order that must be filled immediately (or canceled).

Filter

A device or program that separates data, signal or information in accordance with specified criteria.

Filter Point

The time at which a portfolio insurance program makes an adjusting trade.

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.

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 knowledge base.

Fit Criterion

A quantitative comparable measure used to minimize model errors.

Five% Confidence

Before conducting 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.

Fixed Dollar Trading/Investing

Dollar cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price. It's a good way to develop a disciplined investing habit, be more efficient in how you invest and potentially lower your stress level—as well as your costs.

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).

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.

Floating Point Values

Numbers that may contain a decimal point.

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. The next time period is the first forecast period.

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.

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

Behavioral finance. The tendency to evaluate current decisions within the framework in which they have been presented. Making decisions based on perceptions of risk/return rather than pure risk and return. The usual example is categorization of where money comes from and what it is "assigned" to instead of recognizing its fungibility. The alternative is to speak of frame independence, wherein behavior is not influenced by how the decision is framed. Examples are loss aversion, hedonic editing, loss of self-control, regret, and money illusion.

Frequency

The number of complete cycles observed per time period (i.e., cycles per year).

Frequency Component

That part of a time series that may be represented as a cycle.

Frequency Distribution

A chart showing the number of times (or "frequency") an event occurs for each possible value of the event. The vertical or y-axis of the chart is the frequency axis and the horizontal or x-axis shows the different values the variable being measured can take.

Frequency Domain

Variation in a time series is accounted for by cyclical components at different frequencies.

Frequency Response

The transfer of the frequency of the underlying data, usually prices, to the frequency of its moving average.

Front-Loaded

Commission and fees taken out of investment capital before the money is put to work.

Front-Running

The practice of trading ahead of large orders to take advantage of favorable price movement. Brokers are prohibited from this practice.

Front Month

The first expiration month in a series of months.

Fundamental Analysis

The analytical method by which only the sales, earnings and the value of a given tradable’s assets may be considered.

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.

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).

Fuzzy Systems

A problem-solving method that can be applied to neural networks, expert systems and other comput ing methods. Fuzzy systems process inexact information inexactly and describe ambiguity rather than the uncer tainty of an occurrence and are useful in performing control and decision-making tasks. Not Boolean.

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

Algorithms that mimic the characteristics associated with evolution and that are well-suited to optimization problems such as optimizing neural network parameters.

Genetic Programming

In artificial intelligence, this form of programming automatically generates a program from a set of primitive constructs.

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.

Give-Up

When a broker executes an order for another broker’s client and the two brokers split the commission; the client pays nothing extra.

Golden Cross

The golden cross is a bullish breakout pattern formed from a crossover involving a security's short-term moving average (such as the 15-day moving average) breaking above its long-term moving average (such as the 50-day moving average) or resistance level.

Golden Mean or Golden Ratio

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

Golden Section

Any length divided so that the ratio of the smaller to the larger part is equivalent to the ratio between the larger part and the whole and is always 0.618.

Greeks

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

Gross Domestic Product

Value of all goods and services produced domestically.

Growth Fund

A more speculative mutual fund made up primarily of the growth or performance stocks that are expected to appreciate in price more than the broad market over an extended time period.

Guaranteed Investment Contracts (GICs)

A single lump-sum deposit that earns a guaranteed interest until a known maturity date. GICs are issued by insurance companies.

H

Halving

Bitcoin operates on a deflationary model, where the reward for mining new blocks is halved every 210,000 blocks, or approximately every four years, a process known as the "halving." This event is significant because it reduces the rate at which new bitcoin are generated, thereby limiting supply. Bitcoin is the only asset in human history to have a fixed supply that never increases, making it the hardest currency ever known.

Handle

A handle is the whole number part of a price quote, that is, the portion of the quote to the left of the decimal point. For example, if the price quote for the stock is $56.25, the handle is $56, eliminating the value of cents in the quote.

Hanning Weight

Where 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

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.

Hedge Fund

A mutual fund involving speculative investing in stocks and options.

Herrick Payoff Index

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

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

(computer science)Computational rules of thumb. Distinct from algorithms, which are programs guaran teed to generate the correct result under all circumstances, heuristics may only turn out to be correct a certain percentage of time.

Hidden Node

Elements that give a neural network the ability to learn nonlinear patterns. The hidden nodes math ematically transform inputs by passing weighted sums of those inputs through nonlinear functions.

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. This architecture lends itself to faster training, as each network focuses learning solely on its own output.

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.

High Pass Frequency Filter

A detrending filter that lets pass the high frequency noise and rejects low frequency trend. Implemented by first applying a low pass filter to the data, then subtracting the filtered data from the original data.

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

How much contract price has fluctuated over a period of time in the past; usually calculated by taking a standard deviation of price changes over a time period.

Historical Data

A series of past daily, weekly or monthly market prices (open, high, low, close, volume, open inter est).

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.

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

Implied Alpha

The excess return expected from a stock to justify its current weighing in the portfolio.

Implied Volatility

The volatility computed using the actual market prices of an option contract and one of a number of pricing models. For example, if the market price of an option rises without a change in the price of the underlying stock or future, implied volatility will have risen.

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.

In-The-Money

A call option whose strike price is lower than the stock or future’s price, or a put option whose strike price is higher than the underlying stock or future’s price. For example, when a commodity price is $500, a call option with a strike price of $400 is considered in-the-money.

Income Dividends

Payments to mutual fund shareholders consisting of dividends, interest and short-term capital gains earned on the fund’s portfolio securities after deduction of operating expenses.

Index Fund

A mutual fund that replicates the behavior of a given index.

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.

Inductive Logic

The progress from statements describing particular events to a general statement.

Inefficient Markets

Behavioral finance. Driven by frame dependence and heuristic bias, when market prices stray from fundamental values.

Initial Balance

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

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.

Interest Rate Swaps

An arrangement that requires both sides of the transaction to make payments to each other based on two different interest rates. The most commonly traded requires one side to pay a fixed rate and the other to pay a floating rate.

Intermarket Analysis

Observing the price movement of one market for the purpose of evaluating a different market.

Intrinsic Value

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

Investment Advisor

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

Investment Clubs

Small, private organizations in which a group of investors, usually novices, pool their time and resources to learn more than they could on their own about various forms of investments and then invest their own money as a group.

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.

IRA

Individual Retirement Account. An employer’s retirement plan that, as specified by tax law, allows employees to elect to have their federal taxable income be deducted and set aside for retirement.

Iron Condor

An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices at expiration. In other words, the goal is to profit from low volatility in the underlying asset.

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. A "flat" is in progress, implying that a larger pattern is developing. It will contain waves of one higher degree than the A-B-C waves just completed.

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.

Julian Dates

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

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. In management wisdom, if anything does go wrong, it will do so in triplicate. Also, an executive will always go back to work early if no one takes him.

Knowledge Base

In artificial intelligence, a given inventory of knowledge specific to a set of rules.

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.

KST

Indicator developed by Martin Pring. A weighted summed rate of change oscillator. Four different rates of change are calculated, smoothed, multiplied by weights and then summed to form one indicator.

Kurtosis

Descriptive measure of how flat or pointed a distribution is.

L

Lag

The number of data points that a filter, such as a moving average, follows or trails the input price data.

Latest Quarterly Earnings

(%) The percentage change from the latest earnings earnings reported compared with the same quarter a year earlier.

Law of Series

A succession of random events, such as flipping a coin.

Lead

The number of data points that a filter, much as a moving average, 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-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).

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 permit ted in the price for a commodity during any trading session day.

Linear Price Scale

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

Linear Regression Channel

Similar to the 200-day moving average, large institutions often look at long term linear regression channels. A linear regression channel consists of three parts: 1. Linear Regression Line – A line that best fits all the data points of interest. 2. Upper Channel Line – A line that runs parallel to the Linear Regression Line and is usually one to two standard deviations above the Linear Regression Line. 3. Lower Channel Line – This line runs parallel to the Linear Regression Line and is usually one to two standard deviations below the Linear Regression Line.

LISP

A programming language based on predicate logic and is the one most commonly used in artificial intelligence applications.

Ljung-Box Statistic

A chi-square test of significance of higher order correlation existence. The marginal significance level is the probability that a no more higher order correlation exists.

Load

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

Local

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.

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.

Long

Establishing ownership of the responsibilities of a buyer of a tradable; holding securities in anticipation of a price increase in that security.

Lookback Interval

The number of periods of historical data used for observation and calculation.

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.

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. The macro can then be run and the keystrokes implemented.

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

Complex but structured pattern produced by an equation in which the result is fed back into the equation repeatedly; self-similarity.

Mapping

A function, or relation between values.

Margin

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

Marginal Significance Level of Test-Statistics

The probability distribution used to test the hypothesis that the beta coefficient does not equal zero. A T-statistic of approximately 1.65 reflects a 0.90 or 90% confidence and the mar ginal significance is 1-0.90 = 0.1 or 10%.

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. Usually refers to the overall strength and trading volume of the market.

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

Market On Close

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

Market Order

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

Market Price

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

Market Risk

The uncertainty of returns attributable to fluctuation of the entire market.

Market Sentiment

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

Market Timing

Using analytical tools to devise entry and exit methods.

Market Value

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

Markov Chain

A set of processes where the probabilities for the next state are dependent on the present state.

Martingale

From roulette; a tactical 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.

MAV

See Moving Average.

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. Used to determine the stop-loss level that can be used that will allow winning trades to remain; the extreme unfavorable price level reached for both profitable and unprofitable trades.

Maximum Entropy Method

More flexible than Fourier analysis, the maximum entropy method is both a tool for spectrum analysis and a method of adaptive filtering and trend forecasting. As a tool for spectrum analysis, the MEM system can provide high resolution spectra for identifying the dominant data cycles within relatively short time series, such as open, high, low, close, volume and open interest, or study results, such as RSI, TRIX, and so on. (Fourier analysis, in contrast, gives best results when applied to time series of six months or longer.) As a forecasting tool, MEM is used in conjunction with moving averages to forecast lower and upper trend channels in the data.

Maximum Entropy Spectrum Analysis

Maximum entropy spectral analysis (MESA) is the statistical estimation of the power spectrum of a stationary time series using the maximum entropy (ME) method. The resulting ME spectral estimator is parametric and equivalent to an auto- regressive (AR) spectral estimator.

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.

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, as measured over a given period.

Mean Return

The average monthly total return of a stock. The total return is price change added to dividends.

Mean Reverting

The term adopted in academic literature for one possible state of a price series: that state when price is oscillating randomly about some (unknown) mean value. That is, it is not trending.

Medallion Signature

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

Median Line

The line that is drawn from an extreme that bisects a line drawn through the next corrective phase after the pivot point. See Andrews Method.

Megaphone Pattern (aka Broadening Formation)

A broadening formation is a price chart pattern identified by technical analysts. It is characterized by increasing price volatility and diagrammed as two diverging trend lines, one rising and one falling. It usually occurs after a significant rise, or fall, in the action of security prices. It is identified on a chart by a series of higher pivot highs and lower pivot lows.

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.

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).

Minor Auction

The latest trend of the market, i.e., what it is doing now.

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 such as policy loans, assignments, pledges, and partial surrenders are considered gross income and subject to income tax.

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.

Momentum

A 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. Implemented by first applying a low pass filter to the data and then applying a differencing operation to the results.

Momentum Indicator

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

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 Fund

A mutual fund made up of money market instruments that are short term in nature.

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.

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 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.

Moving Average Convergence/Divergence (MACD)

The crossing of two exponentially smoothed moving averages that are plotted above and below a zero line. The crossover, movement through the zero line, and divergences generate buy and sell signals.

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. Technicians use crossovers to signal price-based buy and sell opportunities.

Moving Average Model

A time series equation representing an observed value at time t as a linear combination of present and past random shocks et (forecast errors).

Moving Window

Snapshot of a portion of a time series at an instant in time. The window is moved along the time series at a constant rate.

Multicolinearity

Two variables that have a correlation of greater than 0.70 or less than -0.70 in a regression model. The final result is the two variables explaining the same portion of variation where either variable would be sufficient.

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.

Multiple Linear Regression

More than one independent variable is used to account for the variability in one depen dent 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.

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.

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.

Natural Numbers

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

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 (i.e., head and shoulder, double and triple top/bottom formations).

Negative Amortization

This means that a payment of the stated size is insufficient to repay even the interest on the debt, meaning the total debt actually increases each month instead of falling.

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.

Neural Network

An artificial intelligence program that is capable of learning through a training process of trial and error.

No-Action Letter

The Federal Reserve, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) agrees to take no action to block a proposal by an exchange or company in conducting some aspect of the securities business. The aspect could be for almost anything, but the most common is a new contract listing or a new security issuance.

No-Load

Without any sales charge. For mutual funds, shares sold at net asset value.

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.

Nonlinear Dynamics Analysis

Analysis of relationships that start from well-defined outcomes to complex and cha otic results.

Nonlinear Statistics

Statistics theory that attempts to define probability distribution from disorder to either a more orderly state or a sharp trend reversal, such as stock market fluctuations.

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

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

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.

OCO (One-Cancels-the-Other)

A one-cancels-the-other (OCO) order is a pair of conditional orders stipulating that if one order executes, then the other order is automatically canceled. An OCO order often combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order is executed, the other order is automatically canceled. Experienced traders use OCO orders to mitigate risk and enter the market. OCO orders may contrast with order-sends-order (OSO) conditions that trigger, rather than cancel, a second order.

Odd Lot

An order to buy/sell fewer than 100 shares of stock.

Off Farm

The amount of stocks held by nonproducers including supplies held at mills, elevators, terminals, and processors.

On Farm

The amount of stocks held by producers.

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.

One-Tailed T-Test

A statistical test of significance for a distribution that changes its shape as N gets smaller; based on a variable t, equal to the difference between the mean of the sample and the mean of the population divided by a result obtained by dividing the standard deviation of the sample by the square root of the number of individuals in the sample.

OPEC

Organization of Petroleum Exporting Countries Opening Print The first price of a stock that comes across the ticker for the session.

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.

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 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.

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.

Option

A contract that provides the right but not the obligation to buy or sell a specified amount of a security within a specified time period.

Optional Cash Purchase

Buying additional shares made through the dividend reinvestment account.

Oscillator

Technical indicator used to identify overbought and oversold price regions. An indicator that detrends data, such as price.

OSO (Order-Sends-Order)

An order-sends-order (OSO), also commonly known as an order-triggers-other/one-triggers-other (OTO), is a set of conditional orders stipulating that if one order executes (the primary order), then the other orders are automatically entered (the secondary order or orders). There are several examples of OSO/OTO orders, including bracketed orders and take-profit strategies. Experienced traders use OSO/OTO orders to mitigate risk and to lock in gains. OSO orders may be contrasted with order-cancels-order (also known as one-cancels-the-other) (OCO) orders that cancel, rather than trigger, additional orders.

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

Out Trade

A mismatched trade between two traders in the pit, and which is settled the next day.

Outdata

The result (singular) stemming from a statistical test.

Outlier

A value removed from the other values to such an extreme that its presence cannot be attributed to the random combination of chance causes.

Outside Bar

An unstable pricing situation for a security or a market. There has been an unexpectedly sharp price rise or fall and a price drop (or correction) or a price jump is expected. It shows whether buyers or sellers were in control and the price may continue to rise or fall. It is dependent on whether the outside bar was up or down.

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

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.

Overfitting

1) The parameters of a trading system are selected to return the highest profit over the historical data. 2) a model developed with rules tailored to fit the historical data precisely.

Overshoot

To pass beyond or over a specific targeted level.

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

Par

The full principal amount of an investment instrument.

Parabola

The U-shaped curve in the plane given by the equation of the form.

Parabolic

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

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.

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.

Payment for Order Flow (PFOF)

A widespread practice in modern retail brokerage that has facilitated the rise of commission-free trading platforms. While it provides certain benefits, such as reduced trading costs, it also introduces potential conflicts of interest and trade execution concerns. Investors should be aware of how their trades are executed and understand the dynamics of the system to make informed decisions.

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.

Pennants

A short compact wedge accompanied by receding volume.

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.

Percentile

A value on a scale of one hundred that indicates the percent of a distribution that is equal to or below it.

Perceptron

A pattern-recognition machine, based on an analogy to the human nervous system, capable of learning by means of a feedback system that reinforces correct answers and discourages wrong ones.

Pessimistic Rate of Return

A statistic that adjusts the usual wins/losses statistic to estimate the worst return from trading results. It reduces the number of wins by the square root of the actual number and increase the number of losses by the square root of the actual number of losses. The resulting numbers of wins or losses are multiplied by the average win or loss and the sum of the resulting wins/losses is divided by the required investment.

PFOF

See Payment f0r Order Flow

Phase Delay

The time lag that a filter falls behind the pre-filtered data.

Phasor

Used to describe the frequency, amplitude, and phase of all frequency components of the signal.

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%).

Pivot Point

In market activity, a price reversal point.

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.

Position Management Ratio

The ratio of profits extracted on winning transactions versus losses suffered on trades that liquidate unprofitably.

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.

Premium

The price a buyer pays to an option writer for granting an option contract.

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.

Preprocessing

Altering data to some extent to be more accurately analyzed; smoothing, reducing unwanted data, removing trend. Processing data is mathematically transforming the data from one form into another with the goal of amplifying the pertinent information for traders.

Preservation Of Capital

The preservation of the value of your investment.

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.

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.

Probability Density Function

A graph showing the probability of occurrence of a particular data point (price).

Profit Margin Expansion

In long-term reference, a measure of a company’s net profit margin in the latest reported quarter divided by profit margin in the fiscal year previous. In short-term reference, a measure of a company’s net profit margin in the latest reported quarter divided by profit margin in the quarter immediately preceding.

Profit Taking

Selling tradables that have appreciated since initial purchase in order to take advantage of the appreciation.

Program Trading

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

Prospectus

Report published by the company that operates a mutual fund. It describes the fund’s investment objectives; its managers and their experience; the fees and charges associated with the fund; and policies and restrictions.

Put-Call Ratio

The put-call ratio is a measurement that is widely used by investors to gauge the overall mood of a market. A "put" or put option is a right to sell an asset at a predetermined price. A "call" or call option is a right to buy an asset at a predetermined price.

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

Q

Quarterly Warnings 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

Indicates a company’s financial strength; a company’s cash and equivalent divided by current liabili ties.

Quotron

A proprietary financial data service.

R

R-squared

The percentage of variation in the dependent variable that is explained by the regression equation. A relative measure of fit.

Rally Tops

A price level that concludes a short-term rally in an ongoing trend. A bull market will be made up of a series of rally tops.

Random Shock

The unexplained component of an equation that models a time series (e forecast errors).

Random Walk

A theory that says there is no sequential correlation between prices from one day to the next, that prices will act unpredictably as they seek a level in response to supply and demand.

Range

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

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).

Range Extension

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

Rate Of Change

In which today’s closing price is divided by the closing price n days ago. Multiply by 100. Subtract 100 from this value. ((C today/Cn) * 100) - 100.

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.

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.

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.

Rebalance

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

Rectangle

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

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.

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. This statistic measures the return on an investment relative to what would have otherwise been earned on a risk-free investment.

Relative Return Standard Deviation

Measures the amount of variability of the relative return. A large relative return standard deviation indicates that the relative return experienced during the holding period fluctuated dramatically and, if the holding period was different, a significantly different relative return would have been achieved. A small relative return standard deviation indicates the opposite.

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(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.

Renko

A kind of candlestick chart that does not take time into account for constructing the chart.

Representativeness

Behavioral finance. Judgment by stereotype.

Residual Value

The standard deviation of the unexplained portion of the monthly return.

Resistance

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

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 or qualifer but not yet executed.

Result Series

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

Retention Rate

Percentage of a firm’s aftertax profits that can be put to those earnings retained.

Return on Assests

(%ROA) The net earnings of a company divided by its assets.

Return on Equity

(%ROE) The net earnings of a company divided by its equity.

Retracement

A price movement in the opposite direction of the previous trend.

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.

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, i.e., from long to short. Also known as stop and reverse.

Reverse Exponential Moving Average

An exponential moving average computed working backward through the time series, rather than forward, as is the case with a standard EMA. A REMA is used so the target would reflect only future price behavior, not past action that would induce spurious correlation.

Reward-Risk Ratio

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

Reward-Risk Rank

Stocks ranked in descending order by reward-risk ratio.

Risk (Implied)

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

Risk-Adjusted Return on Capital (RAROC)

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

Roll

Substituting a far option for a near option on the same underlying instrument at the same strike price; also to roll forward or roll over.

Root Mean Square Percentage Error

(Rmspe) Square root of the average sum of squared errors experessed as a percentage.

Rotation

Moving funds from one sector to another sector of the stock market as the business cycle unfolds.

Roth IRA

An individual retirement account where contributions are not deductible, taxes are not paid on distributions and allows penalty-free withdrawals for first-time homebuyers and retirees.

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

Chart formation in which the price dips momentarily, forming a cup, before resuming its upward course.

Scalp

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

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

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

SEC

The Securities and Exchange Commission.

Sector Fund

A mutual fund that concentrates on trading a range of securities within a broad industry group, such as technology, energy or financial services.

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. For example, an exponentially smoothed moving average (EMA) uses the previous day’s EMA for the calculation. On the first day’s calculation of the EMA, you could use a simple moving average as the seed for the EMA.

SelectNet

A Nasdaq execution technology.

Self-Affine Transformation

A rescaling procedure used in fractal geometry and performed on a two-variable system. For example, in a system utilizing an x-axis and y-axis representing time and price, the x-axis could be rescaled by one ratio and/or procedure while the y-axis is rescaled by a different ratio and/or procedure.

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.

Selling Short

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

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.

Sensitivity

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

Serial Correlation

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 or commodity are marked to market. Typically, the closing price.

Shapiro-Wilkes Test

A statistical test indicating the likelihood that the sample of simulated net returns was drawn from a normal distribution. A small value of this statistic leads to nonacceptance of the null hypothesis that the sample is drawn from a normal distribution.

Shareholder of Record

Share owner of company stock as registered in company files.

Sharpe Ration Method

To calculate the Sharpe ratio investors can subtract the risk-free rate of return from the expected rate of return, and then divide that result by the standard deviation (the asset's volatility).

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

A ratio that indicates the number of trading days required to repurchase all of the shares that have been sold short. A short interest ratio of 2.50 would tell us that based on the current volume of trading, it will take two and a half days’ volume to cover all shorts.

Short Squeeze

A short squeeze is an unusual condition that triggers rapidly rising prices in a stock or other tradable security. For a short squeeze to occur, the security must have an unusual degree of short sellers holding positions in it. The short squeeze begins when the price jumps higher unexpectedly.

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.

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. In moving average jargon, the first moving average is smoothed by a second moving average. The second moving average is the signal line.

Signature Medallion Guaranty

Program used by banks and other institutions to verify a signature.

Significance

The probability 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

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.

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 Company Stock

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

Small Order Execution System (SOES)

Computerized system developed by Nasdaq for immediate electronic execution of up to 1,000 shares of stock.

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.

Smoothing

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

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".

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. This is used to detect periodic fluctuations or cycles in historical price data.

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.

Spike

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

Spline

The linear interpolation between two adjacent points on a curve.

Spot Month

In trading, the current contract month. Also known as the front month.

Spot Prices

Same as cash price, the price at which a commodity is selling at a particular time and place.

Spread

A trade in which two related contracts/stocks/bonds/options are traded to exploit the relative differences in price change between the two.

Spread Rolls

Using a spread order to bridge the closing of one position and the establishment of a new one.

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.

Spring

1) A two-day pattern in which on the first day, the market declines below a support point, while the next day sees the market move strongly back up into the congestion area. 2) Another term for 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.

Stair-Stepping

In which market activity is characterized by a trend, then sideways movements, followed by another trend and further sideways movement.

Stagflation

when slowing economic growth and high inflation occur at the same time.

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.

Standard Error of the Estimate (SEE)

A measure of absolute fit. One can use this measure to compare the last portion of this model with another portion of the same dependent variable.

Standardized Unanticipated Earnings

(SUE) A company’s average earnings surprise is compared with analyst earnings estimates dispersion, which can be used to estimate the likelihood of earnings surprises.

Stationary

A distribution of a quantity that does not change over time.

Stationary Time Series

Implies that no trend is observed in the time series. Identified when the time series has a constant mean and variance.

Step Function

A function defined on an interval so that the interval can be partitioned into a finite number of subintervals on each of which the function is a constant. Also known as a simple function.

Stepwise Regression

A mathematical technique to choose the independent variables that best describe the behavior of the dependent, in order of improving description.

Sterling Ratio Method

This ratio is also a comparison of historical reward and risk and was developed by Deane Sterling Jones. The Sterling Ratio is equal to the average annual rate of return for the past three calendar years divided by the average of the maximum annual drawdown in each of those three years plus 10%.

Stochastics

1) 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. 2) Literally means random.

Stock Index Futures

A futures contract traded that uses a market index as the underlying instrument. Typically, the value of the contract is $500 times the underlying index. The delivery mechanism is usually cash settlement.

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.

Stop and Reverse (SAR)

A stop that, when hit, is a signal to reverse the current trading position, i.e., from long to short. Also known as reversal stop.

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. The order becomes a "buy at the market" order if the market is at or above to the price of the stop order. Sell stops are orders that are placed with a predetermined price below the current price. Sell-stop orders become "Sell at the market" orders if the market trades at or below the price of the stop order.

Straddle

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

Strange Attractor

A balance point between a set of conflicting forces.

Strangle

The purchase or sale of an equivalent number of puts and calls on an underlying stock with the same expiration date but a different exercise price. Usually, the put has a low strike price and the call has a higher strike price.

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.

Strike Price

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

Strips

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.

Street Name

Stock ownership in which shares are registered to a brokerage or other financial institution and held.

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.

Struck

The price at which an exercised option delivers the underlying securities.

Student

The pseudonym for Irish chemist W.S. Gosset, who published "The Probable Error at a Mean" under that name in 1908.

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.

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.

SuperDot

NYSE execution technology.

Support

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

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.

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. For example, percentage price changes of less than 5% will not be measured in the swing chart.

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.

Swings

The measurement of movement of the price of a tradable between extreme highs and lows.

Synergistic Market Analysis

Also known as synergistic analysis. An analytical method that merges technical and fundamental analysis with an emphasis on intermarket analysis.

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.

Synthetic Securities

Security created by buying and writing a combination of options that imitate the risk and profit profile of a security.

T

T-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.

T-Test

A statistical test of significance for a distribution that changes its shape as N gets smaller; based on a variable t equal to the difference between the mean of the sample and the mean of the population divided by a result obtained by dividing the standard deviation of the sample by the square root of the number of individuals in the sample.

Tangibles

Cash equivalents of the futures contracts.

Tax-Deferred

In which an investment allows an investor to postpone paying taxes on money put into the investment until the investor literally takes possession of the money invested.

Technical Analysis

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume and price patterns. Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements. Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or trends.

Teenie

A teenie is one-sixteenth of a basis point, where a basis point represents one-hundredth of a percent. Prior to decimalization, a teenie was the smallest amount by which a security's price could move. Decimalization moved trading standards to base ten rather than base eight.

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

Also known as yield curve. 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. For example, a reduction in the difference between pivot bottoms shows loss of momentum; an increase in the difference shows increased momentum.

Tick

The minimum fluctuation of a tradable. For example, bonds trade in 32nds, while most stocks trade in eighths.

Tick Indicator

The number of stocks whose last trade was an uptick or a downtick.

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 Domain

Variation of a time series is accounted for by an autocorrelation function and other time series.

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.

Time Value

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

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.

TPO

Time-Price Opportunity; a price that occurs during designated half-hour periods of trading; a price-time relationship developed for the Chicago Board of Trade’s Market Profile and Liquidity Data Bank reports.

Tracking Error

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

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; in commodities, the high/low price limit established by the exchange for a specific commodity for any one day’s trading.

Trailing Stop

A stop-loss order that follows the prevailing price trend.

Transfer Agent

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

Transfer Function

The mathematical relationship between the output of a control system and its input for a linear system, it is the Laplace transform of the output divided by the Laplace transform of the input under conditions of zero initial energy.

Transfer Response

Refers to 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. For example, a simple moving average is a filter to reduce noise; the moving average is the transform function.

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. Historically, this term has been used to denote the area between the base trendline and the reaction trendline defined by price moves against the prevailing trend.

Trend Day

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.

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.

Triangle

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

Triangular Moving Average

A moving average in which each day’s data are multiplied by a weight that increases in value at steady increments to a peak value and then declines to zero at equivalent increments. The sum of the weighted daily data is divided by the number of variables.

TRIN

See Arms Index Trix-The one-period difference of the triple exponential smoothing operating on the log of price.

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.

Triple Witching

Triple witching refers to a phenomenon in the stock market where three types of derivative contracts all expire on the same day. This happens four times a year, on the third Friday of March, June, September, and December. The three contracts that expire are: Stock Index Futures, Stock Index Options, and Stock Options. Triple witching can lead to increased volatility and trading volume as traders try to close, roll over, or exercise their expiring positions. However, the heightened activity is usually short-lived, with most of the action happening in the final hour of trading, known as the "triple witching hour."

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 developed by William Blau that double-smoothes the ratio of the market momentum to the absolute value of the market momentum. where: 

 Mtm = one-day change in closing price. |Mtm| = absolute value of   Mtm. 

 Er = exponential smoothed moving average of r days. 

 Es = exponential smoothed moving average of s days.

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. Both candles must have identical highs and lows. Significant when found at contract highs or lows, and can indicate a breakout.

U

Uncovered Option

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

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.

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.

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

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.

Value Area

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

Value at Risk (VaR)

A measure of exposure within a given portfolio, which attempts to estimate how much the portfolio would be expected to lose, given the recent behavior of the securities contained therein.

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.

VantagePoint Software

Ready to utilize a trading tool that consistently forcasts 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.

Variable-Length Moving Average

A moving average where the number of periods selected for smoothing is based on a volatility measurement of price. Typically, the standard deviation of price is used to measure price volatility. The more volatile the price is, the shorter the number of periods used is for smoothing.

Vega

The amount by which the price of an option changes when the volatility changes.

Vertical Lines

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

Vertical Spread

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

Vesting

The rights that an employee gains for working at a firm for a specific length of time.

VIX (Volatility Index)

The VIX is calculated using a "formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls” on the S&P 500, using options that expire in 16 and 44 days respectively

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. (See also VIX)

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 Price Trend (VPT)

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

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

W Formation

A double-bottom formation.

Warrant

A company-issued certificate that represents an option to buy stock shares at a given time. A warrant in stocks is a derivative contract between a public company and an investor, giving the investor the right, but not the obligation, to purchase or sell a specified number of shares of the company’s stock at a predetermined price (strike price or exercise price) on or before a specified expiration date. Warrants are similar to options, but they are issued by the company itself, rather than being traded between investors.

Wasting

A term depicting how an option’s value decreases over time; as each day after acquisition passes a portion of the option’s time value is lost or wasted.

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

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

Wedge

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

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.

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.

Yield

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

Z

Zero-Coupon Government Bonds

Government bonds that are purchased at a deep discount and pay no cash dividend, unlike regular bonds.

Zeta

The percentage change in an options price per 1% change in implied volatility.

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.)