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Glossary

Short Interest: The amount of outstanding short sales in shares.

Short Term: A time frame determined by the price swings within an intermediate-term move. A correction to an intermediate-term uptrend would be a short-term downtrend. For our purposes, 1 to 10 days. For tax purposes, less than 12 months.

Sideline Bar & Grill: A comfortable place from which one can observe the action without being involved. For example, cash during a period of transition or volatility. A favorite haunt of the trading-floor cynic.

Simple Moving Average: The most common type of moving average. Each period receives equal weighting. Along with the trend line, the most basic of technical tools.

Slippage: The difference between the price you wanted and the price you got. A major drag on performance. See Transaction Costs.

Spike Top: A top that stands alone, characterized by a sharp advance and a sudden, sharp decline without any warning.

Square Root Rule (SRR): A rule attributed to Fred Macauley that suggests that for a given move in the market, prices of individual stocks will move by an amount such that their square roots will change by equal amounts. This implies that lower-priced stocks will be more volatile that high-priced issues.

Standard Deviation: A mathematical measure of volatility that measures deviations from an average, a. The basis of the Bollinger Bands.

Stochastic: A measure of where we are in percentage terms in the previous n-day trading range. A 10-day stochastic of 70 would say we are 70 percent of the way from the lowest low to the highest high of the previous 10 days trading.

Stock: A share in the ownership of a company that can be traded on a securities exchange. The trading-floor cynic notes that a stock is not to be confused with the company itself.

Stubbornness (Stupidity): The concept of selling only when you can get out whole. As contrasted to being smart and saving as much capital as you can by exiting a losing trade and looking for a more profitable opportunity.



Glossary

Support: An area where declines halt and are reversed. Support is often associated with perceived value. The opposite of resistance.

Technical Analysis: An analytical approach based on the belief that price reflects all that is knowable about a security at any given time. Therefore, the price structure itself is the best source of data for forecasting future prices.

Technical Indicators: Usually mathematical constructs of price, volume, or other factors that serve to illuminate decision making. Typically focused on the balance between supply and demand.

The Squeeze: A period of reduced volatility that leads to a period of increased volatility. A six-month low in volatility serves as a Squeeze alert.

Tick Volume: The number of price changes or price postings in a day or any given period.

Time Frame: Time frames are centered on the time horizons you actually trade, which we refer to as the intermediate-term time frame. For us, it is approximately 20 days. The intermediate time frame is bracketed by two other time frames, short term and long term. The short-term time frame is the one in which you execute trades. The long-term time frame provides the background for your market operations. Old-time technicians thought of short term as the action on day charts, intermediate term as the action on weekly charts, and long term as the action on monthly charts. Today a trader using five-minute bar charts might think of intermediate term as a half hour. Time frames are entirely dependent on your reference. Whatever the reference, you should always pay attention to the time frames that bracket your intermediate-term plan.

Top: An area on a price chart that leads to an important decline. Usually the highest point achieved in recent times.

Trading Bands: Intervals constructed around the price structure that provide a relative framework for price analysis and/or the interpretation of indicators.

Trading-Floor Cynic: A wise, but rather cynical, conduit of market fact, fiction, intelligence, lore, and rumor.



Glossary

Trading Range: A price range in which trading has been confined for an extended period. Generally sideways in character, but a given range may rise or fall over time. Trading ranges can be consolidation patterns leading to a continuation of the prior move. They can also be reversal areas, in which case they are identified as bottoms or tops. The techniques an analyst employs within a trading range are quite different from those employed in a trending market. For example, oscillators such as RSI are useful in identifying reversals at the top or bottom of a trading range, but are less applicable when the market is trending. In trending markets, trend-following approaches such as moving averages or regression channels are more useful.

Transaction Costs: The cost of doing a trade-primarily slippage and commissions.

Trap: A series of circumstances and/or price movements that cause one to take the wrong position. An example of a bull trap is a breakout to the upside that convinces you prices are going higher, but is followed by a sharp decline. A bear trap is the inverse, a sag to a new low followed by a strong advance.

Trend: The overall direction of the item being considered.

Trend Line: A line drawn on a chart to help determine the trend of the item being charted. Typically connecting important highs or lows.

Triangle: A congestion pattern during which volatility steadily

diminishes. TRIN: See Arms Index.

Typical Price: A measure of the average price recorded during a given period. Often a better characterization than the close. The formula is (high + low+ close)/3 or (open + high + low + close)/4.

Upside: The maximum expected advance in price over a given horizon, usually considered in a risk-reward evaluation. See Downside.

Uptrend: A period of steadily higher prices.

Velocity: The rate of change of price. Used most often to recognize

a change in trend prior to a reversal formation coming into

being. See Rate of Change.



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