Active Trading Vocab
Bottom Fishing
-Investing in the stock of an aluminum company when aluminum prices are depressed. -Buying the stock of a container shipping company during an economic depression. -Investing in a print media company when the Internet is putting such companies out of business. -Buying shares of a bank during a financial crisis. In each of these cases, it is unclear when or if the stock's price will recover.
Channel
1) There are different types and flavors of channels. Examples are sale channels, distribution channels, Internet channels, and so forth. 2) A breakout of a technical channel is seen as a bullish (on an upward breakout) or bearish signal (on a downward breakout).
Confirmation
1. A confirmation strengthens the implication of technical indicators. When a confirmation occurs, traders become more confident that the predicted trend will occur. If there is no confirmation, there is divergence. 2. Confirmation slips are usually mailed out within one week of the trade date.
Congestion
1. A market situation whereby the demand of contract holders wishing to exit their existing positions exceeds the supply of willing participants wishing to enter into the offsetting position. 2. A period of time when a stock trades either below resistance or above support, or both.
Buyers/Sellers On Balance
1. A market with more buyers on balance usually indicates positive investor sentiment, while one with more sellers on balance usually indicates negative investor sentiment. 2. If an investor is a buyer on balance, it is generally a positive sign that they have identified a number of potentially profitable opportunities in the market. If an investor is a seller on balance, this situation could indicate a number of possibilities. The seller might have multiple investments that have reached profitable selling points, such as previously undervalued securities that have increased in price. The seller might also be unloading investments out of distress or fear.
Canceled Order
1. A previously submitted order to purchase or sell a security that is canceled before it has been executed on an exchange. 2. An order that can't be executed due to parameter limitations, such as a limit order that can't be filled because the price has moved outside of range.
Buyers/Sellers On Balance
1. A ratio based on aggregate market orders for securities that tells whether there are more buyers or sellers in the current market. This ratio is usually provided just before the market opens. 2. A term that describes whether an investor has mainly acquired securities or mainly sold securities over a given time period.
Contingent Order
1. An order involving the simultaneous execution of two or more transactions. 2. An order whose execution depends upon the execution and/or price of another security.
Congestion
1. During times of congestion, contract holders, since their positions are unattractive to new investors and in order to offset their positions, will be required either to pay a high premium or sell at a low discount.
Behaviorist
1. One who accepts or assumes the theory of behaviorism (behavioral finance in investing.) 2. A psychologist who subscribes to behaviorism.
Confirmation
1. The occurrence of two or more indicators corresponding with one another and thereby corroborating the predicted trend. 2. The written acknowledgment provided by a broker indicating that a trade has been completed. This includes details such as the date, price, commission, fees and settlement terms of the trade.
Channel
1. The system of intermediaries between the producers, suppliers, consumers, etcetera, for the movement of a good or service. 2. The technical range between support and resistance levels that a stock price has traded in for a specific period of time.
Bollinger Band
A band plotted two standard deviations away from a simple moving average, developed by famous technical trader John Bollinger. In this example of Bollinger Bands®, the price of the stock is banded by an upper and lower band along with a 21-day simple moving average.
Bear Market
A bear market should not be confused with a correction, which is a short-term trend that has a duration of less than two months. While corrections are often a great place for a value investor to find an entry point, bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller.
Bear Tack
A bear tack may indicate a short-lived, temporary price decline or a longer-lasting price plunge. Just as a sailboat may have to change tack several times to stay on course as the wind shifts, investors need to position their portfolios to navigate choppy markets and stay on track to meet their investment portfolio goals. A bear tack should be especially heeded when it comes after a prolonged advance period, since it may signal a big shift in investor sentiment. This is particularly true if the economic environment has been deteriorating, in the case of financial markets, or fundamentals have been worsening, in the case of sectors or stocks. For example, investors who heeded the bear tack after the S&P 500 and Dow Jones Industrial Average hit record highs in October 2007 would have saved themselves a packet, since these equity indexes subsequently proceeded to lose more than half their value over the next 18 months. The global credit crisis was just unfolding in October 2007, and although few could have predicted the scale of the carnage that followed, heeding the warning signs of the bear tack - evidenced by the 5% slide in the indices within two weeks of reaching their highs - would have been a prudent course of action in retrospect. Likewise, for a stock, a bear tack may be a decline on an earnings miss after it has recently set a new record high. The earnings miss may indicate that profit expectations have been ratcheted too high and further misses may be in store. Reaction to a bear tack depends on whether the investor follows an active or passive investing style. While the active investor may take proactive steps such as taking profits on certain positions and/or initiating hedges to mitigate downside risk, the passive investor may prefer to ride out the decline as a normal part of the market cycle.
Bearish Harami
A bearish harami may be formed from a combination of a large white or black candlestick and a smaller white or black candlestick. The smaller the second candlestick, the more likely the reversal. It is thought to be a strong sign that a trend is ending when a large white candle stick is followed by a small black candlestick.
Closing Bell
A bell that rings to signify the end of a trading session. The closing bell occurs at 4:00 pm EST. Between 1870 and 1903, a gong was used. A bell was then introduced and is still in use today. Not all exchanges use this traditional system - the New York Stock Exchange is one that does.
Blow-Off Top
A blow-off top usually indicates that a security's price is about to fall, while a blow-off bottom usually indicates that a security's price is about to rise. A security can enter a blow-off period during which its value remains inflated for weeks or months. Day traders who want to try to profit from blow-off periods, while limiting their losses from the price drops that inevitably follow a blow-off top, can use trailing stop techniques. Day traders also use blow-off tops to identify potential gap-n-go trades.
Bull Bond
A bond that is likely to increase in value in a bull market, when interest rates are declining. Most bonds tend to increase in value when interest rates decline, but bull bonds refer to types of bonds that do especially well in this environment.
Bottom Fisher
A bottom fisher may attempt to find stocks that the market has undervalued through fundamental analysis. Bottom fishers may also be more active during prolonged bear markets where there may be stocks getting hammered through panic selling. Unfortunately, it's difficult to tell the difference between a bargain and a stock that has fallen for a fundamental reason.
Bull Position
A bull position is the opposite of a bear position. A bull position is a trade or investment that is initiated in the hopes that the instrument's price will rise and make a profit. A bull market occurs when prices are rising, and is characterized by investor optimism and confidence that prices will continue to rise.
Bull Trap
A bull trap often causes some investors to buy the stock, but because the stock continues to decline after the initial signal, those who bought in are "trapped" in a bad investment.
Ascending Triangle
A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs. Traders enter into long positions when the price of the asset breaks above the top resistance. The chart below is an example of an ascending triangle:
Buy Limit Order
A buy limit order ensures that negative slippage will not occur - the buyer will not get a worse price than he or she expects. Buy limit orders provide investors and traders with a means of precisely entering a position. For example, a buy limit order can be put in for $2.40 when a stock is trading at $2.45. If the price dips to $2.40, the order will automatically be executed.
Box-Top Order
A buy or sell order made at the best market price. If the order cannot be completely filled, a limit order is placed for the remaining shares at the price at which the filled portion was executed.
Buy To Cover
A buy order made on a stock or other listed security that closes out an existing short position. A short sale involves selling shares of a company that one does not own, as the shares are borrowed and need to be repayed at some point. This order, by buying an equal number of shares as were borrowed, "covers" the sale and the shares can be returned to the original lender of them. The lender will typically be the investor's own broker/dealer but their broker may have had to borrow the shares from a third party.
Bracketed Buy Order
A buy order that is accompanied by a sell limit order above the buy order's price and a sell stop order below the buy order's price. These three component orders will all be set at a price determined by the investor at the time the order is entered. This type of order allows investors to lock in profits with an upside movement and prevent a downside loss, without having to constantly follow the position.
Buy And Homework
A buzz word coined by Jim Cramer based on the idea that "buy and hold" is a losing strategy. Cramer's buy-and-homework strategy is to spend at least one hour a week researching each stock in your portfolio. The research the buy-and-homework strategy calls for can include listening to conference calls, knowing what analysts are looking for, reading the news stories and reading financial statements. Cramer often points out that everything is available easily and for free on the web.
Call Loan Rate
A call loan is a loan given to a broker-dealer that is used to finance client margin accounts. The interest rate on a call loan is calculated daily; this rate is known as the call loan rate, or broker's call. A margin account is a type of brokerage account in which the broker lends the client cash that is used to purchase securities. The loan is collateralized by the securities held in the account, and by cash that the margin account holder is required to have deposited. A margin account enables investors to use leverage; that is, they are able to trade larger positions than they would otherwise be able to. While this has the potential to magnify profits, trading on margin can also result in magnified losses. Clients must be approved for margin accounts and are required to make a minimum initial deposit, known as the minimum margin, in the account. Once the account is approved and funded, investors can borrow up to 50% of the purchase price of the transaction. If the account value falls below a stated minimum (known as the maintenance margin), the broker will require the account holder to deposit more funds or liquidate position(s) to pay down the loan.
Cambrist
A cambrist will typically have a great understanding of foreign exchange trade, macroeconomics, political events and technical analysis techniques as they relate to foreign exchange and currencies. As previously mentioned, forex traders often possess all of these skills, as do some economists and certain types of bankers.
Bullish Harami
A candlestick chart pattern in which a large candlestick is followed by a smaller candlestick whose body is located within the vertical range of the larger body. In terms of candlestick colors, the bullish harami is a downtrend of negative-colored (black) candlesticks engulfing a small positive (white) candlestick, giving a sign of a reversal of the downward trend.
Bearish Belt Hold
A candlestick pattern that forms during an upward trend. This is what happens in the pattern: following a stretch of bullish trades, a bearish or black candlestick occurs; the opening price, which becomes the high for the day, is higher than the close of the previous day; the stock price declines throughout the day, resulting in a long black candlestick with a short lower shadow and no upper shadow.
Bearish Engulfing Pattern
A chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one.
Bullish Engulfing Pattern
A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses or "engulfs" the previous day's candlestick. The shadows or tails of the small candlestick are short, which enables the body of the large candlestick to cover the entire candlestick from the previous day.
Blow-Off Top
A chart pattern that indicates a steep and rapid increase in a security's price and trading volume followed by a steep and rapid drop in price and volume. The rapid changes indicated by a blow-off top, also called a blow-off move or exhaustion move, can be the result of actual news or pure speculation.
Candlestick
A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick is called the "real body" and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher). The candlestick's shadows show the day's high and lows and how they compare to the open and close. A candlestick's shape varies based on the relationship between the day's high, low, opening and closing prices.
Closed-Market Transaction
A closed-market transaction is simply an order placed by an insider according to the rules and regulations set out by the SEC. With a closed-market order, the insider is buying or selling shares at a price above or below the market and directly from and to the company rather than openly on the market. These types of inside trades are generally not considered significant as they do not reflect the insider's sentiment towards the company. Here's an example of a closed-market transaction: an insider is given the stock of a subsidiary company, and then he or she immediately sells the stock.
Bull Bond
A common example of a bull bond is the principal only (PO) strip mortgage-backed security. Whereas most bonds will increase in value in a declining rate market, mortgage-backed securities perform especially well. POs are mortgage securities created by separating principal payments from interest payments collected in a pool of mortgage securities. The principal payments are then combined to form a mortgage pool. PO mortgage securities do well in a falling rate market because mortgage holders refinance their loans at lower interest rates. Investors are repaid their original investment more quickly, increasing the rate of return for the mortgage-backed security.
Chikou Span
A component of the Ichimoku Kinko Hyo indicator that is created by plotting recent price movement 26-periods behind the latest closing price. The number of periods used to lag the Chikou span is customizable so that transaction signals are generated more or less frequently. Also known as the "lagging span".
All Or None - AON
A condition used on a buy or sell order to instruct the broker to fill the order completely or not at all. If there is insufficient supply to meet the quantity requested by the order then it is canceled at the close of the market.
Constant Ratio Plan
A constant ratio plan differs from buy-and-hold and momentum strategies. Buy-and-hold investors set one allocation and don't rebalance, while momentum investors sell underperforming assets and buy outperforming ones. A constant ratio plan performs best in a volatile market with a general mean-reverting pattern. For example, if the stock market is oscillating, a constant ratio plan will buy when stock prices fall and sell when they rise.
Bust-Up Takeover
A corporate buyout in which the acquirer sells off a piece of the company in order to pay down some of the debt used to finance the initial buyout. The acquirer buys the company by taking on debt and then repays it with the target's assets once it has control. This is a strategic method used in cases where the target company has undervalued assets that the acquirer seeks to exploit
Bear Tack
A decline in the price of a stock, sector or market that may be a harbinger of a bearish trend. A bear tack suggests that the asset or market could be in for a significant price correction. However, it does not mean that the asset or market will slump into an official bear market, which is defined as a price decline of 20% or more. The term "tack" is derived from the lexicon of sailing, and means a maneuver in which a sailboat turns its bow to put the wind on the opposite side of the vessel. Likewise, bear tack has come to mean a change in the price movement of an asset or market to lower levels.
Capital IQ
A division of Standard & Poor's, Capital IQ was founded in 1998 and has offices in major cities around the globe. Its internet and Excel-based applications provide desktop research, screening, real-time market data, backtesting, portfolio management, financial modeling and quantitative analysis.
Bull Trap
A false signal indicating that a declining trend in a stock or index has reversed and is heading upwards when, in fact, the security will continue to decline.
Bulge
A fast increase in a security's or commodity's trading price. Bulge is an informal word with a meaning similar to the term bubble. A bulge occurs when an investment instrument's price rises quickly, often accompanied by increased volume. The price increases can continue over a period of hours, days or weeks, but a bulge is generally short-lived. A bulge is similar to a rally on equity exchanges.
Behavioral Finance
A field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance, it is assumed that the information structure and the characteristics of market participants systematically influence individuals' investment decisions as well as market outcomes.
ABX Index
A financial benchmark that measures the overall value of mortgages made to borrowers with subprime or weak credit. The [vocab] uses credit default swap contracts to come up with an overall value and is made up of 20 bonds that is comprised of groups of subprime mortgages. Using this index, financial institutions are able to determine if the market for these securities are improving or worsening. Also referred to as Asset-Backed Securities Index.
Bull Market
A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.
Chart Formation
A graphical depiction of a stock's price movements over time. Technical analysts use chart formations to identify trends in a stock's price and to help them decide whether and when to buy and sell - that is, to determine entry and exit points. Technical analysts also use chart formations to decide where to place initial and trailing stops.
Bar
A graphical representation of a stock's movement that usually contains the open, high, low and closing prices for a set period of time.
Busted Takeover
A highly leveraged corporate buyout that is contingent upon the selling off of some of the acquired company's assets. A busted takeover occurs when an acquired company's assets are sold in order to meet the cost of acquisition. The assets of the company being acquired may be used as collateral for the financing required for the deal to go through. Once the target company is acquired, some of its assets are sold in order to pay back a portion of the funds that the acquiring company used to finance the initial buyout. The acquiring company must properly evaluate the target company's assets to confirm that the sale of the assets will adequately cover the debt.
Accumulative Swing Index - ASI
A indicator used by traders to gauge a security's long-term trend by comparing bars which contain its opening, closing, high and low prices throughout a specific period of time. When positive, it suggests that the long-term trend will be higher, and when negative, it suggests that the long-term trend will be lower. It is often cited as being developed by Welles Wilder.
Buyout
A leveraged buyout is accomplished by borrowed money or by issuing more stock. Buyout strategies are often seen as a fast way for a company to grow because it allows the acquiring firm to align itself with other companies that have a competitive advantage in a specific area.
Cheap Money
A loan or credit with a low interest rate, or the setting of low interest rates by a central bank like the Federal Reserve. Cheap money is good for borrowers, but bad for investors, who will see the same low interest rates on investments like savings accounts, money market funds, CDs and bonds. Cheap money can have detrimental economic consequences as borrowers take on excessive leverage.
Call Loan
A loan provided to a brokerage firm and used to finance margin accounts. The interest rate on a call loan is calculated daily. The resulting interest rate is referred to as the call loan rate.
Bull Position
A long position in a financial security, such as a stock in the stock market. A bull or long position seeks to profit from rising prices in certain securities. When prices rise, a bull position becomes profitable. If prices fall, the bull position is not profitable. A bull or long position is the most well-known type of position and is what is typically used in "buy and hold" investing. An alternative way to initiate a bull position can include buying call options.
Bear Market
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
Climax
A market condition that is characterized by very high trading volume and a dramatic downward or upward movement in price. High volume and downward price movement indicate a selling climax, while high volume and upward price movement indicate a buying climax. Either type of climax signals the end of a trend.
Absolute Breadth Index - ABI
A market indicator used to determine volatility levels in the market without factoring in price direction. It is calculated by taking the absolute value of the difference between the number of advancing issues and the number of declining issues. Typically, large numbers suggest volatility is increasing, which is likely to cause significant changes in stock prices in the coming weeks.
Coiled Market
A market that is believed to have the potential to make a strong move in one direction after being pushed in the opposite direction. The idea is that if a market should be headed in one direction based on its fundamentals but is pushed in the other direction, it will eventually make a strong move in the original fundamental direction. This coiled move will often be more substantial than what might have been the case if it had gone in the expected direction to begin with.
Advance/Decline Ratio- ADR
A market-breadth indicator used in technical analysis to compare the number of stocks that closed higher with the number of stocks that closed lower than their previous day's closing prices. To calculate the [vocab], divide the number of advancing shares by the number of declining shares. The [vocab] can be calculated for various time periods, such as one day, one week or one month.
Bull/Bear Ratio
A market-sentiment indicator published weekly by Investor's Intelligence that uses information polled directly from market professionals. This index reflects the sentiments of market participants that deal daily within the financial markets and it gives a more relevant measure. [vocab] = (bullish investment advisers)/(bearish investment advisers)
Breadth Indicator
A mathematical formula that uses advancing and declining issues to calculate the amount of participation in the movement of the stock market. By evaluating how many stocks are increasing or decreasing in price and how many trades investors are placing for these stocks, breadth indicators can show whether overall market sentiment is bullish (positive market breadth) or bearish (negative market breadth). Investors can also use breadth indicators to evaluate the behavior of a particular industry or sector, or to analyze the magnitude of a rally or retreat.
Box-Jenkins Model
A mathematical model designed to forecast data within a time series. The Box-Jenkin model alters the time series to make it stationary by using the differences between data points. This allows the model to pick out trends, typically using autoregresssion, moving averages and seasonal differencing in the calculations. Autoregressive Integrated Moving Average (ARIMA) models are a form of Box-Jenkins model.
Attribute Sampling
A mathematical process used to analyze the characteristics of a given population of subjects. For example, a sampling of returns on an index or security can provide insight into how the subject performs under various market conditions.
Arithmetic Mean
A mathematical representation of the typical value of a series of numbers, computed as the sum of all the numbers in the series divided by the count of all numbers in the series. Arithmetic mean is commonly referred to as "average" or simply as "mean".
Average True Range - ATR
A measure of volatility introduced by Welles Wilder in his book: New Concepts in Technical Trading Systems. The true range indicator is the greatest of the following: -current high less the current low. -the absolute value of the current high less the previous close. -the absolute value of the current low less the previous close. The average true range is a moving average (generally 14-days) of the true ranges.
Close Location Value - CLV
A measure used in technical analysis to determine where the price of the asset closes relative to the day's high and low. The CLV ranges between +1 and -1, where a value of +1 means the close is equal to the high and a value of -1 means the close is equal to the day's low. [vocab] = ((Close - Low)-(High-Close))/(High-Low)
Automatic Execution
A method of executing trades without inputting them manually. In forex trading, Investors are able to trade at any time during the day or night through an automatic forex trading system. Automatic executions enable traders to execute trades based on certain technical indicators. Forex signal providers transmit and receive signals that allow for this type of trading.
Aggressive Investment Strategy
A method of portfolio management and asset allocation that attempts to achieve maximum return. An aggressive investment strategy attempts to grow an investment at an above-average rate compared to its industry or the overall market, but usually take on additional risk.
Automated Forex Trading
A method of trading foreign currencies with a computer program that is based on a set of analyses that helps determine whether to buy or sell a currency pair at any one time. Automated forex trading uses a computer program that the trader "teaches" to make decisions based on a set of signals derived from technical analysis charting tools. The signals create a buy or sell decision when they point in the same direction.
Broad Tape
A modern version of the ticker tape produced by the Dow Jones news. The broad tape is posted on a screen in the boardroom of an investment firm. The broad tape provides a continual stream of investment, financial and business information for investors and brokers.
Accumulation/Distribution
A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally "accumulating" (buying) or "distributing" (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula: Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) * Period's volume
Buy And Hold
A passive investment strategy in which an investor buys stocks and holds them for a long period of time, regardless of fluctuations in the market. An investor who employs a buy-and-hold strategy actively selects stocks, but once in a position, is not concerned with short-term price movements and technical indicators.
Broadening Formation
A pattern that occurs during high volatility, when a security shows great movement with little direction. The formation is identified by a series of higher pivot highs and lower pivot lows. A trendline drawn over the pivot highs and under the pivot lows frames out the widening pattern. It looks like a megaphone and, in fact, it is also known by that name.
Attribution Analysis
A performance-evaluation tool used to analyze the abilities of portfolio or fund managers. Attribution analysis uncovers the impact of the manager's investment decisions with regard to overall investment policy, asset allocation, security selection and activity. A fund or portfolio's returns are compared to a benchmark in order to determine whether a manager is actually skilled or just lucky.
Basing
A period in which a stock or other traded security is showing little in the way of upward or downward movement. The resulting price pattern is a flat line. Often, 'basing' is a term used by technical analysts to describe an issue that is consolidating after a period of rapid growth or decline. A basing stock is one with equal amounts of supply and demand.
Bear Market Rally
A period in which prices of stocks increase during a bear market. A bear market rally is usually a short-lived market increase following a period of market decline and is followed by another period of market decline leading to a pronounced down trend.
Bloodletting
A period marked by severe investing losses. Bloodletting may occur during a bear market, in which the value of securities in many sectors may decline rapidly and heavily. It is named after an ancient medical practice in which doctors would use leaches or cuts to drain some of a patient's blood (one of the four humors). The premise being that it was "healthy" to balance the humors if feeling ill.
Bust
A period of time during which economic growth decreases rapidly. In the stock market, busts are usually associated with bear markets.
Boom
A period of time during which sales of a product or business activity increases very rapidly. In the stock market, booms are associated with bull markets, whereas busts are associated with bear markets. The cyclical nature of the market and the economy in general suggests that every strong economic growth bull market in history has been followed by a sluggish low growth bear market.
Active box
A physical location in a brokerage where securities are kept. These securities are usually held as collateral for customers' margin positions. The collateral is used to secure broker loans, which is money lent to brokers and investors by banks. This money is used to finance the brokers' inventory of stock and to finance the underwriting of corporate and municipal securities.
Common Gap
A price gap found on a price chart for an asset. These gaps are brought about by normal market forces and, as the name implies, are very common. They are represented graphically by a non-linear jump or drop from one point on the chart to another point.
Breakout
A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility. Traders will buy the underlying asset when the price breaks above a level of resistance and sell when it breaks below support. This chart shows a stock that has historically encountered a lot of resistance near $37, but notice how it heads sharply higher following the breakout.
Breakdown
A price movement through an identified level of support, which is usually followed by heavy volume and sharp declines. Technical traders will short sell the underlying asset when the price of the security breaks below a support level because it is a clear indication that the bears are in control and that additional selling pressure is likely to follow.
Accumulation Area
A price range in which investors typically purchase shares of a particular stock. The [vocab] is determined by looking at the volume and its corresponding price. It appears as a rectangle with a price line bouncing up and down between the upper and lower limits. According to technical analysts, stocks that hit the [vocab] presents an opportunity to buy because it is expected to attract more demand.
Buy Weakness
A proactive trading strategy in which a trader takes profits by closing out of a short position or buying into a long position. This strategy is used when the price of the asset being traded is still falling but is expected to reverse and move against the trader. This is the opposite of "selling into strength".
Chartered Market Technician - CMT
A professional designation given by the Market Technicians Association (MTA) to financial professionals who prove their proficiency in technical analysis.
Bioeconomics
A progressive branch of social science that seeks to integrate the disciplines of economics and biology for the sole purpose of creating theories that do a better job of explaining economic events using a biological basis and vice versa. The proponents of bioeconomics believe that the same patterns that can be seen in biological evolution can be applied to stock market behavior, as many of the same "causal interactions" and "survival elements" can be found there as well as in nature.
Confirmation Bias
A psychological phenomenon that explains why people tend to seek out information that confirms their existing opinions and overlook or ignore information that refutes their beliefs. Confirmation bias occurs when people filter out potentially useful facts and opinions that don't coincide with their preconceived notions. It affects perceptions and decision making in all aspects of our lives and can cause us to make less-than-optimal choices. Seeking out people and publications with different opinions than our own can help us overcome confirmation bias and make better-informed decisions.
Bandwagon Effect
A psychological phenomenon whereby people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override. The bandwagon effect has wide implications, but is commonly seen in politics and consumer behavior. This phenomenon can also be seen during bull markets and the growth of asset bubbles. This tendency of people to align their beliefs and behaviors with those of a group is also called "herd mentality."
Buy Stops Above
A recommendation to buy a specific security when a the security's price exceeds a certain level of resistance by placing a buy stop order at that level of resistance. The trader's belief is that a good buying opportunity is present when the level of resistance has been breached and that upward momentum will prevail once the price moves beyond the barrier.
Capital IQ
A research and analysis company that offers a variety of software and data feeds to thousands of investment managers, investment banks, private equity funds, advisory firms, corporations and universities. Its major products are the Capital IQ platform, which provides fundamental analysis, and Compustat, Money Market Directories (MMD), Xpressfeed and SystematIQ, which provide quantitative research.
Bubble Theory
A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these bubbles are easily identifiable. Former Federal Reserve Chairman Alan Greenspan famously coined the term "irrational exuberance" referring to asset bubbles. Under the bubble theory, large overvaluations of assets can persist for many years, but eventually burst, causing precipitous declines before returning to more reasonable prices.
Bracketed Sell Order
A sell order on a short sale that is accompanied (or "bracketed") by a buy stop order above the entry price of the sell order and a buy limit order below the entry price of the sell order. As the three component orders are based on set prices, this type of order protects the investor from the downside but also potentially locks in a gain without the investor constantly monitoring price.
Block Order
A signficant order placed for sale or purchase of a large number of securities. Block orders are often used by institutional investors. Also known as a "Block Trade".
Autoregressive Integrated Moving Average - ARIMA
A statistical analysis model that uses time series data to predict future trends. It is a form of regression analysis that seeks to predict future movements along the seemingly random walk taken by stocks and the financial market by examining the differences between values in the series instead of using the actual data values. Lags of the differenced series are referred to as "autoregressive" and lags within forecasted data are referred to as "moving average."
Autoregressive
A stochastic process used in statistical calculations in which future values are estimated based on a weighted sum of past values. An autoregressive process operates under the premise that past values have an effect on current values. A process considered AR(1) is the first order process, meaning that the current value is based on the immediately preceding value. An AR(2) process has the current value based on the previous two values.
Choppy Market
A stock market condition whereby prices swing up and down considerably but with no resulting overall price movement in either direction.
Contingency Order
A stop-loss order can be viewed as a contingency order because it does not become a market order until the price of the stock being sold reaches a predetermined price. This type of order is very useful when applied to the sale or purchase of options.
Buy A Bounce
A strategy that focuses on buying a given security once the price of the asset falls toward an important level of support. Traders who "buy a bounce" attempt to profit from a short-term correction or "bounce" off of the identified support.
130-30 Strategy
A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. [vocab] implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks the investor feels will outperform the market. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy.
Bar Chart
A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates the highest price a security traded at during the day, and the bottom represents the lowest price. The closing price is displayed on the right side of the bar, and the opening price is shown on the left side of the bar. A single bar like the one below represents one day of trading.
Arms Index - TRIN
A technical analysis indicator that compares advancing and declining stock issues and trading volume as an indicator of overall market sentiment. The Arms Index, or TRIN (Traders Index), is used as a predictor of future price movements in the market primarily on an intraday basis. The Arms index is calculated as follows: TRIN = (advancing issues/declining issues) (volume of advancing issues/ volume of declining issues)
Breadth of Market Theory
A technical analysis theory that predicts the strength of the market according to the number of stocks that advance or decline in a particular trading day.
Advance/Decline Index
A technical analysis tool that represents the total difference between the number of advancing and declining security prices. This index is considered one of the best indicators of market movements as a whole. Stock indexes such as the Dow Jones Industrial Average only tell us the strength of 30 stocks, whereas the [vocab] can provide much more insight into the movements of the market.
adaptive price zone - apz
A technical indicator that helps investors identify possible market turning points. The [vocab] can be especially useful in a sideways-moving market. This indicator attempts to signal significant price movements by using a a set of bands based on short-term, double-smoothed exponential moving averages. It can help day traders profit in volatile markets by signaling price reversal points, which can indicate potentially lucrative times to buy or sell. The [vocab] can be implemented as part of an automated trading system.
Advance/Decline Line - A/D
A technical indicator that plots changes in the value of the advance-decline index over a certain time period. Each point on the chart is calculated by taking the difference between the number of advancing/declining issues and adding the result to the previous period's value, as shown by the following formula: A/D Line = (# of Advancing Stocks - # of Declining Stocks) + Previous Period's A/D Line Value
Andrew's Pitchfork
A technical indicator that uses three parallel trendlines to identify possible levels of support and resistance. The trendlines are created by placing three points at the end of identified trends. This is usually achieved by placing the points in three consecutive peaks or troughs. Once the points have been placed, a straight line is drawn from the first point that intersects the midpoint of the other two. Also known as "median line studies".
Aroon Indicator
A technical indicator used for identifying trends in an underlying security and the likelihood that the trends will reverse. It is made up of two lines: one line is called "Aroon up", which measures the strength of the uptrend, and the other line is called "Aroon down", which measures the downtrend. The indicator reports the time it is taking for the price to reach, from a starting point, the highest and lowest points over a given time period, each reported as a percentage of total time.
Breadth Thrust Indicator
A technical indicator used to ascertain market momentum. The breadth thrust indicator is computed by calculating the number of advancing issues on an exchange such as the NYSE divided by the total number of issues (advancing + declining) on it, and generating a 10-day moving average of this percentage. The indicator signals the start of a potential new bull market when it moves from a level of below 40% (indicating an oversold market) to above 61.5% within any 10-day period, a sentiment shift that occurs only rarely.
Chande Momentum Oscillator
A technical momentum indicator invented by the technical analyst Tushar Chande. It is created by calculating the difference between the sum of all recent gains and the sum of all recent losses and then dividing the result by the sum of all price movement over the period. This oscillator is similar to other momentum indicators such as the Relative Strength Index and the Stochastic Oscillator because it is range bounded (+100 and -100)
Commodity Selection Index - CSI
A technical momentum indicator that attempts to identify which commodities are the most suitable for short-term trading. The larger the CSI value, the stronger is the trend and volatility characteristics associated with the asset. This indicator should only be used by traders who can handle large amounts of volatility as it indicates strong trending, but reversals are always possible.
Blowoff
A term in technical analysis that refers to a sharp price increase that comes after a long period of price appreciation, and is followed by a fall in the price. A blowoff is seen as a rally's last breath and is a highly bearish sign.
Breakaway Gap
A term used in technical analysis. A breakaway gap represents a gap in the movement of a stock price supported by levels of high volume. The image shows a gap at the beginning of a large upward movement.
adaptive market hypothesis
A theory posited in 2004 by MIT professor Andrew Lo. It combines principles of the well-known and often controversial Efficient Market Hypothesis with principles of behavioral finance. Lo postulates that investor behaviors such as loss aversion, overconfidence and overreaction are consistent with evolutionary models of human behavior, which include actions such as competition, adaptation and natural selection.
Biased Expectations Theory
A theory that the future value of interest rates is equal to the summation of market expectations. Proponents of the biased expectation theory argue that the shape of the yield curve is created by ignoring systematic factors and that the term structure of interest rates is solely derived by the market's current expectations.
Blue Collar Trader
A trader who has another source of income, and does not trade as a means, but rather as a savings plan, or bonus, etc. This person typically does not trade in large volumes, leaning more towards trying to earn smaller returns. Such a trader is not significantly experienced or knowledgeable in the field, and will therefore tend to stick to less risky investments.
Bullish Belt Hold
A trend in candlestick charting that occurs during a downward movement. After a stretch of bearish candlesticks, a bullish or white candlestick forms. The opening price, which becomes the low for the day, is significantly lower then the closing price. This results in a long white candlestick with a short upper shadow and no lower shadow.
Bullish Homing Pigeon
A trend indicated by a large candlestick followed by a much smaller candlestick whose body is located within the vertical range of the larger candle's body. In both candlesticks, the stock price has to have closed down from the opening price. This pattern may indicate that there is a weakening of the current downward trend.
Bearish Harami
A trend indicated by a large candlestick followed by a much smaller candlestick with a that body is located within the vertical range of the larger candle's body. Such a pattern is an indication that the previous upward trend is coming to an end.
Aroon Oscillator
A trend-following indicator that uses aspects of the Aroon indicator ("Aroon up" and "Aroon down") to gauge the strength of a current trend and the likelihood that it will continue. The Aroon oscillator is calculated by subtracting Aroon down from Aroon up. Readings above zero indicate that an uptrend is present, while readings below zero indicate that a downtrend is present.
Bullish Abandoned Baby
A type of candlestick pattern that is used by traders to signal a reversal in the current trend. This pattern is formed by three distinct candlesticks that show the following characteristics: 1. The first bar is a large red candlestick located within a defined downtrend. 2. The second bar is a doji candle (open equal to the close) that gaps below the close of the first bar. 3. The last bar is a large white candle that opens above the second bar and is used to show the change in trader sentiment. As you can see from the chart below, the pattern is a charting signal that the downtrend is about to reverse.
Bearish Abandoned Baby
A type of candlestick pattern that is used by traders to signal a reversal in the current uptrend. This pattern is formed by three distinct candlesticks that show the following characteristics: 1. The first bar is a large white candlestick located within a defined uptrend. 2. The second bar is a doji candle (open equal to the close) that gaps above the close of the first bar. 3. The last bar is a large red candle that opens below the second bar and is used to show the change in trader sentiment. As you can see from the chart below, the pattern is a charting signal that the uptrend is about to reverse.
American Code For Information Interchange - ASCII
A type of code for data transmission. The ASCII translates all letter characters and symbols into code that was widely used in most computer systems for many years. There are two types of ASCII codes; The standard code uses a seven-bit encoding system, while the extended uses an eight-bit system.
Backspread
A type of options spread in which a trader holds more long positions than short positions. The premium collected from the sale of the short option is used to help finance the purchase of the long options. This type of spread enables the trader to have significant exposure to expected moves in the underlying asset while limiting the amount of loss in the event prices do not move in the direction the trader had hoped for. This spread can be created using either all call options or all put options.
Conditional Order
A type of order that will be submitted or canceled if set criteria are met, which are defined by the trader/investor entering the order. This allows for a greater customization of the order to meet the specific needs of the investor.
Buy Minus
A type of order where a client instructs a broker to purchase a stock at a price below the current market price. Buy minus orders are used when a trader is hoping to acquire a stock when its price declines briefly. Traders can further restrict buy minus orders by specifying a limit, or the highest price at which the stock should be acquired.
Buy Break
A type of recommendation to buy an asset once the price is able to surpass an influential level of resistance. A move above resistance is used as a buy signal because an increase in upward momentum often follows the breakout. Buying a break is a strategy often used by traders who incorporate the use of chart patterns, trendlines and other technical indicators into their trading.
Breakout Trader
A type of trader who uses technical analysis to find potential trading opportunities, identifying situations where the price of an asset is likely to experience a substantial movement over a short period of time. Breakout traders generally look for key levels of support and resistance and will place transactions when the asset's price passes through these levels. Long positions are taken when the price of an asset breaks through a level of resistance, and short positions are taken when the price breaks below a level of support.
Assembly Language
A very simple type of computer programming language. Assembly language closely approximates binary machine code and uses equivalent symbols to communicate with the computer language of a specific machine. It is one step removed from machine language.
Autoregressive Conditional Heteroskedasticity - ARCH
ARCH models assume that the variance of the current error term is related to the size of the previous periods' error terms, giving rise to volatility clustering. This phenomenon is widely observable in financial markets, where periods of low volatility are followed by periods of high volatility and vice versa. For example, volatility for the S&P 500 was unusually low for an extended period during the bull market from 2003 to 2007, before spiking to record levels during the market correction of 2008. ARCH models have become mainstays of arbitrage pricing and portfolio theory.
American Code For Information Interchange - ASCII
ASCII is still used for legacy data, however, various versions of Unicode have largely supplanted ASCII in computer systems today. But the ASCII codes were used in the order-entry computer systems of many traders and brokers for years.
Capitulation
After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.
Asian Financial Crisis
Also called the "Asian Contagion", this was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even government upheaval. The Asian Financial Crisis was stemmed somewhat by financial intervention from the International Monetary Fund and the World Bank. However, market declines were also felt in the United States, Europe and Russia as the Asian economies slumped.
Conservative Growth
Although investment funds, portfolio managers and investment advisors may claim to employ a conservative growth strategy, the actual assets held in some of these funds vary considerably. When investing in a fund that uses a conservative growth model, it is a good idea to perform regular checks on your portfolio's holdings to make sure they match the investment strategy the portfolio claims to use.
Bear Market Rally
Although there are no official guidelines for a bear market rally, it is sometimes defined as an overall market increase of 10-20% during an overall bear market. There are many examples of bear market rallies in modern stock market history, including the bear market rally of the Dow Jones following the stock market crash of 1929, which eventually saw a bottoming out in 1932.
Amplitude
Amplitude is calculated often in technical analysis. For example, it is the amount of retracement in a price and also the width of a channel in a range-bound market. Chart pattern analysis says that after a retracement, price will continue to move at least a distance equal to the retracement's amplitude.
Arms Index - TRIN
An Arms Index value above one is bearish, a value below one is bullish and a value of one indicates a balanced market. Traders look not only at the value of the index, but also at how it changes throughout the day. Traders look for extremes in the index value for signs that the market may soon change directions. The Arm's Index was invented by Richard W. Arms, Jr. in 1967.
Basis Trading
An arbitrage trading strategy that aims to profit from perceived mispricing of similar securities. Basis trading relates to a trading strategy in which a trader believes that two similar securities are mispriced relative to each other, and the trader will take opposing long and short positions in the two securities in order to profit from the convergence of their values. The strategy is known as basis trading, because it typically aims to profit off very small basis point changes in value between two securities.
Ascending Channel
An ascending channel is the price action contained between upward sloping parallel lines. Higher pivot highs and higher pivot lows are technical signals of an uptrend. Trendlines frame out the price channel by drawing the lower line on pivot lows, and the upper line is the channel line drawn on pivot highs. Price is not always perfectly contained but the channel lines show areas of support and resistance for price targets. A higher high above an ascending channel can signal continuation. A lower low below the low of an ascending channel can signal trend change.
Ascending Triangle
An ascending triangle is generally considered to be a continuation pattern, meaning that it is usually found amid a period of consolidation within an uptrend. Once the breakout occurs, buyers will aggressively send the price of the asset higher, usually on high volume. The most common price target is generally set to be equal to the entry price plus the vertical height of the triangle. An ascending triangle is the bullish counterpart of a descending triangle.
Constant Ratio Plan
An asset allocation strategy in which assets are assigned a fixed percentage in a portfolio and readjusted to their target weights periodically. The readjustment allows the portfolio to remain properly weighted, and forces the sale of outperforming assets and purchase of underperforming assets. In a constant ratio plan, the manager must choose how often to rebalance the portfolio and weigh the tradeoff between the desire to frequently rebalance and the added transaction costs that will result.
Attribute Sampling
An attribute is defined as a specific characteristic or feature of a given subject. In the world of finance, attribute sampling could reveal how many mortgages are past due and how many are current. The attribute in this case would obviously be status of the mortgage payments. However, attribute samplings may be more complex in nature, examining several different variables.
Autoregressive Conditional Heteroskedasticity - ARCH
An econometric term used for observed time series. ARCH models are used to model financial time series with time-varying volatility, such as stock prices. The ARCH concept was developed by economist Robert F. Engle, for which he won the 2003 Nobel Memorial Prize in Economic Sciences.
Consolidated Tape
An electronic program that provides continuous, real-time data on trading volume and price for exchange-traded securities. Through the consolidated tape, numerous major exchanges, including the Nasdaq, the Chicago Board Options Exchange and the New York Stock Exchange, report their trades and quotes. Securities often trade on more than one exchange, and the consolidated tape reports a security's trading activity for all of these exchanges, not just its primary exchange.
Buy Signal
An event or condition that alerts investors to purchase a particular investment. Buy signals can simply be observed by astute investors and analysts, or they can be indicated by trading software or charts. Momentum traders, for example, might rely on two charts, the moving-average-convergence-divergence histogram and the exponential moving average histogram, for a buy signal.
Buy Minus
An example is placing a buy order at $25 for a stock that is currently trading at $27. A related concept is the sell plus order, in which a client instructs a broker to sell a stock at a price above the current market price. Traders can also place restrictions on the minimum price at which the stock can be sold with a sell plus limit order.
Backspread
An example of a backspread using call options would be selling one $45 call option for $5 and purchasing two $50 call options for $2.10 each. The trader in this case would benefit from a large move past $50 because he/she is holding more long options than short.
Away From The Market
An expression that is used when the bid on a limit order is lower than the current market price or the offer price is higher than the current market price, for a particular security. An away from the market order is a limit order to buy at a price lower than the current market price and an order to sell at a price higher than the current market price. The opposite of an away from the market order is an in-line order.
Bid Tick
An indication of whether the latest bid price is higher, lower or the same as the previous bid. Bid ticks track movements of bid prices in an open market for all placed bid offers, giving real-time information to traders and market participants as to the direction of bid prices over any given time period. In contrast, the ask tick would track ask requests over the same time period.
Confirmation On A Chart
An indicator or chart pattern that provides evidence that the initial trading alert in question is indicative of an actual trading opportunity. Traders look to other technical indicators to confirm their expected prediction so that they can have as many technical factors working in their favor as possible. This increases the probability of making a highly successful trade.
Average Directional Index - ADX
An indicator used in technical analysis as an objective value for the strength of trend. ADX is non-directional so it will quantify a trend's strength regardless of whether it is up or down. ADX is usually plotted in a chart window along with two lines known as the DMI (Directional Movement Indicators). ADX is derived from the relationship of the DMI lines.
Cambrist
An individual who is deemed to have above-average knowledge of the foreign exchange market. A cambrist can relate to anyone who deals with currencies and foreign exchange on a regular basis and is adept at recognizing factors and situations that affect foreign exchange. Foreign exchange traders often come to mind when discussing cambrists.
Chartist
An individual who uses charts or graphs of a security's historical prices or levels to forecast its future trends. A chartist essentially looks for well-known patterns such as head-and-shoulders or support and resistance levels in securities so as to trade them more profitably. Chartists ply their trade in all markets where financial instruments are traded - equities, currencies, commodities and bonds. A chartist is also known as a technical analyst.
Attribute Bias
An investing or research technique that produces choices with attribute bias is not necessarily a bad thing; the biggest danger is that the stocks may correlate closely in their returns, eliminating some of the value of a diversified portfolio. One thing in particular to watch out for is investing in several companies operating in the same industry, as industry peers will often have similar fundamental values.
Boomernomics
An investing strategy that involves buying equities directly related to the spending behavior of baby boomers (people born between 1946 and 1964).
Conservative Growth
An investment strategy that aims to grow invested capital over the long term. This strategy focuses on minimizing risk by making long-term investments in companies that show consistent growth over time. Conservative growth portfolios feature low asset turnover, or a high percentage of fixed assets on their balance sheets, and should employ a buy-and-hold investment philosophy.
Alternative Order
An investor mandate to buy or sell a particular stock or other financial instrument on what amounts to a first-come-first-served basis. For example, an investor might place an order to buy Acme Widgets at $10 and $5. If and when one of the orders is filled, the other order is automatically canceled. Alternative orders are sometimes called "one-cancels-the-other orders."
adding to a loser
An investor might add to a losing position instead of closing it because he or she gets emotionally attached to the asset and has a hard time accepting that it was a bad investment. Once the trade moves substantially in the wrong direction, however, it may be time to consider closing out or re-evaluating the reason for having the position rather than putting more money at risk.
At-The-Opening-Order
An investor might place an at-the-opening order based on something that happened after the market closed on the previous trading day that is expected to affect the stock's opening price on the following trading day. An at-the-opening order may not be executed at the security's exact opening price, but it should be within the opening range.
Bottom Fisher
An investor who looks for bargains among stocks whose prices have recently dropped dramatically. The investor believes that a price drop is temporary or is an overreaction to recent bad news and a recovery is soon to follow.
At-The-Opening-Order
An investor's directive to her broker or brokerage firm to buy or sell specified securities in her account at the very beginning of the trading day. If the order cannot be executed at the opening of the market, it will be canceled.
Bagging the Street
An investor's failure to avoid trading in the stocks that are part of a block and also within a specified amount of time. Bagging the street refers to a situation where an investor or a trader trades the securities shortly following initiation of the trade. Traders who frequently practice bagging the street will often have their margin requirements revoked by a brokerage.
Blind Bid
An offer to purchase a bundle of securities without knowing the exact securities being purchased. A blind bid is risky in that the investor is unaware of the composition of the investments being bid on. The risk is that the investor will end up owning worthless securities.
Balloon Option
An option contract where the strike price increases significantly after the underlying asset's price reaches a predetermined threshold. A balloon option increases the investor's leverage on the underlying asset.
At-Or-Better
An order condition instructing a broker to only fill a transaction at a specific price or above it. Unlike a market order, an at-or-better order will expire if a specific price target is not met or exceeded. The percentage of at-or-better trades in the market compared to the overall number of trades depends on liquidity and the state of the economy.
Cancel Former Order - CFO
An order from an investor to a broker, to cancel a previously placed order that has not yet been filled. Cancel former order (CFO) is used by an investor who has changed his or her mind about a securities transaction that has not yet been executed or filled, and wishes to change one or more of the order parameters, such as price or amount. By canceling the previous order, a CFO ensures that no order duplication takes place if the client generates a new order for the same security.
Closed-Market Transaction
An order placed by a company's insider to buy or sell restricted securities from within the company's own treasury. Appropriate documentation must be filed before the order can be placed.
At-The-Close Order
An order specifying that a trade is to be executed at the close of the market, or as near to the closing price as possible. An at-the-close order is one in which the broker or exchange is directed to ensure that an order is only filled at that given time of the trading, in most cases coming just prior to the end of trading on a given day. This would be the opposite of an at-the-open order.
Contingency Order
An order that is executed only when certain conditions of the security being traded, or another security, have been fulfilled. Such prerequisite conditions range in scope and depth. In a simple case, a contingency order may depend on the potential purchaser's ability to sell a different security in his or her portfolio to free the funds to make the purchase. In a more complicated situation, an options contingency order's execution may depend on the share price of the options' underlying stock
At Limit
An order that sets a maximum limit on the buy price and/or a minimum limit on the sell price. An at limit order, rather than triggering a transaction at a specified price, like a standard limit order, stops triggering once the limit is reached.
Buy Stop Order
An order to buy a security which is entered at a price above the current offering price. It is triggered when the market price touches or goes through the buy stop price.
Basket Trade
An order to buy or sell a group of securities simultaneously. Basket trading is essential for institutional investors and investment funds who wish to hold a large number of securities in certain proportions. As cash moves in and out of the fund, large baskets of securities must be bought or sold simultaneously, so that price movements for each security do not alter the portfolio allocation. In order for a trade to be considered a "basket trade," it must typically involve the sale or purchase of 15 or more securities.
Below The Market
An order to buy or sell a security at a price that is lower than the current market price. For example, a trader can place a limit order to buy a stock at a specified price that is below the current price. The order would only be filled if the specified price or better was available. While order execution is not guaranteed, placing an order in this manner, below the market, helps ensure that the desired price, or better, is achieved. Can also be a price or rate that is lower than the current prevailing conditions in an open market. Goods or services that are offered at a lower price than the "going," or typical, rate can be said to be below the market.
At The Market
An order to buy or sell a stock or futures contract at the prevailing market bid or ask price at the time the order is processed. An at-the-market order is generally executed within minutes of being received and can be placed anytime during market hours. If such an order is received after regular hours, it will be executed as soon as trading resumes.
Above the Market
An order to buy or sell at a price set higher than the current market price of the security. Examples include: a limit order to sell, a stop order to buy, or a stop-limit order to buy.
At Best
An order to fill a transaction at the most desirable price available, and as quickly as possible. At-best transactions can either be applied to equities or currencies where the trader would attempt to get the best possible price or rate respectively.
Buy Limit Order
An order to purchase a security at or below a specified price. A buy limit order allows traders and investors to specify the price that they are willing to pay for a security, such as a stock. By using a buy limit order, the investor is guaranteed to pay that price or better, meaning that he or she will pay the specified price or less for the purchase of the security. While the price is guaranteed, the filling of the order is not. In other words, if the specified price is never met, the order will not be filled and the investor may miss out on the trading opportunity.
Commodity Channel Index - CCI
An oscillator used in technical analysis to help determine when an investment vehicle has been overbought and oversold. The Commodity Channel Index, first developed by Donald Lambert, quantifies the relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations (D) from that average. It is computed with the following formula: CCI = (Price - MA)/(0.015*D)
Chaikin Oscillator
An oscillator which measures the accumulation distribution line of the MACD. The Chaikin Oscillator is calculated by subtracting a 10-day EMA from a 3-day EMA of the accumulation distribution line, and outlines the momentum implied by the accumulation distribution line.
Average Directional Index - ADX
Analysis of ADX is a method of evaluating trend and can help traders to choose the strongest trends and also how to let profits run when the trend is strong.
Boomernomics
Areas such as biotech, healthcare and luxury cars are the kinds of companies that stand to benefit from this age group. People using the boomernomics investing strategy also invest in companies that offer products such as motor homes or dentures, which are geared toward aging or retiring consumers.
Aroon Oscillator
Aroon up and Aroon down are the two components that comprise the Aroon indicator. The notion is that an asset is trending up when a stock is trading near the high of its range. Aroon up is used to measure the strength of the uptrend, while Aroon down is used to measure the strength of the downtrend. Many traders will watch for a cross above the zero line to suggest the beginning of a new uptrend. Conversely, a cross below zero would indicate the start of a downtrend. Readings near zero suggest that a security may be trending sideways and that this period of consolidation could continue.
Asian Financial Crisis
As a result of the crisis, many nations adopted protectionist measures to ensure the stability of their own currency. Often this led to heavy buying of U.S. Treasuries, which are used as a global investment by most of the world's sovereignties. The Asian crisis led to some needed financial and government reforms in countries like Thailand, South Korea, Japan and Indonesia. It also serves as a valuable case study for economists who try to understand the interwoven markets of today, especially as it relates to currency trading and national accounts management.
Bearish Engulfing Pattern
As implied by its name, a bearish engulfing pattern may provide an indication of a future bearish trend. This type of pattern usually accompanies an uptrend in a security, possibly signaling a peak or slowdown in its advancement. However, whenever a trader analyzes any candlestick pattern, it's important for him or her, before making any decisions, to consider the prices of the days that precede and follow the formation of the pattern.
Bullish Engulfing Pattern
As implied in its name, this trend suggests that the bulls have taken control of a security's price movement from the bears. This type of pattern usually accompanies a declining trend in a security, suggesting that a low or end to a security's decline has occurred. However, as usual in candlestick analysis, the trader must take the preceding and following days' prices into account before making any decisions regarding the security.
Broadening Formation
As the two trendlines diverge from the apex, the pattern resembles a reverse version of a symmetrical triangle. This pattern is considered quite rare, but is useful in helping technicians to identify swing trades, rather than a trend trades.
Assembly Language
Assembly language is usually different for each computer manufacturer. In the past, many automated devices and machines of many kinds were programmed in assembly language. However, this language has since been largely superceded by other types of computer languages.
At Limit
At limit orders can be especially useful when one is placing bulk orders or if the market is moving very rapidly in one direction or the other. It's also helpful when one is seeking to accumulate or dissipate a position over time.
Autoregressive
Autoregressive processes are used by investors in technical analysis. Trends, moving averages and regressions take into account past prices in an effort to create forecasts of future price movement. One drawback to this type of analysis is that past prices won't always be the best predictor of future movements, especially if the underlying fundamentals of a company have changed.
Available Funds
Available funds may also refer to funds that can be withdrawn from a margin account at a brokerage firm, where margin loans are still outstanding. They can also include the amount that a person can raise on short notice for a specific purpose from, for example, unused credit lines, loans from banks or relatives, or assets that can be liquidated quickly. This amount could include funds from different sources, to determine an individual's or a company's immediate liquidity.
Average Balance
Average balance is more commonly used when referring to an average daily balance, particularly when charging interest on loans. Since banks are not permitted to charge interest on interest, any payments are applied first to interest payments due, and then to principal. For investors who trade on margin accounts, the average balance may be used to determine margin requirements or any margin calls that the brokerage makes.
Away From The Market
Away from the market limit orders are typically held for later execution, unless specified as Fill or Kill (FOK) orders. Away from the market refers to orders that are entered at a price that is not immediately available. For example, a limit order to buy 100 shares of Microsoft at $28.00 is away from the market if the stock is presently trading at $32.00 per share. Similarly, a limit order to sell 100 shares of Microsoft at $36.00 is away from the market when shares are currently trading at $32.00.
Automatic Execution
Basically, this is a trade executed without the help of a dealer. These types of trade are done very quickly and in real time because they are automated. The lagging and slow system of manual executions don't allow traders to continually input transactions in rapid fire form like an automatic execution allows. Stop and/or limit orders can also be enabled through this form of trading. Forex traders should be careful using automated trading however, as trades will be processed even if fundamental conditions have changed.
Basing
Basing is a common occurrence after a stock or the market has been in a lengthy decline or has increased by a large amount. In other words, the market is taking a break. Some stocks can form a base that lasts for severals years before the trend is reversed. A basing stock is also thought to be one that is forming new lines of support and resistance. In essence, basing is the merging of previous lines, which leads to the formation of different ones. Many technical analysts believe that basing is crucial, especially for surging stocks. They view basing as the "breather" that allows the issue to continue climbing.
Bollinger Band
Because standard deviation is a measure of volatility, Bollinger Bands® adjust themselves to the market conditions. When the markets become more volatile, the bands widen (move further away from the average), and during less volatile periods, the bands contract (move closer to the average). The tightening of the bands is often used by technical traders as an early indication that the volatility is about to increase sharply. This is one of the most popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.
Bullish Harami
Because the bullish harami indicates that the falling trend (bearish trend) may be reversing, it signals that it's a good time to enter into a long position. The smaller the second (white) candlestick, the more likely the reversal.
Aggressive Investment Strategy
Because their aim is capital growth, aggressive investors place a higher percentage of their assets in equities rather than in safer debt securities. As such, aggressive investors build portfolios that bear a fairly high amount of risk. But before assuming this strategy, an investor should evaluate his or risk tolerance - making sure it's high - and be sure that he or she has quite a few years before needing the invested funds.
Behavioral Economics
Behavioral economics explores why people sometimes make irrational decisions, and why and how their behavior does not follow the predictions of economic models. Notable individuals in the study of behavioral economics are Nobel laureates Gary Becker (motives, consumer mistakes; 1992), Herbert Simon (bounded rationality; 1978), Daniel Kahneman (illusion of validity, anchoring bias; 2002) and George Akerlof (procrastination; 2001).
Bias
Biases are human tendencies that lead us to follow a particular quasi-logical path, or form a certain perspective based on predetermined mental notions and beliefs. When investors act on a bias, they do not explore the full issue and can be ignorant to evidence that contradicts their initial opinions. Avoiding cognitive biases allows investors to reach impartial decision based solely on available data.
Blind Bid
Blind bids are more likely to be used by institutional investors who do not want to influence the overall market by making targeted buy and sell trades, as a blind bid allows them to trade a book of securities. In a blind bid, the investor typically knows whether the counterparty is buying or selling, and is also aware of the number of stocks in the portfolio and their notional values Institutional investors look at the purchase of securities differently than individual investors, as individual investors use liquidity, volatility and company news to determine what price they want to pay. Instead of trades that could reach into the thousands of dollars and involve a few securities, institutional investors make trades in the hundreds of millions that involve entire books of securities. The larger the blind bid transaction, the greater the risk premium associated with the underlying securities.
Bagging the Street
Block trades are usually for large quantity of stocks; therefore, and thus can have an impact on the price of shares underlying the block, especially if those securities are illiquid. Therefore, traders who practice bagging the street will attempt to gain an unfair disadvantage if the block trade is large enough to impact stock prices. Once the block trade fully goes through and the market quickly absorbs the impacts, investors are free to resume their desired trading strategies.
Call Money
Brokerages know that they are taking on risk by using funds that can be called at any time, so they typically use call money for transactions that will be resolved quickly. If the bank recalls the funds then the broker can issue a margin call on its clients in order to make the repayment. The call money rate is used as the interest rate on the loans.
Bull Market
Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. It's difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets. The use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market. Learn how you can profit in a bull market by reading Banking Profits in Bull and Bear Markets and also How to Adjust Your Portfolio in a Bull or Bear Market.
Bunching
Bunching can be financially advantageous for investors with orders for less than 100 shares of a particular security, who would otherwise be charged extra fees for the odd-lot order, sometimes called an odd-lot differential. Odd-lot orders are difficult to match, and additional fees are common. Often, bunching occurs on the floor of an exchange when multiple round-lot orders or odd-lot orders are combined into one trade execution. The term bunching also refers to a pattern that appears on a ticker tape when a series of same-security trades print one after the other.
Call Loan
Call loans use securities as collateral for the loan. It is important to note that a call loan can be canceled at any time.
Canadian Securities Institute - CSI
Canada's leading provider of professional credentials and compliance programs for the financial services industry. The Canadian Securities Institute was created in 1970 and has served an excess of 700,000 professionals over more than four decades. The non-profit Canadian Securities Institute was transformed into the for-profit CSI Global Solutions in 2003. CSI offers over 170 courses for the securities, wealth management, commercial banking and insurance industries. It is the sole provider of the well-recognized Canadian Securities Course, the basic requirement for qualification as a licensed securities dealer in Canada.
Candlestick
Candlesticks reflect the impact of investors' emotions on security prices and are used by technical analysts to determine when to enter and exit trades. Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice. There are many short-term trading strategies based upon candlestick patterns, such as the engulfing pattern, harami, harami cross and evening star.
Chartist
Chartists generally believe that price movements in a security are not random, but can be predicted through a study of past trends and other technical analysis. A chartist may or may not combine fundamental analysis with technical analysis when assessing whether to buy or sell a stock or security. Those who combine both disciplines maintain that while fundamental analysis helps in deciding which stock or security to buy or sell, the optimal application of technical analysis is in deciding when to buy or sell the stock or security.
Chasing The Market
Chasing the market refers to both the entering into highly priced positions after they have rapidly increased and become overvalued as well as the exiting of positions after they have rapidly decreased and become undervalued. During the internet bubble some investors entered the rapidly appreciating sector well after the trend had been established and lost considerable sums when the bubble bust.
Coiled Market
Coiled markets often arise when the market has been held down artificially. This happens in commodities markets, such as gold and silver. Investors looking to capitalize on coiled markets will use both fundamental and technical analysis to identify markets or specific equities that exhibit the characteristics of a coiled market. The origins of this term relate to the physics of a coiled spring: the more it is compressed, the greater the rebound will be.
Confirmation Bias
Confirmation bias can create problems for investors. When researching an investment, someone might inadvertently look for information that supports his or her beliefs about an investment and fail to see information that presents different ideas. The result is a one-sided view of the situation. Confirmation bias can thus cause investors to make poor decisions, whether it's in their choice of investments or their buy-and-sell timing. For example, suppose an investor hears a rumor that a company is on the verge of declaring bankruptcy. Based on that information, the investor is considering selling the stock. When he goes online to read the latest news about the company, he tends to read only the stories that confirm the likely bankruptcy scenario and he misses a story about the new product the company just launched that is expected to perform extremely well. Instead of holding the stock, he sells it at a substantial loss just before it turns around and climbs to an all-time high. Confirmation bias is a source of investor overconfidence and helps explain why bulls tend to remain bullish and bears tend to remain bearish regardless of what is actually happening in the market. Confirmation bias helps explain why markets do not always behave rationally. However, an investor who is aware of confirmation bias may be able to overcome the tendency to seek out information that supports his existing opinions and intentionally seek out contradictory advice.
Confluence
Confluence can be seen when brokers combine professionally managed third-party accounts with a value investing account. Brokers have used professionally managed accounts in the past, and they now have the option to research and invest in stocks they are confident in while still allowing professionals to manage a portion of the account. This new type of portfolio management is a confluence of two strategies.
Buy And Hold
Conventional investing wisdom tells us that with a long time horizon, equities render a higher return than other asset classes such as bonds. There is, however, a debate over whether a buy-and-hold strategy is actually superior to an active investing strategy; both sides have valid arguments. A buy-and-hold strategy has tax benefits, however, because long-term investments tend to be taxed at a lower rate than short-term investments.
Active box
Customer margin accounts are financed with broker loans. Margin accounts enable investors to buy large quantities of securities with broker loans. The stock and bond certificates are kept in the active box until the margin account loan is paid. A bond certificate is a legal document giving the bond owner the right to collect the debt listed on the document.
Bust
During busts, inflation decreases and in extreme cases can cause deflation. In addition, unemployment rises, income falls, and demand decreases. Because of the cyclical nature of the economy, a bust usually follows a boom in what is called the "boom and bust" cycle.
Chasing The Market
Entering or exiting of a trend after the trend has already been well established. Investors are often unaware of the fact that they are chasing the market, which can dent the value of a portfolio. This type of investing is often seen as irrational as decisions are often based on emotion instead of careful analysis of the value of the investment.
Box-Jenkins Model
Estimations of the parameters of the Box-Jenkins model is very complicated and is most often achieved through the use of software. The model was created by two mathematicians, George Box and Gwilym Jenkins, and outlined in their 1970 paper, "Time Series Analysis: Forecasting and Control."
Actuarial analysis
For example, [vocab] is an essential task performed by insurance companies to analyze data and estimate the probability of an insurance claim being filed for a given event. This work allows insurance companies to predict with a reasonable degree of accuracy the amount of claims they will pay out, which helps them determine what premiums they must charge to remain profitable.
Basis Trading
For example, a basis trader may view two similar bonds as mispriced and take a long position in the bond deemed to be undervalued, and a short position in the bond which would then be seen as overvalued. The trader's hope is that the undervalued bond will appreciate relative to the overpriced bond, thus netting him a profit from his positions. For the trader to make a worthwhile profit, he would have to undertake a large amount of leverage in order to increase the size of his positions. This use of large degrees of leverage is the greatest risk involved in basis trading.
Confirmation On A Chart
For example, a trader who witnesses a short-term moving average cross above a longer-term moving average would predict that the upward momentum over the coming weeks is likely to increase. Before this trader decides to place an order for the security he or she may want to look to other indicators as confirmation of the initial prediction. This chart confirmation is used to increase the conviction of the trader, and it generally becomes more influential when three or more indicators are predicting the same type of movement.
Basket Trade
For example, an index fund aims to track its target index by holding most or all the securities of the index. As new cash comes in that could increase the value of the fund, management must simultaneously buy a large number of securities in the proportion they are present in the index. If it were not possible to execute a basket trade on all of these securities, then the quick price movements of the securities would prevent the index fund from holding the securities in the correct proportions.
ABX Index
For example, if [vocab] increases, this means there is less risk with subprime mortgages and vice versa. It was created by Markit and is useful for investors interested in subprime mortgages. Subprime mortgages being mortgages given to customers with faulty or weak credit.
Bar
For example, if a technical trader is working with daily data, one bar is the set of quotes for one day. In the case of one-minute data, it is the price data for one minute. Also, if the data is displayed using a candlestick chart, one bar equals one candlestick or in the case of bar charts, one bar is equal to one bar.
Box-Top Order
For example, if a trader entered a box-top order to buy 1,000 shares at the current market price of $50, and only half of the shares are traded at that price, then a buy limit order is placed for the other 500 shares. If at any point during the life of the order the price returns to $50, the limit order kicks in and the remaining shares will be traded at $50.
Buying Power
For example, if you have $1,000 cash in a margin account and the maximum margin rate is 50%, then your total buying power is $2,000. For a non-margin account, the buying power is equal to the amount of cash in the account.
All Or None - AON
For example, if you send an AON order to your broker requesting 200 shares at $15, the broker will not fill the order unless he or she can obtain the 200 shares at $15. This prevents investors from having orders half filled before they expire. This is contrary to a common limit order, which is commonly partially filled. For example, if 150 shares trade at $15 and then rise to $17, the 150 shares will be purchased by the investor with the limit order and the remainder will be bought when the shares fall back to $15. If the trader had an AON order then he or she will not receive any shares and will have to resubmit the order the next day to buy the 200 shares at $15
Buy Weakness
For example, let's say that a trader believes that ABC stock will fall below $5 to $4.50 before rising above $5. Therefore, the trader would buy into the weakening stock price at a price below $5 and wait until the falling trend reverses and the price rises before selling and taking a profit. A short seller may also buy weakness by closing out his or her position. This would be done by buying into a falling stock with the anticipation that the stock price will soon reverse and start to rise. Many traders will wait for confirmation of a change in price movement before reacting. However, by the time a reversal is confirmed, it may be too late and the trader may end up losing. Thus, by trading against the prevailing trend in the anticipation that it will soon reverse, the trader allows him- or herself greater room for error. As the saying goes, "missed money is better than lost money".
Accumulation/Distribution
For example, many up days occurring with high volume in a downtrend could signal that the demand for the underlying is starting to increase. In practice, this indicator is used to find situations in which the indicator is heading in the opposite direction as the price. Once this divergence has been identified, the trader will wait to confirm the reversal and make his or her transaction decisions using other technical indicators.
Bandwagon Effect
For example, people might buy a new electronic item because of its popularity, regardless of whether they need it, can afford it, or even really want it. In politics, the bandwagon effect might cause citizens to vote for the person who appears to have more popular support because they want to belong to the majority.
Conditional Order
For example, say an investor enters a limit order to buy shares at $45, but only once the shares have first reached $50 (confirming a breakout). The limit order at $45 will be submitted to the brokerage firm only once the shares have reached the $50 price. Conditional orders allow traders to enter into a trade without having to constantly monitor the market, allowing them to be as fast as the market.
Bracketed Sell Order
For example, say an investor enters a short position in ABC stock. To enter a bracketed sell order, he or she enters the sell order at $30 - which is the entry price - and adds a buy stop order at $35 and a buy limit order at $25. Depending on the price movement the investor will either gain $5 or set his or her maximum loss at $5.
Buy Break
For example, suppose a stock appears to have met resistance at the $50 price level for the last year. Many traders will watch the price movement around $50 very closely because a break above the resistance would suggest that a likely surge higher will follow. Technical traders use a break above resistance to signal a good opportunity to buy because a resulting surge of upward momentum commonly follows.
Buy Stops Above
For example, suppose a trader believes that, if the price of XYZ stock breaks above of $10, it will continue heading higher. This trader would likely choose to place a buy stop order at $10.01. This type of order turns into a market buy order once the level of resistance of $10 is breached and gives the trader exposure to capture further upward momentum.
Bracketed Buy Order
For example, suppose that an investor places a buy order for 100 shares of ABC at $50, along with a sell limit order at $55 and a sell stop order at $45. If the price moves up to $55 or down to $45, the position will be sold. The trader will either meet a specified gain of $5 with the sell limit or suffer a loss of $5 with the stop-loss order. However, it is important to note that having a stop-loss order at $45 doesn't mean that you are guaranteed that price. This is because once triggered, the stop loss turns into a market order and will be sold at the current market price after triggering. If the stock gaps down to $40, for example, your stop loss would be triggered and your shares would be sold for around $40.
Ascending Tops
For technical analysts this is considered a very bullish indicator. The ascending tops pattern points to a situation where the market has determined that the price of a stock is intrinsically greater than it was during the previous period, when traders sold off the security following a high. The sell-off might be viewed as profit taking, thus explaining the security's subsequent rise to a new high.
Buy To Cover
For the investor who has bet on a stock price going down, the hope is to be able to buy the shares back at a lower price than the original short was executed at. There is no timetable for the short investor to follow, so they can wait as long as they wish to repurchase the shares. However, if the stock begins to rise above the price the shares were shorted at, the investors' broker may require them to execute a buy to cover order as part of a margin call. To prevent this from happening, investors should always keep enough buying power in their account to make a "buy to cover" trade based the current market price of the stock.
Attribution Analysis
Fund and portfolio management cost money, and so attribution analysis helps determine whether that money is being well spent. This technique is commonly used by institutional investors, but is not widely used by individuals. This analysis helps investors enlist the best managers and maximize their returns.
Borrowed Capital
Funds borrowed from either individuals or institutions. Borrowed capital can be used in a number of ways. Investors use borrowed capital to increase their potential investment returns; this use is known as leverage. The upside of investing with borrowed capital is the potential for greater percentage gains; the downside is the potential loss of someone else's money, which must then be repaid. Another way borrowed capital can be used is by businesses as a loan or debenture. Also referred to as "loan capital."
Available Funds
Funds that are available to an account holder for withdrawal or other use. This may include funds from an overdraft facility or line of credit, as well as funds classified as the available balance, such as from cleared and existing deposits.
At The Market
Generally one buys or sells at the market to assure that the desired transaction takes place. When an investor places an order at the market, he or she is willing to forgo price discrimination for speediness of entry to or exit from a futures contract. During raging bull markets, buy limit orders (orders that are only fulfilled at the limit price or lower) often don't get executed. Likewise, sell limit orders (orders that are only fulfilled at the limit price or higher) are often unconsummated during bear markets. Both scenarios can cause considerable angst to investors.
Anchoring
Here's an everyday example: a friend asks how much you pay in rent for your 800-square-foot apartment, and then asks how much a 1,100-sq-ft apartment would cost to rent in the same building. Would you make an estimate by adding a little more to what you pay even if you've no idea of the actual costs? If so, you would be anchoring your estimate onto what you pay for your apartment. In the context of investing, investors will tend to hang on to losing investments by waiting for the investment to break even at the price at which it was purchased. Thus, they anchor the value of their investment to the value it once had, and instead of selling it to realize the loss, they take on greater risk by holding it in the hopes it will go back up to its purchase price.
Bull/Bear Ratio
High readings of the ratio indicate a bearish sentiment, whereas low readings indicate a bullish one. Typically, extremely high and low readings have shown simultaneous market tops and bottoms.
Ax
Identifying the ax is a common strategy among day traders, and trading in the same direction as this market maker can drastically increase a trader's odds of making successful trades. Any given stock can have several market makers, and the ax for any given security can change every day. It may take a trader several days to determine which market maker is primarily controlling the action of a certain stock.
Bullish Homing Pigeon
If a bullish homing pigeon trend is seen in a chart it may be a good for traders to exit short positions and begin to enter into long positions. The worse the downward movement in the stock, the more likely a closing of a short position should be taken by a trader.
Bottom
If a stock has "bottomed out", it means it might have reached its low point and could be in the early stages of an upward trend. Investors usually see a bottom as an opportunity to purchase securities when they are potentially underpriced. The bottom is used in technical analysis by defining the lowest level of support when charting a stock, commodity, index or economic cycle.
At-Or-Better
If the price of a share of stock is falling, an investor is unlikely to be able to execute an at-or-better trade because buyers are more likely to wait in order to obtain a lower price. For example, if a share is trading at $10, a trader can put in an at-or-better order to sell the security at $10.10. Any price greater than or equal to $10.10 will trigger a sale.
Breakaway Gap
If you chart it, the gap reflects a bullish movement when the price has gapped upwards and a bearish movement when the price has gapped downwards.
Automated Forex Trading
In an automated forex trading system, the trader must teach the software what signals to look for and how to interpret them. It is thought that automated trading takes human psychology out of trading. Automated day trading systems and signals are available to purchase over the internet. However, it is important to note that there is no such thing as the "holy grail" of trading systems. If the system was a perfect money maker, the seller would not want to share it. This is why big financial firms keep their "black box" trading programs under lock and key.
Advance/Decline Index
In general, rising values of the [vocab] can be used to confirm the likelihood that an upward trend will continue. If the market is up but there are more declining issues than advancing ones, it's usually a sign that the market is losing its breadth and may be getting ready to change direction. Imagine that the [vocab] on the S&P 500 is currently at 1835. If at the end of the last trading day, 300 stocks were up (advance) and 200 were down (decline), 100 would be added to the [vocab] value, pushing it to 1935. When this index is plotted on a chart, it is known as the "advance/decline line".
Common Gap
In general, there is no major event that precedes this type of gap. Common gaps generally get filled relatively quickly (usually within a couple of days) when compared to other types of gaps. Common gaps are also known as "area gaps" or "trading gaps".
Bioeconomics
In nature, we see groups of different organisms working together to best utilize the resources needed to sustain life, while still promoting a "survival of the fittest" framework. Like behavioral finance and other applied economic schools, bioeconomics is another example of economic theory branching out of classical boundaries and attempting to better explain the complex economies of today.
Buy A Bounce
In order to use this strategy most effectively, a trader has to be sure that he or she is able to identify a valid level of support. Some traders may wish to enter a position before the signs of a bounce off of a support level, but generally this is a high-risk strategy and can result in devastating losses. Most traders will want to confirm a bounce off of a support level by using a combination of other technical indicators before entering a position.
Breakout
In practice, a breakout is most commonly used to refer to a situation where the price breaks above a level of resistance and heads higher, rather than breaking below a level of support and heading lower. Once a resistance level is broken, it is regarded as the next level of support when the asset experiences a pullback Most traders use chart patterns and other technical tools such as trendlines to identify possible candidates that are likely to break through a support/resistance level. A breakout is the bullish counterpart to a breakdown.
Consolidation
In technical analysis, the movement of an asset's price within a well-defined pattern or barrier of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval (i.e. hours, days, etc.), and these periods can last for minutes, days, months or even years. Lengthy periods of consolidation are often known as a base.
Capital Gearing
In the event of a leveraged buyout, the amount of capital gearing a company will employ will dramatically increase as the company increases its debt in order to finance the acquisition. When analyzing a firm undergoing a leveraged buyout, it is important to consider the firm's ability to service the additional interest payments on an after-tax basis, as well as the likelihood of the firm paying off the new debt as it matures.
Bottom Fishing
Investing in stocks that are cheap because of a problem with the company or the economy. A bottom-fishing investor speculates that the stock's depressed price is temporary, will recover and make for a profitable investment. Bottom fishing is a risky strategy because the company's stock price is depressed for a reason and may not bounce back.
Advance/Decline Ratio- ADR
Investors can compare the moving average of the [vocab] to the performance of a market index such as the NYSE or Nasdaq to see whether overall market performance is being driven by a minority of companies. This comparison can provide perspective on the cause of an apparent rally or sell-off. Also, a low [vocab] can indicate an oversold market, while a high [vocab] can indicate an overbought market. Thus, the [vocab] can provide a signal that the market is about to change directions.
Borrowed Capital
Investors commonly use borrowed capital when trading in the forex markets. Critics consider this leveraged trading to be dangerous, while proponents argue that with the proper precautions, such as the placing of stops, investors can achieve their goals faster without taking on too much risk. People who take out a mortgage to buy a home are also using borrowed capital. In this case, the purpose of borrowing capital is not necessarily to improve potential investment returns, but to make it possible to purchase an expensive asset that is difficult to pay for in one lump sum.
Bloodletting
Investors facing a bear market have the option of riding out the downturn and holding onto their investments, or selling their investments in order to mitigate losses. A sell off of a particular security may result in a further decline in its value, as there are more sellers than buyers available in the market. An investor who thinks that the market will improve, may take advantage of this situation by buying up bargain stocks.
Accumulation Area
Investors use technical analysis techniques, such as the on-balance volume (OBV) method, to detect the momentum of a stock. If a stock doesn't seem to fall below a certain price, this can be a sign that the stock is in a [vocab] and may be more likely to attract more investors, allowing traders who see the trend to profit from increased buyer interest.
Cancel Former Order - CFO
It goes without saying that a CFO can only be used to replace unfilled orders; orders where a fill has been received are binding contracts and cannot be revoked. A CFO is often used in cases where market conditions prompt the investor to change the order parameters. For example, in a plunging market the investor may use a CFO to lower the price at which he or she wants to purchase a security. Conversely, if a stock is rising rapidly, the investor may change a limit order to a market order to ensure that an order fill is obtained. As an example, assume an investor wants to buy 100 shares of Widget Co, which is trading at $10.25, and places a limit order at $10.00. If Widget Co begins rising on news of a positive development and is now trading at $10.50, the investor may CFO his or her previous order and place a new market order, so as to buy 100 shares of Widget Co at the current market price.
Buck The Trend
It may be a bullish signal when a stock is able to resist a prevailing downtrend in its own industry or against the broad market. This suggests that investors are attracted to the stock despite negativity surrounding its competitors and peers.
At-The-Close Order
It's essentially a market order that doesn't get entered until the last minute (or thereabouts) of trading. With this type of order you are not necessarily guaranteed the closing price but usually something very similar, depending on the liquidity in the market and bid-ask for the security in question. Traders who believe that a security or market will move more heavily during the last few minutes of trading will often place such an order in the hopes of having their order filled at a more desirable price.
Closing Tick
Just as the closing price of a security is of more importance to traders than its intra-day prices, the closing tick is more important than intra-day ticks because it indicates where the market closed on a given day. For example, if the difference between stocks closing on an uptick on the NYSE and those closing on a downtick on the NYSE is 500, then the NYSE's closing tick would be 500.
Cognitive Dissonance
Let's say an investor decides in advance that he is going to purchase shares of a firm when the price drops to $78 a share. The price is currently at $80 a share. All of a sudden, the company's stock price starts going up. The investor's belief that the stock would be a good buy at $78 seems to be contradicted by the stock's current behavior. The investor decides to buy at $85 instead of $78 to reconcile the cognitive dissonance he is experiencing. This may not be as good of an investment decision, but the investor will rationalize himself into thinking it is, mainly to get rid of his feeling of cognitive dissonance.
Buenos Aires Stock Exchange (BUE) .BA
Located in Buenos Aires, this exchange functions as the primary exchange in Argentina. Its key index is the MERVAL. Other indices include the Burcap, Bolsa General and MAR.
Breakout Trader
Many breakout traders find trading opportunities by identifying chart patterns such as channels, ascending triangles, descending triangles, head and shoulders, etc. These types of traders will generally set up target prices to be equal to the distance between support and resistance levels.
Call Money
Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.
Canceled Order
Most equity orders (especially market orders) are executed so fast today that canceling them before execution may not be possible despite the investor's efforts. Limit orders that are outside of the current stock price can usually be canceled online or by calling the broker directly. Other order types that can quickly become canceled orders are "all-or-none" orders and "fill or kill" orders.
Closing Bell
NYSE began having special guests ring the closing bell on a regular basis in 1995. This daily tradition is highly publicized and often done by a company. Prior to 1995, ringing the bell was usually the responsibility of the exchange's floor managers. There are bells located in each of the four main sections of the NYSE that all ring at the same time once a button is pressed. The ringers press the button for approximately 10 seconds, and a gavel sitting at the front is also used on some occasions.
Boston Stock Exchange (BSE) .B
Nasdaq purchased the BSE in 2007 for $61 million. Its normal hours of operation are 8am to 7pm on weekdays except for holidays. The exchange formerly owned two subsidiaries: the Boston Options Regulation and the BSE Clearing Corporation.
Analysis Paralysis
Occurs when an individual becomes so lost in the process of examining and evaluating various points of data that he or she is unable to make a decision with it. Analysis paralysis can occur with many decisions, including investment decisions such as buying or selling securities. The inaction it causes can easily lead to losses in a portfolio or missed chances at larger profits.
Analysis Paralysis
Often, when examining facts related to a potential course of action, the pros outweigh the consor vice versaand an individual has a clear path ahead. When analysis paralysis sets in, it could be because the person never feels comfortable stopping his or her search for additional criteria to examine or that the pros and cons are equally weighted.
Boston Stock Exchange (BSE) .B
One of several regional stock exchanges located throughout the U.S. As the name states, the exchange is located in Boston, Massachusetts. The BSE is the third-oldest stock exchange in the U.S. as it was originally founded in 1834.
Bubble Theory
One of the most famous historical examples of an asset bubble is the so-called "tulipmania" in the Netherlands during the 1630s. Contemporary examples include the dotcom bubble in the late 1990s, and the real estate bubble in the U.S. in the late 2000s. The bubble theory is controversial among those who believe in the theory of efficient markets. Efficient market theorists believe that market participants are rational, and therefore would not buy into asset bubbles if they were readily identifiable. Rather, these theorists argue, clear overvaluations would be driven down to their true value by savvy market participants who would sell the asset, anticipating a decline to the true value.
Buy Stop Order
People using a buy stop hope to gain if momentum gains on a particular stock. If the price exceeds the price you have set, it will automatically trigger a market order.
Box Size
Point and figure charts plot prices uses a series of Xs and Os, known as boxes. An X indicates that prices are rising, and an O shows that prices are dropping. Investors and traders must specify the box size in order to establish how much price must change before a new box is printed. If a 50-cent box size is specified, for example, then a new X or O (depending on the direction of price) will be printed each time price moves that amount. When prices are rising, Xs will be stacked on top of each other every time that price moves up 50 cents, forming a column. Once price drops 50 cents, a new column of Os will begin to the right of the previous X column. As long as prices drop, additional Os will be stacked under the first O to show each 50-cent fall in price. Charts with larger box sizes provide a less detailed view of the markets, while charts with smaller box sizes show a more detailed view.
Ascending Channel
Price channels show trend. A trader can trend trade in a channel or swing trade from support to resistance and back to support. In an uptrend, start with the lower trendline drawn on pivot lows and add a parallel channel line to complete the formation.
Bulge
Prices for a particular instrument or sector might have strong support and continue to quickly rise, resulting in a temporary "bulge" in price. Bulges are characteristically fast moving and short-lived. Buying may continue until the security is overbought, and prices drop off, sometimes dramatically. Investors who jump on late, hoping that prices will continue to rise, often miss the move entirely due to its short-term nature.
adjusted debt balance
Regulation T guidelines changed in 1982, making it less significant than in years past. However, the formula is still useful in determining the amount of money or securities that one can withdraw from a margin account. For example, things like "freeriding," a practice whereby a stock is bought and sold before it has been paid for, is not permitted. If/when freeriding occurs, the broker is obligated to freeze the investor's ability to buy on margin for 90 days.
Climax
Selling into a climax run can be a good exit strategy, because by selling during a period of euphoria, investors can lock in dramatic gains. A buying climax can bid a stock's price up to levels it will never reach again, or that it will not reach again for at least a decade. At the end of a buying climax, prices can fall sharply as investors realize the stock has been overbought.
Commodity Selection Index - CSI
Short-term traders know that the key to making money is movement, which is the reason that they mainly focus on the highly volatile assets. This index attempts to lessen the amount of risk taken, and make it easier to trade by incorporating trend characteristics. Some traders will only trade the commodity with the highest CSI value, while others will make transaction signals when they see a sharp increase in this value.
Bias
Some common psychological biases plaguing investors include: representative bias, cognitive dissonance, home bias, familiarity bias, mood and optimism, overconfidence bias, endowment effects, status quo bias, reference point & anchoring, law of small numbers, mental accounting, disposition effects, attachment bias, changing risk preference, media bias and internet information bias.
Buy Signal
Some investors (contrarians, for example), consider it to be a buy signal when large numbers of investors pull out of the stock market. This is because widespread bearish sentiment among investors can indicate a market bottom. When a market is at or near its bottom, it can be a good time for investors to pick up stocks at prices that are lower than their true value.
Alternative Order
Some technical analysts favor alternative orders because they allow investors to buy and sell at specified levels that correspond with the analysts' perception of support and resistance. Alternative orders can also be used to buy different stocks. For example, an investor might place an alternative order to buy Stock A at $25, Stock B at $30 and Stock C at $35. Whichever stock reaches its buy point first, is the official order. Again, for technical analysts in particular, this type of order can be beneficial, as it hones in on stocks exhibiting a desired behavior.
Boom
Stocks that suddenly become very popular and gain strong elevated market profits are the result of a stock boom. An example of this is the internet technologies boom or "dot-com bubble" that occurred during the late '90s. This was one of the most famous booms in stock market history. As often occurs in a boom-and-bust cycle, this boom was followed by one of the biggest busts in history. This occurs because the growth that takes place in a boom is rarely maintained and backed up by actual company profits.
Arithmetic Mean
Suppose you wanted to know what the arithmetic mean of a stock's closing price was over the past week. If during the five-day week the stock closed at $14.50, $14.80, $15.20, $15.50, and then $14.00, its arithmetic mean closing price would be equal to the sum of the five numbers ($74.00) divided by five, or $14.80.
adaptive price zone - apz
Technical analysis is one of two major methods for making stock-trading decisions. Whereas fundamental analysis looks at the value of the company behind the stock, technical analysis ignores this completely and focuses solely on price movements. Technical traders use charts and other tools to analyze a stock's price and trade volume and predict how a stock will move.
52-Week Range
Technical analysts compare a stock's current trading price to its [vocab] to get a broad sense of how the stock is doing, as well as how much the stock's price has fluctuated. This information may indicate the potential future range of the stock and how volatile the shares are.
Breakdown
Technical tools such as moving averages, trendlines and chart patterns are the most common methods for technical traders to identify strong areas of support. The chart above shows that a trader will enter into a short position when the price breaks below an area of support (the thick dark line), which has been identified by using a head and shoulders chart pattern. A breakdown is the bearish counterpart of a breakout.
Aroon Indicator
The Aroon indicator was developed by Tushar Chande in 1995. Both the Aroon up and the Aroon down fluctuate between zero and 100, with values close to 100 indicating a strong trend, and zero indicating a weak trend. The lower the Aroon up, the weaker the uptrend and the stronger the downtrend, and vice versa. The main assumption underlying this indicator is that a stock's price will close at record highs in an uptrend, and record lows in a downtrend. This indicator is very similar to the directional movement index (DMI) that was developed by Welles Wilder, which is also a very popular indicator used to measure the strength of a given trend.
Buenos Aires Stock Exchange (BUE) .BA
The Buenos Aires Stock Exchange succeeded the Banco Mercantil as the primary exchange in 1854. It is a self-directed, not-for-profit civil entity. Representatives of all of the sectors of Argentina's economy sit on its board of directors
Commodity Channel Index - CCI
The CCI has seen substantial growth in popularity amongst technical investors; today's traders often use the indicator to determine cyclical trends in not only commodities, but also equities and currencies. The CCI, when used in conjunction with other oscillators, can be a valuable tool to identify potential peaks and valleys in the asset's price, and thus provide investors with reasonable evidence to estimate changes in the direction of price movement of the asset.
Best Ask
The National Best Bid and Offer (NBBO) are the bid and ask prices that traders and investors typically see. Active traders, short-term traders and day traders often study Level 2 quotes that include all the current bids and asks for a particular trading instrument. The NBBO is continually updated throughout the trading session, so that customers have access to these prices
Best Bid
The National Best Bid and Offer (NBBO), which refers to the Securities and Exchange Commission (SEC) requirement, are the bid and ask prices that traders and investors typically see. They are required by the SEC to be the best bid and ask prices available to customers. Active traders, short-term traders and day traders often study Level 2 quotes that include all the bids and asks for a particular trading instrument. The NBBO is continually updated throughout the trading session so that customers have access to these prices.
adding to a loser
The action of a trader/investor increasing a position in an asset when its price is heading in the direction that's opposite to what the investor/trader desires. This is generally not a wise investment decision because unless the asset begins to move in the desired direction, the investor's losses will increase.
adjusted debt balance
The amount in a margin account that is owed to the broker, minus profits on short sales and balances in a special miscellaneous account (SMA). The [vocab] aids an investor in knowing how much he/she owes in the event of a margin call. Under Regulation T, one can borrow up to 50% of the purchase price of securities on margin.
Average Balance
The balance on a loan or depositary account. A simple average balance is calculated by dividing the beginning balance plus the ending balance by two. A weighted average balance will take into account how long the balance remained at specific levels during the measurement period, which is typically a month or a financial quarter long.
Bearish Abandoned Baby
The bearish abandoned baby is a rare but reliable candlestick pattern that is useful in determining changes to a dominant uptrend. The accuracy of the reversal signal is greatly improved when it is used in conjunction with other technical indicators, such as the MACD and RSI, to confirm the reversal.
Breadth of Market Theory
The breadth of market indicator is used to gauge the number of stocks advancing and declining for the day. If the breadth indicator is strong, this theory predicts that the market will be rising and vice versa.
Breadth Thrust Indicator
The breadth thrust indicator was developed by investor and analyst Martin Zweig. Since it provides a timing signal with a gap of many years or even decades, its utility lies more in signaling long-term trends than as a short-term trading indicator.
Broad Tape
The broad tape is widely available to investors and professionals in many forms. It can be found both on television and on the internet, as well as through private subscription. However, it is prohibited on the floors of the exchanges in order to prevent traders from reacting to the news faster than the public.
Broker's Call
The broker's call rate may fluctuate on a daily basis, since it depends on a number of factors such as market interest rates, funds' supply and demand and economic conditions. It is published daily in publications such as The Wall Street Journal and Investor's Business Daily.
Bullish Abandoned Baby
The bullish abandoned baby is a rare, but reliable, candlestick pattern that is useful in determining changes to a dominant downtrend. The accuracy of the reversal signal is greatly improved when it is used in conjunction with other technical indicators such as the MACD and RSI to confirm the reversal.
Bullish Belt Hold
The bullish belt hold often signals a reverse in investor sentiment from bearish to bullish. Since this trend occurs frequently but is often incorrect in predicting future share prices, it is rarely perceived to be useful. As with any other candlestick charting patterns, more than just two days of trading should be considered when making predictions about trends.
Andrew's Pitchfork
The chart shown here makes it clear why this indicator is called a pitchfork. The first point drawn on the chart forms the handle, while the lines extending from the other two points will make up the prongs
Circular Flow Of Income
The circular flow of income is a neoclassical economic model depicting how money flows through the economy. In the most simple version, the economy is modeled as consisting only of households and firms. Money flows to workers in the form of wages, and money flows back to firms in exchange for products. This simplistic model suggests the old economic adage, "Supply creates its own demand."
Circular Flow Of Income
The circular flow of income model illustrates the interdependencies of different factors in the economy. However, actual money flows through the economy are far more complicated. Economists have expanded on the ideas of the circular flow of income model to better depict the complexity of modern economies.
Close Location Value - CLV
The close location value is most commonly known for its role in the calculation of the accumulation/distribution line, an indicator used to determine the rate at which money flows into or out of a given security. Implementing the close location value into other technical indicators like the one mentioned above is becoming more popular because it is often regarded as a better measure for the period's activity than relying solely on the closing price.
Close
The close of the New York Stock Exchange, which is marked by ringing a bell, is perhaps the most visible example of a market close. Security prices at market close, or closing prices, are more important than intra-day prices for performance measurement. For example, the price performance of all securities on an equity index over the past year would be based on prices at today's close, compared with prices at close a year ago. Since closing prices are widely followed and disseminated, they may occasionally be subject to manipulation by fraudsters, especially for micro-cap stocks with limited liquidity. This prohibited practice is called "high close."
Confluence
The combination of multiple strategies and ideas into one complete strategy. Confluence occurs when two separate ideas/strategies are used together to form an investment strategy that is in line with an investor's risk profile and goals. This term can also be used when doing technical analysis, by looking at charts and developing levels where different indicators are combined to help identify possible opportunities.
Bunching
The combining of odd-lot or round-lot orders for the same security so that they can be executed at the same time. Bunching occurs when traders and brokers combine small or unusually-sized trade orders into one larger order. If an order is bunched, all affected clients must agree to the bunching before the order is submitted.
Consolidated Tape
The consolidated tape was introduced in 1975 and is overseen by the Consolidated Tape Association. Consolidated tape data come from two major networks, which are administered by the NYSE (Network A) and NYSE Amex (Network B). Network A reports trades for securities listed on the NYSE while Network B reports trades from regional exchanges, electronic communication networks and the PHLX options exchange.
Capital Gearing
The degree to which a company acquires assets or to which it funds its ongoing operations with long- or short-term debt. Capital gearing will differ between companies and industries, and will often change over time. Capital gearing is also known as "financial leverage".
Closing Tick
The difference between the number of stocks that closed higher than their previous trade (i.e. closed on an uptick) and the number of stocks whose closing prices were lower than their previous trade (i.e. closed on a downtick). A closing tick is used by traders as a technical indicator to denote strength or weakness in the broad market. Since buying at the close generally indicates market strength, a sustained series of positive closing ticks indicates bullishness, while a series of negative closing ticks indicates bearishness. The most widely watched closing tick is that of the New York Stock Exchange (NYSE).
Amplitude
The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
Bid Tick
The direction of the bid tick is important to institutional traders, who move large amounts of stock within a small period of time. Day traders also rely heavily on the direction of the bid tick when making their trade decisions. By monitoring bid ticks, traders can look for indications of how the market is expecting prices to move and the general spread between bid and ask quotes.
Close
The end of a trading session in financial markets. "Close" refers to market close, or the end of the day's trading. It can also refer to the process of exiting a trade. It also often refers to the final procedure in a financial transaction in which contract documents are signed and recorded.
Actuarial analysis
The examination of risk by a highly educated and certified professional statistician. [vocab] uses statistical models to manage financial uncertainty by making educated predictions about future events. Insurance companies, banks, government agencies and corporations use [vocab] to design optimal insurance policies, retirement plans and pension plans and to analyze investment risks.
Bell Curve
The highest point in the curve, or the top of the bell, represents the most probable event. All possible occurrences are equally distributed around the most probable event, which creates a downward-sloping line on each side of the peak.
Best Bid
The highest quoted bid for a particular trading instrument among all those offered by competing market makers. The best bid is effectively the highest price that an investor is willing to pay for an asset. A bid is an offer made by a trader, investor or other industry professional to purchase a security. The bid specifies both the price that the buyer is willing to pay and the quantity of the security that is desired. Bid also refers to the price at which a market maker is willing to purchase a security. Best bid is the opposite of best ask.
Broker's Call
The interest rate charged by banks on loans made to broker-dealers, who use these loan proceeds to make margin loans to their clients. These broker's call loans are payable by the broker-dealer on call (i.e., immediately) upon request from the lending institution. The broker's call rate forms the basis on which margin loans are priced.
Call Money Rate
The interest rate on a type of short-term loan that banks give to brokers who in turn lend the money to investors to fund margin accounts. For both brokers and investors, this type of loan does not have a set repayment schedule and must be repaid on demand.
Consolidation
The levels of resistance and support within the consolidation are created through the upper and lower bounds of the stock's price. Once the price of the asset breaks through the identified areas of support or resistance, volatility quickly increases and so does the opportunity for short-term traders to generate a profit.
52-Week Range
The lowest and highest prices at which a stock has traded in the previous 52 weeks. The [vocab] is provided in a stock's quote summary along with information such as today's change and year-to-date change. Companies that have been trading for less than a year will still show a [vocab] even though there isn't data for the full range.
Bottom
The lowest point or price reached by a financial security, commodity, index or economic cycle in a given time period. A specific time span is usually used to determine a bottom - most commonly, 52 weeks - but that timeframe could stretch over years, or remain intraday.
Best Ask
The lowest quoted offer price among all those offered by competing market makers for a particular trading instrument. The ask price is effectively the lowest price that a seller is willing to offer for an asset, and the best ask is the most favorable ask price offered at a given time for a particular security. Ask is also known as the offer price.
Balloon Option
The main idea behind the balloon option is that after the threshold is exceeded, the regular payout is increased. For example, let's say that the threshold is $100. After the underlying exceeds this amount, rather than paying the regular dollar-for-dollar amount, the option payment would balloon to $2 for every $1 change against the strike price.
Ax
The market maker who is most central to the price action of a specific security. The ax can be identified by spending several days studying level II quotes and noting which market maker seems to have the greatest effect on the security's price.
Box Size
The minimum price change that must occur before the next mark is added to a point and figure chart. A point and figure chart's box size determines the value of price movements that will be recorded by each mark on the chart. Technical analysts use charts to view past and current price information for particular trading instruments, such as stocks or futures contracts. A traditional bar chart plots price changes at specific time intervals, such as a daily chart or a five-minute chart. Point and figure charting, on the other hand, adds a new mark only after price has moved a specified amount. This amount is known as the box size.
Buying Power
The money an investor has available to buy securities. In a margin account, the buying power is the total cash held in the brokerage account plus maximum margin available. Also referred to as "excess equity."
Bell Curve
The most common type of distribution for a variable. The term "bell curve" comes from the fact that the graph used to depict a normal distribution consists of a bell-shaped line. The bell curve is also known as a normal distribution. The bell curve is less commonly referred to as a Gaussian distribution, after German mathematician and physicist Karl Gauss, who popularized the model in the scientific community by using it to analyze astronomical data.
Advances And Declines
The number of stocks that closed at a higher price than the previous day's close, and the number of stocks that closed at a lower price than the previous day's close. Technical analysts looks at [vocab] to analyze the overall behavior of the stock market, in order to discern volatility and to predict whether a price trend is likely to continue or reverse. Typically, a market will be more bullish if more stocks advance than decline.
Backtesting
The process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward, which could take years, a trader can do a simulation of his or her trading strategy on relevant past data in order to gauge the its effectiveness. Most technical-analysis strategies are tested with this approach.
Buyout
The purchase of a company's shares in which the acquiring party gains controlling interest of the targeted firm. Incorporating a buyout strategy is a common technique used to gain access to new markets and is one of the most common methods for inorganically growing a business.
Buying On Margin
The purchase of an asset by paying the margin and borrowing the balance from a bank or broker. Buying on margin refers to the initial or down payment made to the broker for the asset being purchased. The collateral for the funds being borrowed is the marginable securities in the investor's account. Before buying on margin, an investor needs to open a margin account with the broker. In the U.S., the amount of margin that must be paid for a security is regulated by the Federal Reserve Board.
Chande Momentum Oscillator
The security is deemed to be overbought when the momentum oscillator is above +50 and oversold when it is below -50. Many technical traders add a nine-period moving average to this oscillator to act as a signal line. Bullish signals are generated when the oscillator crosses above the signal, and bearish signals are generated when the oscillator crosses down through the signal.
Call Loan Rate
The short term interest rate charged by banks on loans extended to broker-dealers. A call loan rate is an interest charged on loans made to broker-dealers who use the funds to make margin loans to their margin account clients. These loans are payable by the broker-dealer on call (i.e. on demand or immediately) upon receiving such request from the lending institution. The call loan rate forms the basis upon which margin loans are priced. The call loan rate can fluctuate daily in response to factors such as market interest rates, funds' supply and demand, and economic conditions. The rate is published in daily publications including the Wall Street Journal and Investor's Business Daily (IBD). Also called broker's call.
Behavioral Economics
The study of psychology as it relates to the economic decision making processes of individuals and institutions. The two most important questions in this field are: 1. Are economists' assumptions of utility or profit maximization good approximations of real people's behavior? 2. Do individuals maximize subjective expected utility?
Attribute Bias
The tendency of stocks selected by a quantitative technique or model to have similar fundamental characteristics, such as high yields and low earnings valuations. Most investing models that provide investment choices as an output will have to establish parameters that, by definition, will exclude certain stocks and offer ones with similar traits in return.
Busted Takeover
The term 'busted takeover' is used in the world of mergers and acquisitions, or "M&A." Mergers, acquisitions and takeovers allow companies to develop competitive advantages and increase shareholder value. In a merger, two companies mutually agree to join forces and become one company. An acquisition is a corporate action in which one company purchases most or all of a target company's ownership stakes in order to take control of the target company. Acquisitions can be either friendly, where the target company agrees to be acquired, or hostile, where the target company does not agree and resists the acquisition. A hostile acquisition is often called a takeover, or a hostile takeover. A busted takeover may be a successful strategy when the acquiring company has limited cash (and needs to borrow to fund the purchase) and the target company has undervalued assets that the acquiring company wishes to exploit. For example, assume company ABC wants to acquire company XYZ because it is looking to diversify. Company ABC is cash poor and will need to leverage itself to finance the deal. As a term of the deal, company ABC must agree to sell off some of company XYZ's assets and give the proceeds to the financier, repaying part of the amount that company ABC had to borrow to finance the deal.
Choppy Market
The term is derived from the phrase choppy seas, where a boat will move a lot but not over any large distance as waves prevent it from moving any meaningful distance. The DJIA, for example, may start a six-month period at 10,500 and over the six months move all over the 10,000 to 11,000 range but end the period at around 10,500.
Chikou Span
The trend is deemed to be upward when the Chikou span is located above the closing prices and downward when the indicator is located below them. Many traders watch for the Chikou span to cross below the closing prices as a signal that the price of the asset is getting exhausted and is likely to experience a pullback.
Cognitive Dissonance
The unpleasant emotion that results from believing two contradictory things at the same time. The study of cognitive dissonance is one of the most widely followed fields in social psychology. Cognitive dissonance can lead to irrational decision making as a person tries to reconcile his conflicting beliefs.
Anchoring
The use of irrelevant information as a reference for evaluating or estimating some unknown value or information. When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value.
Blue Collar Trader
There are many websites, and other information forums to aid blue collar investors in trading. With the right information, blue collar trading can give the trader an extra income source. Blue collar investors work with brokers to gain advice on which investment decisions to make, and will pay a fee for their services, however, due to a highly competitive market, the commissions and fees for such brokers has decreased significantly.
Breadth Indicator
There are several different types of breadth indicators used by technical analysts, such as the force index, Chaikin oscillator, up/down volume ratio, up/down volume spread, on-balance volume and cumulative volume index. One well-known breadth indicator is the Arms index, which evaluates the relationship between the numbers of advancing and declining stocks and the trading volume of each. This breadth indicator helps investors determine whether the market is bullish, bearish or neutral. A drawback to this indicator is that it can become inaccurate when the market behaves unusually.
Buy And Homework
There are two main arguments that investors use against this strategy: people don't have the time, and if you hold on long enough, the stock will come back. Cramer's argument for the first excuse is that if an investor does not have the time to spend researching each stock in their portfolio for at least one hour per week, they can hand off their portfolio to a professional manager (e.g., through a mutual fund). The latter is even easier for Cramer to refute - just to look at a stock like Enron.
Behavioral Finance
There have been many studies that have documented long-term historical phenomena in securities markets that contradict the efficient market hypothesis and cannot be captured plausibly in models based on perfect investor rationality. Behavioral finance attempts to fill the void.
Bar Chart
These are the most popular type of chart used in technical analysis. The visual representation of price activity over a given period of time is used to spot trends and patterns.
Contingent Order
These types of orders are generally placed for option strategies where two separate transactions must occur at the same time. An example is a buy-write, where an investor would buy a stock and sell a call simultaneously.
Chaikin Oscillator
This indicator is named after its creator, Marc Chaikin. The goal of the Chaikin line is to recognize moving momentum levels within the MACD, more specifically the accumulation distribution line, in hopes of being able to act on said momentum. By being able to recognize momentum, technical traders hope that the momentum is the first step in the development of a trend that they can capitalize upon.
Advance/Decline Line - A/D
This indicator is used by many traders to confirm the strength of a current trend and its likelihood of reversing. If the markets are up but the [vocab] is sloping downwards, it's usually a sign that the markets are losing their breadth and may be setting up to head in the other direction. If the slope of the [vocab] is up and the market is trending upward then the market is said to be healthy.
Above the Market
This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.
Blowoff
This large and dramatic price movement is generally seen at the peak of a market or stock. The idea behind the bearishness of a blowoff is that it signals the activity of the most irrational and overly exuberant market participants, who, wanting to take part in the rally, momentarily push up the already-overvalued stock.
Autoregressive Integrated Moving Average - ARIMA
This model type is generally referred to as ARIMA(p,d,q), with the integers referring to the autoregressive, integrated and moving average parts of the data set, respectively. ARIMA modeling can take into account trends, seasonality, cycles, errors and non-stationary aspects of a data set when making forecasts.
Bearish Belt Hold
This pattern often signals a reverse in investor sentiment from bullish to bearish. However, the bearish belt hold is not considered very reliable as it occurs frequently and is often incorrect in predicting future share prices. As with any other candlestick charting method, more than two days of trading should be considered when making predictions about trends.
Ascending Tops
This refers to a series of peaks, each peak higher than the previous one on the stock's chart pattern. Ascending tops are created following a previous and subsequent trough. This may look like a mountain range in which each mountain top is higher than the last. The chart below illustrates a series of four ascending tops.
Bust-Up Takeover
This style of buyout, as with any leveraged buyout, involves heavy analysis on behalf of the acquirer to adequately value the target company's assets and to make sure that the return on those assets pays for the added cost of debt. If the target company has significantly undervalued assets and the acquirer has little cash (and so needs debt to fund the purchase), this strategy could be implemented to successfully unlock value.
Absolute Breadth Index - ABI
This tool is classified as a breadth indicator because the advancing/declining values are the only values used to create it. This index can be calculated using any exchange or a subset of an exchange, but traditionally the New York Stock Exchange has been the accepted standard.
At Best
This type of order is generally executed faster than a conditional order, such as a limit order. Because the ultimate price a trader receives for a share is subject to the current market price, the trader may wind up paying more (for a buy order) or receiving less (for a sell order) than expected.
Canadian Securities Institute - CSI
Through its global partners, CSI also provides financial proficiency training in a number of regions across the world including China, Europe, the Middle East, the Caribbean and Central America. In November 2010, CSI was acquired by Moody's Corporation for C$155 million and commenced operating as a separate company within Moody's Analytics. Investment Industry Regulatory Organization of Canada (IIROC), Canada's stock exchanges and Canada's securities regulatory commissions all endorse the CSI.
Chartered Market Technician - CMT
To be granted the designation, a candidate must pass three examination levels and agree to be bound by the MTA code of ethics. Also, to register for the CMT program, an individual must be a paying member of the MTA.
130-30 Strategy
To engage in it, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.
Below The Market
Traders and investors who want to try to achieve a better price or position may enter an order to buy below the market. A limit order to buy allows traders to specify the price at which they are willing to purchase a security; if the limit order to buy is filled, the order will be filled at the specified price or better. A below market order to sell allows traders to quickly unload a position. Real estate properties are sometimes sold at below the market values, meaning they are offered at lower prices than comparable properties. Such properties are called BMV, below market value. Properties may be sold below their market value when the owners are faced with some type of financial difficulty such as bankruptcy, divorce, probate or if they must relocate quickly.
Call Money Rate
Trading on margin is a risky strategy in which investors make trades with borrowed money. The advantage of margin trading is that investment gains are magnified; the disadvantage is that losses are also magnified. When investors trading on margin experience a decline in equity past a certain level relative to the amount they have borrowed, the brokerage will issue a margin call that requires them to deposit more cash in their account or to sell enough securities to make up the shortfall.
Biased Expectations Theory
Two common biased expectation theories are the liquidity preference theory and the preferred habitat theory. The liquidity preference theory suggests that long-term bonds contain a risk premium and the preferred habitat theory suggests that the supply and demand for different maturity securities are not uniform and therefore there is a difference risk premium for each security.
Chart Formation
Types of chart formations include the head and shoulders pattern, which is used to identify trend reversals; the inverse saucer or rounded top, which indicates a peak in a stock's price; the triangle, which indicates the reversal or continuation of a trend and the double-bottom formation, which investors use to identify potential upside targets.
Block Order
Typically, a 10,000 share order (excluding penny stocks) or $200,000 worth of fixed-income securities would consititue a block order. When a trader wants to unload his or her securities quickly they will often sell them at a discount, aptly named a "blockage discount".
Buck The Trend
When a security or a class of assets sees its market-driven price move in the opposite direction of the broad market or its competition. The move could be in either direction, but generally occurs as a result of good performance in the face of negative broad market performance. The meaning is often extrapolated out from just asset prices to business and market fluctuations. If a company is recording increased sales while its competitors lose business, that company would be "bucking the trend".
Capitulation
When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling. The term is a derived from a military term which refers to surrender.
Behaviorist
When it comes to investing, people may not be as rational as they think. Behaviorists argue that investors often behave irrationally when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money.
Cheap Money
When money is cheap, it is a good time for borrowers to take on new debt or consolidate existing debts. However, borrowing more than one can afford to repay was one of the primary catalysts of the 2008 recession. Here are a few examples of cheap money: -A credit card with a 0% introductory APR for 12 months -A 30-year fixed-rate mortgage at 4% interest -An auto loan at 0.5% interest
Backtesting
When you backtest a theory, the results achieved are highly dependent on the movements of the tested period. Backtesting a theory assumes that what happens in the past will happen in the future, and this assumption can cause potential risks for the strategy. For example, say you want to test a strategy based on the notion that Internet IPOs outperform the overall market. If you were to test this strategy during the dotcom boom years in the late 90s, the strategy would outperform the market significantly. However, trying the same strategy after the bubble burst would result in dismal returns. As you'll frequently hear: "past performance does not necessarily guarantee future returns".
Accumulative Swing Index - ASI
While most often used for futures trading, it can be used for analyzing the price trends of other assets as well. [vocab] may be used in conjunction with price charts in order to confirm trendline breakouts, because the same trendline would be penetrated in both situations.
Average True Range - ATR
Wilder originally developed the ATR for commodities but the indicator can also be used for stocks and indexes. Simply put, a stock experiencing a high level of volatility will have a higher ATR, and a low volatility stock will have a lower ATR.
adaptive market hypothesis
[vocab] attempts to marry the rational, Efficient Market Hypothesis principles with the irrational behavioral finance principles. The theory states that humans make best guesses based on trial and error. For example, if an investor's strategy fails, he or she is likely to try a different strategy. If the strategy is successful, however, the investor is likely to try it again. [vocab] applies the principles of evolution and behavior to financial interactions. Efficient Market Hypothesis states that it is not possible to "beat the market" because stocks always trade at their fair value, making it impossible to buy undervalued stocks or sell stocks for exaggerated prices. Behavioral finance attempts to explain stock market anomalies through psychology-based theories. [vocab] considers both as a means of explaining investor and market behavior.
Advances And Declines
[vocab] form the basis of analytical tools like the advance-decline ratio, the advance-decline index and the absolute breath index. For example, a low advance-decline ratio can indicate an oversold market, while a high advance-decline ratio can signal an overbought market. Either of these conditions could mean that a market trend has become unsustainable and is about to reverse.
Buying On Margin
ased on creditworthiness and other factors, the broker sets the minimum or initial margin and the maintenance margin that must exist in the account before the investor can begin buying on margin. Maintenance margin refers to the minimum amount of money that must exist in the account before the broker forces the investor to deposit more money. Let's say an investor deposits $10,000 and the maintenance margin is 50% ($5,000). As soon as the investor's equity dips so much as a dollar below $5000, the broker may call the investor and demand that he/she deposit additional money to bring the balance back to maintenance margin level.
