Glossary of Investment and Technical Analysis Terms
The glossary contains brief explanations of the most common terms used in investing and technical analysis. Click on the letter that begins the term you wish to know about to be taken to a list of the terms available starting with that letter.
If you are looking for a description of an investment or technical analysis term that does not seem to be in the Glossary, please email me and I will explain it for you and add it to the Glossary.
Means Australian Real Estate Investment Trust.
Used to describe a base pattern on a chart where strong long-term holders buy under-valued securities to hold for a subsequent mark up phase. Strong holders are mainly professionals and weak holders are generally the public.
- Accumulation index
An index of stock prices that assumes the reinvestment of dividends as from the ex-dividend date for each stock, rather than the payment date. It does not assume reinvestment of franking credits.
A general increase in prices. Also a day in which the price closes higher than it closed yesterday.
- Advance-Decline Line
An indicator constructed by plotting a cumulative total of the net of advances and declines. It is a measure of what the broad majority of stocks are doing, compared to the narrower sample of stocks in a market average or index.
- Algorithmic Trading
Algorithmic Trading is activity aimed at breaking up large, often institutional, orders in smallparcels of shares in order to disguise the presence of large orders that, if known, could distort the market to their disadvantage. Thus, most algorithmic trading is conducted by traditional institutional or professional investors.
- All Ordinaries index
A capitalisation-weighted index that measures movements in the value of 500 of the largest stocks. It may be a purely price index or an accumulation index.
One of the two guidelines for wave development in Elliott Wave Theory, the other being channelling. It stipulates that elements in a wave pattern tend to be different to the previous similar pattern.
The height of a price cycle from crest to axis (sometimes peak to trough).
A process of examining the detailed composition of a situation in order to identify the condition of the market.
- Angle Line
Used in Gann analysis
- Asset allocation
This is an industry jargon term for one's investment strategy. It means that your investment capital is spit up and invested across a number of different types of financial securities or real property (known as asset classes). The idea is to tailor the allocation of your investment assets to meet you investment objectives, including the balance of risk that you are willing to accept.
- Asset class
There are a number of different types or classes of assets that our investment capital can be invested in. The major classes of asset are stocks, bonds (fixed interest), cash, property and derivatives of those asset classes.
- ASX Code
The three-letter code allocated by the Australian Securities Exchange to each company. Also known as its ticker.
The precursor to today
- Average Annual Price Earnings Ratio
The average annual price earnings ratio is calculated by averaging the monthly closing prices of a share and dividing it by the earnings per share for that year.
- Average Directional Movement (ADX)
A component of the Directional Movement System. ADX is the average of the Directional Movement Index over a time period.
- Bar Chart
A chart in which the trading for a period of time is represented by a vertical bar between the high and low prices for that period. The opening prices are often marked with a tick on the left side of the bar and the closing or last price with a tick on the right side of the bar.
A market participant who believes prices are likely to fall and is looking to sell financial instruments. Is interchangeable with seller.
- Bear Distribution
A Steidlmayer distribution where the majority of the trading has occurred below the midpoint of the distribution.
- Bear market
A term used in connection with a market that is trending downward.
A pessimistic outlook for prices held by bears/sellers.
- Black Candle
A candle for a period which closes lower than it opens.
- Blue chip
A term used to denote a large and long-established company that is listed on a stock market.
- Bollinger Bands
Lines drawn so many standard deviations either side of a moving average. See also Percentage Bands.
The number of price units a market has to move from the last plotted price to cause a plot on a point and figure chart.
When price moves above the high of a trading range or pattern. Also when price moves below the low of a trading range or pattern.
A market participant who believes prices are likely to rise and is looking to buy financial instruments. Is interchangeable with buyer.
- Bull Distribution
A Steidlmayer distribution where the majority of the trading has occurred above the midpoint of the distribution.
- Bull market
A term used in connection with a market that is trending upward.
An optimistic outlook for prices held by bulls/buyers.
- Buy side
The buy side are the fund mangaers and institutional analysts who invest money on behalf of their clients.
A market participant who is seeking to purchase a financial instrument. Their motivation will be to profit from an appreciation in the price, take profits on a short trade or to cut loses on a short trade.
The candlestick line for one period.
- Candlestick Chart
A chart form that originated in Japan and is often called a Japanese Candlestick. It uses the same data as a western bar chart, except that a candlestick chart emphasises the relationship between the opening and the closing prices for a period. It is most often drawn for daily periods, but weekly and monthly candles are also used, as are intra day charts.
- Capital gain
The increase in value of a share whose price has risen since it was purchased.
- Capital growth
The increase in value of a share whose price has risen since it was purchased.
- Capital loss
The decrease in value of a share whose price has fallen since it was purchased.
See Market Capitalisation.
One of two guidelines used in Elliott Wave Theory, the other being alternation. It assists in forecasting how far a move will carry.
The graphical representation of market action.
The analysis of movements and patterns in price and volume of traded financial securities. Now seen as a part of Technical Analysis.
One who studies charts. Now generally replaced by Technical Analyst.
The last price at which a market trades in a period. In a futures market, the settlement price is often used in place of the actual last trade. The close represents the price at which professionals are prepared to hold positions over a break in trading.
- Closing Price Reversal
A short term reversal signal found on daily bar charts. In an uptrend, it is a trending bar, which opens near the high and closes near the low and below yesterday
Two or more chart signals with the same implication.
- Confirmation (Dow Theory)
The idea that a bull or bear market can only be said to exist when the trend of both the industrial and transport averages has changed. This seems to have been a more effective signal when railways were the major transport stocks and were very important within the Dow Jones averages than they are today.
- Congestion area
Price action over a period that is confined to a relatively narrow range. Also known as a trading range.
- Continuation (pattern)
A configuration on a price chart that, on the balance of probabilities, leads to the resumption of the prior trend. Its classification is confirmed when price breaks out of the pattern in the direction of the prior trend.
- Coppock Indicator
An indicator invented by Edwin Coppock. It is a sophisticated long term momentum oscillator for identifying the end of bear markets on the Dow Jones Industrial Average. It has a very good record on the average it was designed for and also for other broad market indexes.
- Core-Sattelite Strategy
An investment method, commonly in stocks, where a large part of investment funds provides exposure to index returns (beta) and is rarely changed. The balance of investment capital is actively managed to attempt to beat the index return (alpha).
One of two types of wave in Elliott Wave Theory, the other being impulsive. Corrective waves move against the direction of the overall bull or bear market.
The investor, speculator or institution on the other side of a transaction in a finacial security or derivative.
- Counter-party risk
The risk that the party on the other side of a transaction in finacial securities or derivatives will not be able to meet their obligations.
- Covered bond
A debt instrument issued by banks that is secured by an interest in a pool of high-quality mortgages. They are similar to residential mortgage backed securities. The main difference is that the bondholders have recourse both to the pool assets and to the issuer.
The top of a price cycle, also called a peak.
An abbreviation for Coal Seam Gas.
- Cum Dividend
A stock is deemed to be trading Cum Dividend (Cum is Latin for "with") up until the trading day before the Ex-Dividend day. An investor who owns a stock when it is trading Cum Dividend is entited to the dividend.
Series of repeating patterns which are found over a number of equal, or approximately equal, intervals of time.
- Dark Cloud Cover
A bearish candlestick reversal pattern in an uptrend. A long black candle must open near its high and above the upper shadow of the white candle before it and then close significantly into the real body of the white candle.
- Dark Pools
Dark pools are markets that exist away from the public stock exchanges. They allow institutional investors to trade large parcels of stocks among themselves. They are called "dark" pools because neither the depth, price nor identity of the buyer or seller is disclosed. The existence of orders is only apparent when a transaction has taken place. Transactons are reported, but usually after a delay.
- Debt to Equity Ratio
Total debt divided by the total equity. Calculates how much leverage there is in the finacing of a company. The higher the ratio, the higher the level of financial risk.
A general fall in prices. Also a day in which the price closes lower than it did yesterday.
In Elliott Wave Theory, the name given to describe the (nine) levels of cycles of economic activity.
The aggregate of bids by buyers at a given price.
A tradeable financial instrument that derives its value from some other financial instrument. Futures, options and warrants are all derivatives. Derivative markets are usually highly leveraged.
Used to construct a momentum oscillator, by subtracting a moving average from the closing price. This eliminates from the price any cycle with a length of less than the period of the moving average.
Used in validating cycles. Refers to the transformation of data into log form.
- Diagonal Triangle
In Elliott Wave Theory, a pattern that is formed when, in a wave count, wave 4 carries beyond the end of wave 1. Corresponds to a wedge pattern in bar charting.
- Directional Movement (DM)
A component of the Directional Movement system. Directional movement is the larger part of today
- Directional Movement Index (DX)
A component of the Directional Movement System. DX is the ratio of the net directional movement to the directional true range over a time period.
- Directional Movement System
A trend following indicator developed by J Welles Wilder. See also Directional Movement, True Range, Directional Movement Index and Average Directional Movement Index.
The act of taking good or bad news, information or expectations into account when setting a price.
Used to describe a top pattern on a chart where strong long-term holders sell to weak short term holders over valued securities that they have held through the mark up phase. Strong holders are mainly professionals and weak holders are generally the public. Also the pattern formed when price seeks a new equilibrium in Steidlmayer analysis and Market Profile.
An analysis technique or signal where an oscillator makes peaks or troughs which are at odds with the peaks or troughs in price and therefore indicates a structural instability in the trend.
The process of reducing risk by spreading investments over a number of financial securities or property. Further diversification may be acheived by spreading investments over several different asset classes.
That part of the profit made by a company that is distributed to shareholders. This will usually be twice a year in Australia. Dividends are usually expressed as cents per share. In Australia, dividends may be franked or unfranked.
- Dividend Cover
This calculates the number of times the dividend is covered by earnings. It is calculated by dividing the Earnings Per Share by the Dividend Per Share. See also Payout Ratio.
- Dividend yield
The per annum return on a stock. It is calculated as the dividends for the last year divided by the price of the stock, expressed as a percentage.
Stands for Dow Jones Industrial Average. A share price index measuring the market prices of 30 representative industrial companies on the New York Stock Exchange.
A candle which opens and closes at the same price. Specific forms are: Long legged or Rickshaw Man, which opens and closes near the midpoint, Gravestone, which opens and closes at the low, Dragonfly, which opens and closes at the high and Four Price, which has no shadows. They always indicate indecision in a trend.
- Dominant Cycle
A cycle that is reliable and persistent in the face of strong trend or random influences.
- Double Three
In Elliott Wave Theory, the name given to a corrective wave pattern that can have a structure combining zigzags, flats and triangles. There are also triple threes.
- Dow Jones industraial Average
Often abbreviated to DJIA or just "the Dow". A share price index measuring the market prices of 30 large industrial companies on the New York Stock Exchange.
- Dow Theory
A theory developed by Charles Dow, first editor of The Wall Street Journal, the principles of which underlie most of modern technical analysis. William Hamilton, who followed him as editor of The Wall Street Journal and finally Robert Rhea in his book The Dow Theory, further enunciated Dow
- Earnings per Share (EPS)
Net profit after tax (NPAT) divided by the number of shares issued by a company. Technically, it is a more complex calculation when the company has issued securities that may be convertible into shares in the future. In this case, a diluted EPS is calculated.
- Earnings Yield
Calculated as the Earnings Per Share (EPS) divided by the share price. Earnings yield is most commonly used in its inverse, the Price Earnings Ratio.
Stands for Earnings Before Interest and Tax.
An abbreviation for Earnings Before Interest Tax Depreciation and Amortisation. It is calculated by taking the net profit after tax and adding back the other amounts.
An abbreviation for Earnings Before Interest Tax Depreciation Amortisation and Rent. It is calculated by taking the net profit after tax and adding back the other amounts. It is an approximate measure of operating cash flow. Rent may include Finance Lease costs and sometimes also restructuring costs.
- Elliott Wave Theory
The name given to the ideas of RN Elliott.
- Engulfing Pattern
A candlestick reversal pattern in either an up or down trend. In a downtrend it is a long white candle that has a lower open and higher close than the real body of a black candle before it. In an uptrend it is a long black candle that has a higher open and a lower close that the white candle before it.
Stands for Earnings Per Share
- Equivolume Chart
A chat form invented by Richard Arms Jr and described in his book
Stands for Exchange Traded Fund.
When a stock declares a dividend, there is a formula to determine the day on which the books are closed (the Books Closing Day) to determine the list of shareholders who will be paid the dividend. There is a formula then to determine the first day on which the stock will trade without the right to receive the dividend, called the Ex-Dividend day. If an investor buys a stock prior to the Ex-Dividend day, the investor will receive the dividend. If an investor buys a stock on or after the Ex-Dividend day, then the seller receives the dividend. Ownership is dertermined by the date of the purchase, not the settlement date.
- Exchange Traded Fund
This is a listed investment fund or trust which is designed to track a specific index or asset class. Generally it will do this by holding stocks in an appropriate portfolio that tracks the index. It can also hold physical commodities (eg Gold). Some ETFs are far more risky and can be based on derivatives rather than prime investment assets.
- Expanded or Irregular Flat
In Elliott Wave Theory, a flat corrective pattern, in contrast to a regular flat, since it has a wave B pattern that more than retraces a wave A and a wave C that extends beyond the end of a wave A.
A jargon term meaning: To take the opposite side of a trading situation.
In Elliott Wave Theory, the name given to a situation where the fifth wave does not progress past the end of wave 3.
A formation on a bar chart where successive trend lines are broken and a less steep trend line is formed. After this has happened several times there is a
- Fibonacci Series
A series of numbers discovered by the Italian mathematician Leonardo Fibonacci. The series starts with 1,1,2,3,5,8 and so on with each number being the sum of the two previous numbers in the series.
- Financial instrument
A tradeable written undertaking which establishes ownership and payment rights between parties. Eg Shares, Warrants, Options, Futures etc.
- Fixed interest securities
There is a wide range of these and they come under varios names like government or corporate bonds, term deposits, secured and unsecured notes, debentures and so on. Any financial security that involves lending a principal amount in return for a fixed income stream in the form of interest and return of the capital at a designated date.
Describes a trader who has no position in the market, i.e. neither long nor short. See square. In Elliott Wave Theory, a corrective pattern that differs from a zigzag.
- Franked (dividend)
A franked dividend is one that carries a franking credit or imputed tax credit. This is included in the investor's taxable income, but also allowed as a tax deduction. If the investor does not pay tax, the imputed tax credit is refunded in full by the Austarlian Tax Office.
- Franking Credit
An imputed tax credit attached to a dividend.
The number of times cycles repeat in data of a given length. Frequency equals data length divided by period.
- FTSE 100
A share index of the 100 most highly capitalised companies listed in Great Britain on the London Stock Exchange.
David Fuller, an analyst who developed a method of using three box reversal point and figure charts for trading the markets.
Relating to factors that determine prices.
- Fundamental analysis
The study of the factors that determine prices of financial instruments.
The ideas of WD Gann.
A gap occurs when the price opens above the high of the previous period and trades higher or when the price opens below the low of the previous period and trades lower. The edges of the gap are thought to represent support and resistance levels. Some analysts attach significance to the closing of gaps
Is very similar to leverage. Gearing and leverage are ways to measure the level of financial risk in the way a company is funded. The higher the debt relative to equity, the greater the gearing or leverage and therefore the level of finacial risk. Gearing is usually calculated as financial debt divided by financial debt plus equity.
- Gearing Ratio
This is the level of financial risk in a company as a result of the level of risk from borrowings. It can be calculated as a debt to equity ratio. It s also calculated as a Gearing Ratio, the most common calculation for which is Total Debt divided by Total Debt plus Total Equity.
This is a jargon term used in the Australian stock market. It is also used in the US market and maybe elsewhere. The mechanism is used rarely in Australia but is far more common in the US.
A greenshoe is probably best described as legal market manipulation. In Australian its use requires clearance by the Australian Securities and Investments Commission (ASIC). It is used to assist in the management of large floatations of companies (also known as Initial Public Offerings or IPOs).
The greenshoe mechanisim involves the float managers being permitted to sell as much as 15% more shares in a float than are being issued. This means that the float managers will be short immediately after the new issue begins trading on the secondary market (stock exchange). Therefore, the float managers need to buy shares in the stock being floated after it begins trading.
Float managers are not premitted under the mechanism and the corporations law to manipulate the share price after the stock begins trading at a price that is higher than the IPO price. This means that they must buy at or below the float price. The greenshoe mechanism provides a means to enable investors wishing to sell at the float price after being allotted shares in the IPO. If more are bought than the lead managers were short in the float, this mechanism may also be used to provide liquidity for large institutional investors who wish to buy more shares in the stock than were allocated to them in the IPO.
There is usually a 30-day time limit on a greenshoe.
In the Corporations legislation this is a public company and its associated corporate entities. These associated entities may be companies, but are commonly trusts in the case of stapled securities.
- Growth Stock
This is a term used to describe a fast growing company. The most common measure will be growth in earnings per share.
A candlestick reversal pattern in a downtrend. Is a paper umbrella of either colour.
- Hanging Man
A candlestick reversal pattern in an uptrend. Is a paper umbrella of either colour.
In cycle theory, it is the tendency for the next cycle in length to be related by some orderly factor.
- Head and Shoulders
In bar and point and figure charting, a reversal pattern in an uptrend that is a basic trend reversal.
The highest price at which a security traded during a time period or the highest value for an index for a time period. The high represents the maximum power of buyers in a trading period.
- High Frequency Trading
High Frequency Trading is activity aimed at bombarding the market with high volumes of small orders in order to profit from small, often fleeting, price discrepancies in the prices quoted for single stocks (perhaps on multiple stock exchanges) or between pairs or groups of stocks. Indices may also be traded as derivatives. Some high frequency trading may also be aimed at detecting and profiting from the presence of large institutional orders whether they are undisclosed or disguised in algorithmic strategies. High frequency traders tend to be private proprietary traders, which has raised regulatory issues around monitoring and supervision.
- Hook Reversal
A short-term reversal signal that is found on daily bar charts. In an uptrend, it is an inside day that has opened near the high and closed near the low.
In Elliott Wave theory, impulsive waves move price in the direction of the overall bull or bear market. The opposite to corrective waves.
- Impulsive Move (IPM)
Price driving away from an equilibrium in Steidlmayer distribution analysis.
- Imputation Credit
See Imputed Credit.
- Imputed Credit
An imputed credit or franking credit is the notional amount of tax paid by the company on profits, from which dividends are paid over time.
A numerical measure of the way the prices of a weighted or unweighted basket of financial instruments has changed over some base period.
- Inside day
A period in which the range of the latest period is entirely within the range of the previous period.
- Interest Cover
This is calculated by taking the earnings of a company before tax and dividing it by the net interest payments made. It shows the number of times interest is covered by earnings. The higher the number the more likely a company is to meet its interest payment obligations.
Where used in relation to charting prices it means that the time period is less than a day. Common intra-day time intervals are five minutes and hourly. Where used in relation to trading it refers to traders who open and close trades within the one day, not generally holding positions overnight.
- Intrinsic value
An estimate of the objective current value of a financial instrument, determined by fundamental analysis.
- Inverse Head and Shoulders
In bar and point and figure charting it is a normal trend reversal in a down trend.
The exchanging of money for a financial instrument in the expectation of an income stream and/or a capital gain. Essentially identical to trading, except the emphasis will tend to be on a longer time frame and the income stream will tend to be the prime component of total return.
- Investment Plan
A preferably written document that sets out the investor's objectives, strategies and tactics in detail.
- Island Cluster Reversal
A short-term reversal signal found on daily bar charts. In an uptrend it is formed when price gaps upward, trades for several days above the gap and then gaps downward again leaving a group of bars above the trend looking like an island.
- Island Reversal
A short-term reversal signal found on daily bar charts. In an uptrend it is formed when price gaps upward and then the following day gaps downward, leaving one bar above the trend looking like an island.
- Juglar Cycle
Named after Clement Juglar, who first postulated a general economic cycle that occurred every nine years.
- Key Reversal
A short-term reversal signal that occurs on bar charts. In an uptrend it is formed when price opens higher and makes a new high, before closing below the previous low.
- Kitchen Cycle
Named after Joseph Kitchin, who established the existence of a 40 month or loosely four year cycle.
- Kondratieff Cycle
An economic cycle lasting approximately 50 years. Identified by the Russian economist after whom it is named.
The relationship between the trader
The extent to which a purchase is fundes from borrowings. Also known as gearing. It is calculated in several ways in the industry. A common way is a loan to valuation ratio.
Stands for listed investment company.
- Limit (day)
In some futures market, there are limits placed on how far price can rise or fall in a given day. This means that trading can completely cease on that day if there are neither buyers nor sellers within the limit range.
- Line (Dow Theory)
A period when the market average trades sideways in a shallow trading range. It is said to be an alternative to a normal secondary correction of a major trend.
- Line Chart
A chart constructed by drawing a line through the closing prices for a market. It may be constructed for any time period, but daily, weekly and monthly are most common.
- Listed Investment Company (LIC)
There is no precise definition in Australia. Essentially, it is a listed security backed by a closed-end fund or portfolio, usually stocks. There are some special taxation regulations for LICs. There are also specific stock market requirements to discoles net Asset Backing of the portfolio each month.
An abbreviation for Liquified Natural Gas.
To buy a financial instrument with a view to selling it later at a higher price.
- Long Candle
One where the range between the opening and closing prices is significantly larger than the immediately preceding candles. Indicates strong buyer or seller commitment.
- Long/Medium/Short Term
One of the most difficult areas of technical analysis is concerned with the analysis of time frame. The terms Long/Medium/Short term are used widely and do not have a precise meaning. In most situations, they depend upon the concept.
Types of trading and investing are often split up in this way:
Day Trading - trades are opened and closed within a day. No positions are carried over night. Short term for a day trader is seconds or minutes. Medium term is tens of minutes to maybe an hour or so. Long term is hours.
Short-Term Trading - trades last from part of a day up to several days. Short term will be a few hours to maybe one or two days. Medium term will be a few days. Long term will be several days to maybe a couple of weeks.
Position/Swing Trading - trades last from several weeks to several months and may even be held for a few years at the outside. Short term will be a week or more. Medium term will be several weeks to a month or more. Long term will be several months out to a year or more.
Long Term Investing - Investments last from a few years to many years. Short term will be a few years. Medium term will be a few years out to maybe a decade. Long term will be a decade to several decades.
The lowest price at which a security traded during a time period or the lowest value for an index for a time period. The low represents the maximum power of sellers in a trading period.
See Moving Average Convergence Divergence.
- MACD Histogram
An oscillator constructed by taking the difference between the MACD line and the signal line. Usually depicted as a histogram. Invented by Dr Alexander Elder.
- Macro Cycles
The largest cycles identified. The Kondratieff and Juglar cycles are examples.
- Market Capitalisation
The market value of a company if all of its shares were bought at the current market price. Market capitalisation is calculated by multiplying the current market price for its shars by the number of shares issued
- Market Profile
A name that is a registered trademark of the Chicago Board of Trade for the specific depiction of price distributions identified by Peter Steidlmayer. Mainly used in short-term futures trading but applicable in other markets with some modifications.
- Market weight
A jargon term which means that for a stock or stocks, a fund or porfolio holds one or more securities in the same proportion that they represent in the market index.
- Marubozu (Close Cropped)
A candle which either opens on the high/low or closes on the high/low or both opens and closes at either extreme of the range. They indicate strong buyer or seller commitment.
The rate at which price is changing over time. Also the name of a specific oscillator, which is calculated by taking the difference between the price today and the price n days ago.
- Momentum Oscillator
Any indicator measuring momentum, which is constructed as an oscillator. Examples are Momentum, Rate of Change, RSI, Stochastic, Williams %R and the difference between two moving averages.
- Monetary policy
The way in which governments or central banks try to chnage interest rates, the money supply and the quantum of credit. The usual brief to central banks is to control inflation within guidelines or to affect the exchange rate of its currency.
- Moving Average
A trend following indicator which smoothes the price to show the direction of the underlying trend. May be calculated as a simple moving average, a weighted moving average or an exponential moving average.
- Moving Average Convergence Divergence (MACD)
A hybrid indicator which is an oscillator, but used primarily as a trend following tool. It is calculated by taking the difference between two exponential moving averages and then smoothing the line again to create a signal line.
- Multi-Time Frame Analysis
A very important method of analysing markets where the analyst works from a long time period down to the period in which action is to be taken. It is based on the idea that all trends are influenced by trends in longer time frames. Also that support and resistance manifests themselves over long time frames.
Refers to the NASDAQ stock exchange in the US.
- Nasdaq 100
A stock market index of 100 of the largest domestic and international non-financial companies listed on the NASDAQ stock exchange.
- NASDAQ Composite
A price index of the stocks and similar securities (approximately 3,000) listed on the NASDAQ stock exchange. It is heavily weighted to technology stocks. It includes US and international stocks.
Where a trader holds no position. See also flat and square.
- Neutral or Normal Distribution
A Steidlmayer distribution in which the majority of trading has occurred near the midpoint of the distribution.
- Nikkei 225
A share index of 225 companies traded on the Tokyo Stock Exchange.
A concept used in working with multiple cycles. Having allowed for differences and variations in the real world, there appears to be a set of harmonically related cycles. Nominality enables us to postulate shorter or longer cycles once the first cycle has been determined.
Stands for Net Profit After Tax.
An abbreviation for Net Tangible Assets. This is simply total assets less intangible assets. See also Price to Book Ratio.
Refers to the result of measuring an aspect of price action with a view to predicting the extent of a likely price move. Same as target.
- Objective (analysis)
Those parts of analysis that can be demonstrated logically by reference to facts
- On-Balance Volume
An indicator invented by Joseph Granville. It is a cumulative net total of volume, where volume is added to the total if the price closes up for the day, subtracted from the total if the price closes down for the day or disregarded where the price closes unchanged for the day. It is said to disclose the underlying relative strength of buying or selling better than the traditional volume histogram.
- Open Interest
The number of contracts that are still in force in a derivatives market. When combined with price and volume it can provide clues to the strength of buying or selling commitment.
- Open/Close Reversal
A short-term reversal signal found on daily bar charts. In an uptrend, it is a trending day in which the open is near the high, the close near the low, but is above yesterday
- Opening Price
The price of the first trade of a time period. If a price index is being charted, it may be the value of the index at the end of the first of the regular periods for which the index is calculated. The open generally represents the emotional reaction of the public after a break in trading.
- Outside day
A period in which the range of the latest period is entirely outside the range of the previous period.
A level of price coinciding with extreme levels of a momentum oscillator above the centre line.
A level of price coinciding with extreme levels of a momentum oscillator below the centre line.
A jargon term which means that for a stock or stocks, a fund or porfolio holds one or more securities in a greater proportion than they represent in the market index.
- Paper Umbrella
A candle with a small real body, no upper shadow and a relatively long lower shadow. It implies uncertainty in a trend.
- Parabolic (SAR)
The Parabolic Time/Price System is a trading system invented by J Welles Wilder, based on the assumption of trading a trend and the expectation of price to move
A term used generally in all areas of technical analysis to describe any configuration on a price chart from one period to many periods. See also continuation pattern and reversal pattern.
- Payout Ratio
This is the proportion of the earnings of a company that is paid out as dividends. It is calculated by dividing the dividend Per Share by the Earnings Per Share. See also Dividend Cover.
- Percentage Bands
An analysis technique, where two lines are created a certain percentage either side of a moving average line such than most price action is contained within them. The bands represent extremes of buyer or seller enthusiasm and are likely levels for price reversals. See also Bollinger Bands.
A length of time over which prices are recorded and used for analysis. Common periods are a day, a week or a month. In cycle theory, the duration of a cycle from trough to trough.
The difference in time between the troughs of two cycles. Phase can also be measured in degrees.
- Piercing Pattern
A candlestick reversal pattern that is the exact opposite of Dark Cloud Cover, except for the additional requirement that it must close above the midpoint of the preceding candle.
- Pivot Point Reversal
A short-term reversal signal found on daily bar charts. In an uptrend, it is completed when we have a day with a high that is higher than the bars either side of it and then a close below the low of the high day.
- Point and Figure (P&F) Chart
The oldest western charting method in which only price movement is plotted in boxes using
- Position Sizing
A money management technique for calculating the number of securities to be bought or sold short in relation to the risk determined as the current price less the sell/buy-stop price.
The value at which a trade takes place on a financial market. In technical analysis, it also refers to the value of any financial security, derivative, index or market average.
- Price Earnings Growth Ratio (PEG)
This is the Price Earnings Ratio divided by the annual per share growth. Some analysts prefer it over the naked Price earnings ratio because it accounts for growth. The lower the PEG ratio the better value. A PEG ratio of 1 is often considered fair value. In theory, the higher the PEG ratio the more expensive the current price of the stock.
- Price Earnings Ratio PE or PER
PE and PER stand for Price Earnings Ratio. The price earnings ratio is calculated by dividing the current price of a company's shares by its earnings per share. It measures the number of years for company earnings to notionally repay the investment cost in buying a share. It is expressed as the number of times price is of the earnings.
A historical, or trailing, price earnings ratio is the current share price divided by the last year's EPS. The last year will be the last full year, or the last two half years depending on when the calculation is made in the reporting cycle. In the US this is known as PE TTM, where TTM stands for Trailing Twelve Months and the EPS used will be for the last four quarterly periods.
Historical price earnings ratios are to be distinguished from a prospective, or forecast, price earnings ratio which is the current share price divided by the forecast earnings for the next year.
- Price index
A index of the changes in price of a basket of stocks or other securities. It may be capitalisation weighted. This term is also loosely used to describe a market average, such as the Dow Jones averages.
- Price to Book Ratio
This is the ratio of the share price of a copmpany to the current per share book value. Book value is total assets minus total liabilities and intangibel assets. The ratio compares the current share price to the quantum of assets each share is notionally entitled to. Book is also known as Net Tangibel Assets (NTA).
- Primary Cycles
Also called intermediate cycles that run from nine weeks up to six months. They are evident in many markets and are manifested in financial markets probably due to the regular release of news and statistics and also treasury activity cycles.
- Professional investor (Australia)
To qualify as a professional investor under the Corporations Act you must be either an AFS licensee, An APRA regulated entity, A trustee of a super fund, ADF, PST or PSS scheme with assets of at least $10 million, a listed entity or A body covering a business of investment in a financial product, interests in land or other investments where funds are received as a consequence of an offer or invitation to the public.
In cycle theory, the tendency for amplitudes to expand as the period of the cycle expands.
- Rate of Change (ROC)
A momentum oscillator calculated by dividing the price today by the price n days ago.
- Real Body
The range between the open and close of a candle.
- Real Estate Investment Trust
This is a listed security which is generally one or more real estate (property) investment trusts stapled to a share in a real estate development and management company. A REIT will provide exposure to rental income, property value changes and development profits or losses.
In bar charting, a trading range that forms between reasonably clearly formed support and resistance levels. A small rectangle tends to be a continuation pattern, while a large rectangle tends to be a reversal pattern.
Means Real Estate Investment Trust.
A term used to describe the way prices sometimes reach a peak or trough and then immediately recoil from that level.
- Relative price earnings ratio
The relative price earnings ratio of a company compares it to a benchmark or to the past price earnings ratio for the company. The benchmark can be a broad market index average price earnings ratio or it might be the average price earnings ratio for the industry sector to which the company belongs.
- Relative Strength
A simple indicator for identifying whether a security is stronger or weaker than the overall market by dividing the price series for the security by the value of an appropriate market index. It may also be used to compare the strength of one security against another.
- Relative Strength Index (RSI)
A momentum oscillator invented by J Welles Wilder. It measures momentum of price change with reference to the ratio of average up closes and down closes for a time period.
A level on the chart where the security has traded before and which will tend to interrupt or reverse a subsequent up trend. It is based on the persistence of memory of buyers and sellers and their desire to get out of losing positions without loss or to enter positions they did not take and now regret that decision.
The idea that swings in a trend retrace the previous swing in full or in part.
- Return on Equity (ROE)
This is calculated by dividing the net profit after tax (NPAT) by the total shareholders' equity.The higher the ratio, the better return the company is achieving on its shareholders' funds.
A general term to describe a change in direction of price movement. Also the number of boxes necessary before a plot is generated on a point and figure chart.
- Reversal Pattern
In bar charting, a large configuration on a price chart that, on the balance of probabilities, leads to a change in the direction of the prior trend. Its classification is confirmed when price breaks out of the pattern in the direction opposite to the prior trend.
- Reversal Signal
In bar charting, a short-term configuration on daily bars that, on the balance of probabilities, leads to a change in direction of the prior trend.
Stands for Return on Equity.
- S&P 500
A capitalisation weighted index of the prices of 500 large cap common stocks actively traded in the US.
- Seasonal Cycles
Cycles that tend to be around one year in length (period). They are most evident in agricultural and livestock futures markets, but also in financial markets, probably related to company reporting seasons.
Any financial instrument.
- Sell side
The sell side work for stockbrokers or investment banks. Their main activity is analysis of companies and/or industry sectors and publication of their research.
A market participant who looks to sell a financial instrument. Their motivation will be to profit from a fall in the price, take profits on a long position or to cut losses on a long position.
Lines above and/or below the real body of a candle that depict the range traded to the high and low of the period.
- Share Market
See Stock Market.
- Shareholders Equity
This is calculated by taking total assets and substracting total liabilities.It is the surplus of assets over liabilities, which is notionally what the shareholders own if all debts were paid.
- Short Candle
One where the range between the opening and closing prices is significantly smaller than the immediately preceding candles. Indicates weak buyer or seller commitment.
- Short selling
To sell a financial instrument that is not already owned with a view to buying it back later at a lower price.
- Single Printing
In Steidlmayer distribution analysis, it describes a market driving up or down with strongly trending bars.
- Sophisticated investor (Australia)
To qualify as a sophisticated investor under the Corporations Act you must have net assets of at least $2.5 million or a gross income for each of the last two financial years of at least $250,000 and a certificate from a qualified accountant confirming your income and assets. Notes (1) Super funds are not permitted to qualify as sophisticated investors. (2) Sophisticated investors are not treated as being retail clients, such that they will not be given a Financial Services Guide or Statement of Advice or anything else that addresses investor protection.
- Spinning Top
A candle which has a small real body and shadows greater than the real body. They indicate indecision in a trend.
A position where a trader is neither long nor short. i.e. not in the market. Also known as being flat or having a neutral position.
- Squaring Time and Price
In Gann analysis, a method of forecasting tops and bottoms in the markets. Central to the idea that one unit of price is equivalent to one unit of price.
- Stapled Security
This is a security traded on a stock market which is actually a share in a company plus a unit in one or more trusts. The term "stapled" simply means that the share and trust units cannot be traded separately.
A candle with a small real body and a gap between its real body and that of the preceding candle. It implies uncertainty in a trend.
- Steidlmayer Distribution Analysis
A system of charting developed by Peter Steidlmayer. Market Profile is a registered trademark of the CBOT covering one specific representation.
A momentum oscillator invented by George Lane. It measures momentum of price change with reference to how near the market closes to the high or low of the recent range.
- Stock Exchange
See Stock Market.
- Stock Market
An organised and regulated market in which shares and other listed securities are traded. It is also called a secondary market.
An order placed in a futures market to buy or sell if the market trades at a specified price. In stock markets, and any other market where stop orders are not accepted, Hence, a buy-stop or a sell-stop. These precise terms are often reduced to Stop-Loss or just Stop.
In Gann analysis, a bull or rising market above the 1x1 line.
Those parts of analysis that rely upon the opinion or judgement of the analyst
One of the key principles of cycle analysis. Summation represents the idea that all market prices are the result of the addition of the various cycles currently affecting the market.
The aggregate of offerings by sellers at a given price.
A level on the chart where the security has traded before and which will tend to interrupt or reverse a subsequent down trend. It is based on the persistence of memory of buyers and sellers and their desire to get out of losing positions without loss or to enter positions they did not take and now regret that decision.
A general term for a price movement in one direction
- Swing Charts
In Gann analysis, the basis for mechanical trend indicators. Swing charts record the reverse moves that run for 2 or three time intervals, typically days.
In cycle analysis, the tendency for the bottom of cycles of different lengths to coincide from time to time. Also means that cycles for similar markets and of similar length turn together.
The result of measuring an aspect of price action with a view to predicting the extent of a likely price move. Same as objective.
- Technical Analysis
The study of the movements and patterns formed in prices and volumes of traded financial securities. Was originally only done only with charts (Charting), but now includes a wide range of mathematical and graphic representation of price and volume data.
Measurements of market activity, principally price, volume and open interest.
This is a common abbreviation for theoretical ex-rights price. This is the price at which shares should trade after a rights issue. However other concurrent factors affecting the share concerned or the market as a whole may modify the situation.
The smallest change permitted in the price of a futures contract. However, the term is used more widely for prices recorded on any market trade by trade. This may derive from the sound made by pre-electronic quote machines (ticker tape machines, or just tickers) whenever a trade came through. On the ASX, the term means the minimum price step that may be bid or offered and depends on the current price of the stock. There is an explanation at http://www.asx.com.au/resources/education/basics/price.htm on the ASX website.
The three-letter code allocated by the Australian Securities Exchange to each company. Also known as the ASX Code.
- Time Cycles
In cycle analysis, a way to forecast the direction of prices as well as the period of time for which any trend will run.
- Time Frame
A measure of time used in analysis, e.g. one minute, hourly, daily, weekly, monthly and yearly. Can also be used more generally as in short medium or long term.
- Time Stop
A time limit on the holding of a position, after which it is intended to be closed, either automatically or by action of the trader.
A basic principle of Steidlmayer distribution theory
- Total Return
Total return is the sum of capital growth and income stream from an investment or a portfolio of investments. For a stock it means the increase in share price plus the dividend per share. It is usually expressed as a percenatge return on the value of the investment at the start of the period beng measured.
A transaction, either buying or selling, on a financial market.
A person who buys or sells with the objective of making a capital gain.
The exchanging of money for a financial instrument in the expectation of an income stream and/or a capital gain. Essentially identical to investment, except the emphasis will tend to be on a shorter time frame and capital gain will tend to be the prime component of total return.
- Trading Plan
A preferably written document that sets out the trader's objectives, strategies and tactics in detail.
- Trading range
Price action over a period that is confined to a relatively narrow range. Also called a congestion area.
Used in cycle theory
A succession of either higher highs and higher lows (an uptrend) or lower highs and lower lows (a downtrend) in the short term and higher peaks and higher troughs (an uptrend) or lower peaks and lower troughs (a downtrend) in the longer time frames. The trend is determined by the price action.
- Trend Channel
Price sometimes trades between a trend line and a parallel line drawn through the peaks of an uptrend or the troughs of a downtrend. Breakouts through the channel lines are often the last extremes of a trend and lead to a break of the trend line as well.
- Trend Line
A line connecting lows in an up trend or highs in a downtrend.
- Trend-Following Indicator
One of the two basic types of indicator, the other being momentum oscillators. They are used to trade trends. Examples are moving averages, Parabolic SAR, Directional Movement System and Moving Average Convergence Divergence (MACD).
In bar charting, when price forms lower highs and higher lows. Small triangles tend to be continuation patterns and may be specifically called pennants. Large triangles tend to be reversal patterns. Symmetrical triangles are the pure form and may breakout in either direction. Ascending triangles have flat tops and tend to be bullish. Descending triangles have flat bottoms and tend to be bearish.
- Triple Divergence
Two consecutive divergences. Said to be a stronger signal than a single divergence.
- True Range
A component of the Directional Movement System. True Range is the greatest of the high today less the low yesterday, the high today less the close yesterday and the close yesterday and the low today.
A day in which the price closes at the same level as yesterday.
A jargon term which means that for a stock or stocks, a fund or porfolio holds one or more securities in a lesser proportion than they represent in the market index.
- Value Stock
This is a term that is used to describe a stock which is cheap on fundamentals. This means that its price is significantly lower than its intrinsic value. Different analysts will have different ways to determine value. The main measures that people use are price to cash flow per share, price to earnings per share (PE) ratio, dividend yield and price to net tangible assets per share.
In cycle theory, the principle that the other principles of multiple cycle analysis
- Vertical Arrangement of Data (VAD)
The way Steidlmayer distributions are charted in Market Profile and similar systems.
The degree to which the price of a financial security or class of financial securities varies over time. Academics equate greater volatility with greater risk.
The total number of financial instruments traded in a period. Sometimes proxies are used when data is unavailable. The general idea is that volume should confirm price if the buyers or sellers are committed to a price trend.
Stands for Volume Weighted Average Price.
A bear or falling market. In Gann terms, a market that is falling below its 1x1 line.
A pattern that forms on bar charts. Formed when price continues to make upward or downward progress, but the amplitude of the prices swings gradually deceases. Rising wedges are reversal patterns in an uptrend and continuation patterns in a downtrend. Falling wedges are reversal patterns in down trend and continuation patterns in an uptrend.
Rapid reversal of trading signals
- White Candle
A candle for a period which closes higher than it opens.
A candlestick continuation pattern. The same as a gap in Bar charting.
In Elliott Wave Theory, the name given to a corrective pattern that is a basic three wave move against the larger trend.
- Quantitative easing (QE)
A method for a central bank to increase the supply of money in an economy. This is done by buying back bonds or other government securities. This increases the money in the economy through the banking system and makes possible easier supply of credit.