Glossary of Technical
Analysis Terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
- A
- Absolute Breadth Index
The absolute difference between the number of NYSE
advances and declines. Generally, high ABI values suggest market
bottoms, and low ABI values suggest market highs.
absolute value
The value of a number regardless of its sign (also known as
the magnitude of the number). For example, the absolute value of
negative 10 is 10; the absolute value of 10 is 10.
Accumulation/Distribution Indicator
A weighted volume indicator based on the one-day change in
price divided by the current day’s range. Generally, the ADI
moves in the direction of price. For example, if the price drops
on a given day, the volume is deemed negative.
Advance-Decline Ratio
The ratio of NYSE advances to declines and one of the
standard market indicators that can be used to analyze general
market trends. Generally, ADR values above 1.25 indicate
oversold conditions; values below .75 indicate overbought
conditions.
algebraic notation
The most commonly understood method of writing a mathematical
formula. A very simple example is 1 + 1 = 2 . TechniFilter Plus
lets you enter formulas using this familiar method, but performs
the calculation using the faster, more efficient post-fixed
notation method.
arithmetic combiners
Formula-writing tools that perform arithmetic operations
(like multiplication and addition) on two time series to obtain
a result series. A simple formula using an arithmetic combiner
is C + L, which produces a result series in which each entry is
the sum (+) of the close (C) and low (L) for a particular day in
the two original time series. Arithmetic combiners include: +
(addition), - (subtraction), / (division) and *
(multiplication). There are nine arithmetic combiners and nine
logical combiners.
average bands
Bands placed a user-specified percentage above and below a
moving average on a bar or line chart.
Average Directional Movement
The 14-day exponential average of the Directional Movement
Indicator (DX).
Average Directional Movement Rating
The average of Average Directional Movement (ADX) today and
ADX 14 days ago.
Average True Range
The true range of an issue’s price determined by taking an
exponential average of the difference between the higher of
today’s high and yesterday’s close, and the lower of today’s low
and yesterday’s close.
Average True Range bands
Support/resistance lines that mark off an issue’s average
true price range, which is determined by taking an exponential
average of the difference between the higher of today’s high and
yesterday’s close, and the lower of today’s low and yesterday’s
close.
B
backtesting
Testing a strategy on a large historical database to evaluate
its profitability before risking any money.
bar chart
One of chart types produced by TechniFilter Plus. A bar chart
is a graphic representation of an issue’s high, low, close and
open prices. Prices appear on the vertical axis. Time is on the
horizontal axis. For each day, a line is drawn to connect the
high and the low. Closes are represented by ticks to the right
of the high-low bar; opens are represented by ticks to the left
of the bar. When just one time series is charted, a line chart
is produced.
basket test
An open account test that has two main uses: (1) it lets you
buy the top "n" issues from your chosen collection of issues
based on some ranked statistic; and (2) it lets you test a
strategy on a collection of issues. TechniFilter Plus tracks the
basis required to trade the system and uses this number to
compute return. Entry and exit fees are tracked (either fixed or
percentage). On the General tab (Strategy dialog) enter the
basket issues in the Issues to Test box.
bearish
A negative interpretation of the behavior of an equity or the
market as a whole based on a prolonged period of falling prices.
Bearish Pattern
A standard point & figure pattern. This Double Bottom
variation has an added relationship between the previous two X
columns. Namely, the most recent X column must top at a lower
price than the previous X column. The Bearish Pattern, which
occurs less frequently than the Double Bottom, is considered a
stronger bearish signal.
Bollinger Bands
Curves plotted above and below a moving average of prices
using a standard deviation offset. You specify where the bands
should be placed in relation to the average.
boxsize
The dollar amount used to decide where to plot a new X or O
on a point & figure chart. One of the two parameters required to
draw a point & figure chart. The other is reversal.
building blocks
These formula-writing tools are letters that represent a
particular time series in formulas. There are 12 building
blocks. Six represent price time series (e.g., H represents the
high time series in formulas). The rest of the building blocks
represent popular volume indicators (e.g., K represents
On-Balance Volume in formulas.
bullish
A positive interpretation of the behavior of an equity or the
market as a whole based on an extended rise in prices.
Bullish Pattern
A standard point & figure pattern. This Double Top variation
has an added relationship between the previous two O columns.
Namely, the most recent O column must bottom at a higher price
than the previous O column. The Bull Pattern, which occurs less
frequently than the Double Top, is considered a stronger bullish
signal.
buying power
One of two preliminary indicators used to compute the Demand
Index. Buying power tries to measure that part of the trading
volume that comes from buying the issue. This indicator uses
price-movement measurements to weight the volume as either
up-volume or down-volume. Its companion indicator is selling
pressure.
C
candlestick chart
One of the chart types produced by TechniFilter Plus. A
candlestick (or candle) chart clearly displays the relationship
between an issue’s current-day opening and closing prices. A
line is drawn to connect each day’s high price with each day’s
low price and a rectangle (called the candle body) is drawn over
the bar. The height and location of the candle body is
determined by the opening and closing prices. The top of the
body is always at the higher of the open and the close. The
bottom of the body is always at the lower of the open and the
close. A solid black body indicates that the close is lower than
the open. A solid white body indicates that the close is higher
than the open. This simple construction makes it very easy to
see up-days (solid white bodies) and down-days (solid black
bodies).
close
An issue’s last price of the trading day. When recorded over
a length of time, the closing prices form a time series,
represented in formulas by the building block C.
combiners
These formula-writing tools perform mathematical operations
on two time series to compute a third time series (also called
the result series). There are two types of combiners: arithmetic
and logical.
Commodity Channel Index
An indicator that measures how much the current typical price
varies from an average typical price. Typical price is just the
sum of the high, low and close divided by 3. CCI, which
oscillates around zero, can be as large as 250 or as small as
-250. Most of the time it ranges between 100 and -100. When the
indicator is outside of this range, an overbought or oversold
condition exists and you can expect a price correction.
constants
In addition to the 12 building blocks, you can use constants
within formulas. Basically, constants perform the same function
as building blocks, representing a time series in which each
entry is a fixed number. A simple formula using a constant is C
> 50, or "Is the close (C) greater than (>) 50?"
Cumulative Advance-Decline
The running sum of the difference between NYSE advances and
declines. As with any indicator computed as a running sum, the
actual values depend on when the sum begins. CADL signals are
triggered by curve direction and relationships between points on
the curve. Look for divergence between CADL and a market average
(like the Dow Jones Industrials). For example, if CADL is making
new highs but the average is not, the situation is considered
bullish. The opposite divergence is bearish.
Cumulative Volume
A daily sum of the difference between NYSE up-volume and
down-volume. This indicator is usually compared to a market
index, such as the S&P 500, for divergence.
D
Daily Volume Indicator
One of the weighted volume indicators. To calculate DVI,
TechniFilter Plus picks an arbitrary value and, on each
successive day, adjusts the indicator up or down depending on
where that day’s close is located relative to the day’s trading
range. For example, if the price closes nearer to the high price
of the day than to the low price of the day, the volume is
deemed positive. Look for breakouts and divergence between DVI
and price.
Demand Index
A leading indicator to changes in price trends (designed by
James Sibbet). The DI calculation uses volume and price movement
to quantify two ideas: buying power and selling pressure. When
the DI crosses zero, buying power and selling pressure cross. An
up-cross is a buy signal; a down-cross is a sell signal.
Directional Movement Indicator
Directional movement is family of indicators developed by J.
Welles Wilder to study and quantify the strength of trends and
trending issues. Specifically, the Directional Movement
Indicator (DX) combines the values from a Percentage of Uptrend
(+DI) formula and a Percentage of Downtrend (-DI) formula to
measure the strength of a trend. Regardless of direction, the
higher the number, the stronger the trend. Welles Wilder’s
suggested time period is 14 days.
divergence
Two curves are said to diverge when one curve makes a
significant new peak (or valley) but the other curve does not.
Divergence is an important part of many technical indicators.
The following three classic examples all look for divergence
between the price of an issue and an indicator based on the
issue. In each case, divergence usually signals a change in
price trend. They are: price and OBV, price and RSI, price and a
stochastic. Divergence also helps you study market indexes, like
the S&P 500, and market indicators, like the Advance/Decline
Line. You can identify divergence simply by looking at a chart
because your eyes automatically can pick out significant peaks,
often ignoring many smaller peaks in the process. However, it is
difficult to create a computer algorithm that ignores
insignificant peaks. TechniFilter Plus’s solution is the
divergence combiner formula-writing tools.
divergence combiner
Formula-writing tool used to mathematically join two time
series. The divergence combiner looks for four types of
divergence between the two original series, entering either 1,
-1, 2, -2 or 0 in the result series, depending on the type of
divergence found (i.e., positive divergence on the high side,
positive divergence on the low side, negative divergence on the
high side and negative divergence on the low side). 0 indicates
no divergence.
Double Bottom
A standard point & figure pattern. The last column is an O
column that goes below the previous O column. It is the first
indication of a bearish situation. On the day this pattern is
formed, strategies include exiting long positions and entering
short positions. However, you may want to wait for a stronger
bearish pattern before entering short positions.
Double Top
A standard point & figure pattern. The last column is an X
column that exceeds the previous X column. It is the first
indication of a bullish situation. On the day this pattern is
formed, strategies include taking long positions and exiting
short positions. However, you may want to wait for a stronger
bullish pattern before entering long positions.
E
equal test
A type of "fixed" test that lets you invest an equal dollar
amount at each position, which makes it easier to compare test
results among issues that trade in different ranges. The equal
test is similar to the percentage test with the following
difference: In a percentage test, the amount invested in each
position is the initial amount plus or minus prior gains or
losses. In an equal test, the amount invested in each position
is the same.
exponential moving average
A moving average that gives more weight to recent price
values and less weight to earlier price values within its time
span. Unlike the other moving averages, exponential averages use
all available closing price data. The other two moving averages
are simple and weighted.
Ffilter report
A spreadsheet-like technical report that will search through
your database and pick out issues that meet conditions you
specify. Each column in the report can define a condition for
which you want to filter.
flag combiner
One of the formula-writing tools used to join two time series
to form a result series. The flag combiner locates distinct,
nonoverlapping signals, entering 0s (no flag), -1 (flag) or 1
(flag).
floating point values
Numbers that may contain a decimal point.
formula charts
A graphic representation of the results of a selected
formula.
formula set
A collection of formulas grouped together for a strategy or a
filter report.
formulas
Mathematical constructions that identify specific trading
patterns. Some of these formulas are integral parts of
trading systems; others are not tied to any particular system
and interpretation depends on what is being analyzed. You also
can build your own formulas using the three basic
formula-writing tools: combiners, building blocks and modifiers.
futures test
A type of test that mimics how you would normally trade
futures contracts, buying and selling on margin. It considers
leverage, initial margin requirements and maintenance margin
requirements. You enter margin requirements and TechniFilter
Plus tracks the basis required to trade the system and uses this
number to compute return. When a position is opened, the rule
specifies the number of contracts involved. You can make partial
liquidations (specifying a percentage or a specific number of
contracts) or close the entire position. Entry and exit fees are
tracked (either fixed or percentage).
G
geometric volume indicator
A type of volume indicator derived from an iterative
multiplicative calculation. Geometric volume indicators attempt
to track "smart money" in the market. The Negative Volume
Indicator and the Positive Volume Indicator are geometric volume
indicators.
H
hierarchy of operations
Rules that govern the order in which mathematical
calculations are done. In TechniFilter Plus formulas, integer
division and modulus operations are performed first;
followed by multiplication and division, then addition
and subtraction; greater and lesser;
equal and not equal; less than or
equal to and greater than or equal to; greater
than and less than; and and or; flag
and divergence.
high
An issue’s highest price of the day. When recorded over a
length of time, the high prices form a time series, represented
in formulas by the building block H.
horizontal lines
A support/resistance line that you can plot at your specified
price level. For example, draw support lines at a recent low
price and resistance lines at a recent high.
I
individualized report
In the standard filter report, all the issues use the same
column formulas. In an individualized report, each issue could
use a different number as the parameter. To create an
individualized report, you first go through the steps to create
a standard report, then you individualize the formulas by
changing parameters.
integer division
One of the formula-writing tools used to mathematically join
two time series to form a result series. For each day in the two
original time series, the integer division combiner enters a
nonfractional value in the result series.
J
Julian dates
Day counts. For example, if today has Julian date 25001, then
tomorrow has Julian date 25002.
L
least-squares-fit lines
Unique straight lines that best approximate the values
(highs, lows, etc.) under study. Lines with an upward slope
bullish, while lines with a downward slope are bearish. LSF
lines are also called linear regression lines. (Technically, LSF
are not support/resistance lines, although they are often
grouped with those analytic tools.)
linear price scale
On a chart, this scale type shows distances between moves
based on actual dollar changes.
logical combiners
Formula-writing tools that answer some true or false question
(such as "Did the price rise?") for a time series. The result is
another time series made up of 0s and 1s, which are called truth
values (1 for true and 0 for false). Often, we’ll use logical
results in an arithmetic manner, such as adding up the 1s and 0s
to find out how many times an event is true or false. There are
nine logical combiners, including: > (greater than), < (less
than), = (equal to) and < > (not equal to). A simple formula
that uses a logical combiner is C > Y1, or "Did the price (C)
rise (>) from yesterday (Y1)?" There are also nine arithmetic
combiners.
low
An issue’s lowest price of the day. When recorded over a
length of time, the low prices form a time series, represented
in formulas by the building block L.
M
maximum location
A formula-writing tool that produces a time series in which
each typical entry is the number of days since the largest value
of the original series over the most recent n days. In other
words, the number of days since the maximum occurred.
maximum modifier
A formula-writing tool that picks the largest value over the
given number of days. It produces a time series in which each
typical entry is the largest value of the original series over
the entire range of loaded data or over the most recent n days
(including the current day).
McClellan Oscillator
An overbought or oversold technical indicator. MO values
below 20 are oversold, and values above 70 are overbought. When
the oscillator breaks up across zero, it is bullish for stocks;
the opposite break is bearish.
McClellan Summation Index
A running sum of the McClellan Oscillator. MSI breaking above
zero is bullish. MSI breaking below zero is bearish.
minimum location
A formula-writing tool that produces a time series in which
each typical entry is the number of days since the smallest
value of the original series over the most recent n days. In
other words, the number of days since the minimum occurred.
minimum modifier
A formula-writing tool that picks the smallest value over the
given number of days. It produces a time series in which each
entry is the smallest value of the original series over the
entire range of loaded data or over the most recent n days
(including the current day).
modified series
A type of time series resulting from the action of one of the
modifier tools. The modified series gets its values from the
original series through some calculation or algorithm as defined
by the modifier used. There are more than 40 modifiers,
including time offset, relative strength, standard deviation,
extreme values and summation.
modifiers
Formula-writing tools that use a calculation or algorithm to
change the values in an original time series to create a new,
modified time series. There are more than 40 modifiers,
including time offset, relative strength, standard deviation,
extreme values and summation. For example, CY2 produces a
modified series in which each entry is the value of the close
series two days ago. That is, today’s value of CY2 is the value
of C two days ago. Y is the time-offset modifier. C is the
building block that represents the close time series.
modulus operator
This integer division companion combiner yields the integer
amount that remains following an integer division operation. It
is often called the remainder operator.
Money Flow Index
A volume indicator that combines the ideas of positive and
negative volume with the RSI calculation. Money flow is defined
as the typical daily price times today’s volume. This quantity
is tracked from day to day, and averages of up-money flow days
and down-money flow days over some specified period of time are
computed. MFI is defined as the percentage of the total money
flow that is up.
moving average
A succession of individual averages for an issue’s price over
a given time period. Averaging techniques take into account
several entries in the original time series; which means that
the influence of a single entry from the original series on a
single entry in the modified series is reduced. The modified
series, therefore, produces a smoother graph than the original
series. For this reason, averaging is sometimes referred to as
smoothing. Five basic moving averages:
simple, weighted, exponential, centered and geometric.
multiline formulas
A series of referenced formulas treated as one formula, with
the last formula in the series defining the value of the
multiline formula. Prior formula reference usually plays a part
in the final computation. In effect, multiline formulas let you
break complex calculations into a series of more simple
calculations, which can help you translate your more intricate
analytic ideas into a form that your software can use. You
also can create recursive multiline formulas.
N
named formula reference
You can refer to a standard formula by name within a formula
body using the format: name(param). For example, in the Formula
box on the Custom Formula dialog, you would enter a reference to
the One-Day Acceleration formula as: Accel(CA30). When
referenced in this way, the named formula serves the same
function as a building block, and you can use other
formula-writing tools to compute, for example, moving averages
of named formulas. You must include the parameter parentheses
even for formulas that do not have parameters. Simply use a pair
of parentheses with nothing inside. You cannot use point &
figure, recursive or multiline formulas in this way.
negative divergence
When Curve 1 is making new lows or new highs but Curve 2 is
not.
negative volume
Negative volume implies that current market activity will
make the price of the issue decrease, which is a bearish sign.
Negative volume exists when money is moving out of the stock.
Technicians also use the term distribution for negative
movement.
Negative Volume Indicator
A geometric volume indicator that measures price movement on
days that the volume has declined, beginning at an arbitrary
value of 100. The value of NVI only changes if the volume
declines. If the volume declines, the new value of the indicator
is 1 times the old value of the indicator plus the percentage
change in price. It is bullish for NVI to be above its long-term
average because that situation indicates that, in the long run,
smart money is entering the issue.
O
On-Balance Volume Indicator
A weighted sum of volume where the weights are 1 (bullish
volume) or -1 (bearish volume). The simplest method of
determining bullish volume and bearish volume is to check the
price. If today’s close is higher than yesterday’s close,
consider today’s volume positive. If today’s close is lower than
yesterday’s close, consider today’s volume negative. If you keep
a running tally of positive volume minus negative volume, you
get the volume indicator known as On-Balance Volume, or OBV. In
formulas, you can use the building block K to represent OBV.
open
The price at which an issue begins trading. When recorded
over a length of time, the open prices form a time series,
represented in formulas by the building block O.
Open 10 Trading Index
A modification of the Short-term Trading Index (TRIN). 10TRIN
uses 10-day sums of the components, instead of just the
components (which are used in the TRIN calculation). Values
above 1 are bearish; values below 1 are bullish.
open interest
The number of outstanding futures contracts. When recorded
over a length of time, the open interest values form a time
series, represented in formulas by the building block I.
optimizing
Varying parameters in a test to see which variation would
have been the most profitable. You are, in effect, asking "What
if...?" "What if I changed the time period of this average?"
"What if I used a simple average instead of a weighted average?"
"What if I calculated over a different length of time?" The goal
is to see if one variation might be more profitable than
another-which variation is optimal. You can optimize signals and
formulas that use parameters.
overbought
An unstable pricing situation for a security or a market.
There has been an unexpectedly sharp price rise and a price drop
(or correction) is expected.
oversold
An unstable pricing situation for a security or a market.
There has been an unexpectedly sharp price decline and a price
rise is expected.
P
parallel lines
Support/resistance lines that define an area of trading
activity, known as a linear trading band. The lines can be drawn
parallel to trendlines, horizontal lines and least-squares-fit
lines.
parameters
The most commonly used parameters are parts of formulas or
signals that you may need to change, like time periods, time
series or some other fixed values. When used in this way, they
simplify formula and signal variation, letting you quickly and
easily change elements without editing the formula or signal
body. (For example, parameters are required for optimizing
strategies and for individualized reports.) You can have up to
nine parameters in formulas. Parameter locations are marked with
placeholders (&1, &2, &3,…, &9). There also are two special
instances where parameters do not follow the rules described
above. One type is used in point & figure formulas; the other in
basket tests. Point & figure formulas require two parameters: a
boxsize and reversal, which do not use corresponding
placeholders in the formula body. For basket tests, a special
stop item (RankScore) requires that you specify a formula number
as a parameter. This formula parameter does not require a
matching placeholder in the signal body.
peak
A peak is defined as a point on the curve that is higher than
the point to its immediate right, and at least as high as the
point to its immediate left. Making a succession of higher price
peaks is a bullish signal. One way to identify higher peaks is
to look at the slope of the trendline determined by the peaks.
If the slope is up, the peaks are rising. If it is down, then
they are falling.
percentage test
A type of test that mimics how mutual funds are traded,
letting you trade a closed system that starts with a fixed
amount of money. The test then tracks the profit from this
investment. When a position is open, the entire balance in the
account is encumbered and no new position can be taken. Entry
and exit fees are tracked (either fixed or percentage). You can
specify an interest rate to be paid on the account while it is
not invested. Because percentage tests start with a fixed dollar
amount and do not allow money to be added, the ending balance
can be used to quantify performance.
placeholders
Characters used to hold up to nine parameter locations within
formulas and signals. The placeholders are &1, &2, &3, &4, &5,
&6, &7, &8, &9. (Point & figure formula parameters do not
require matching placeholders in the formula body.)
point & figure chart
One of the chart types produced by TechniFilter Plus. A point
& figure (P&F) chart consists of alternating columns of Xs
(increasing prices) and Os (decreasing prices). When demand
overwhelms supply, you see a price rise revealed by a breakout
to the upside, graphically shown as a long column of Xs. When
supply exceeds demand, you see a price drop revealed by a
breakout to the downside, graphically shown as a long column of
Os. Unlike other charts, time is not a factor.
point & figure formulas
Logical formulas designed to search for point & figure
patterns. They require two parameters: a boxsize and a reversal.
P&F formulas return a 1 for any day the formula is true and
a 0 for any day the formula is false. To override this default and use another time
series, you must insert a special line as the first line in your
P&F formula.
positive divergence
When Curve 1 is making new highs or lows but Curve 2 is not.
positive volume
Positive volume implies that current market activity will
make the price of the issue increase, which is a bullish sign.
Positive volume exists when money is moving into the stock.
Technicians also use the term accumulation for positive
movement.
Positive Volume Indicator
A geometric volume indicator that measures price movement on
days that the volume has increased, beginning at an arbitrary
value of 100. The value of PVI only changes if the volume
increases. If the volume increases, the new value of the
indicator is 1 times the old value of the indicator plus the
percentage change in price. It is bullish for PVI to be above
its long-term average because that situation indicates that, in
the long run, smart money is entering the issue.
post-fixed notation
A method of writing a mathematical formula that offers
straightforward calculations of very complex formulas.
Some software lets you enter formulas using the familiar
algebraic method, but performs the calculation using the faster,
more efficient post-fixed notation method.
Price/Volume Trend
A weighted sum of volume where the weights are the percentage
change in price. PVT is a variation of the cumulative volume
theme. In this case, PVT is adjusted by a percentage of the
volume and is interpreted in much the same way as OBV. OBV makes
the assumption that the day’s volume is either all positive or
all negative. PVT adds or subtracts a percentage of the day’s
volume. In formulas, you can use the building block P to
represent PVT.
prior formula reference
When working with a collection of formulas (like in a
strategy or report), later formulas sometimes will depend on
earlier formulas. When this happens, it is more efficient to
refer to the prior formula rather than rewrite it. When you want
to use a prior formula, place its formula number inside square
brackets, [ ]. When a formula number is enclosed within square
brackets, it serves the same function as a building block.
R
recursive formulas
Formulas that derive their current value from the previous
value of the formula. As a result, recursive formulas must be
computed every day because you need to know yesterday’s value to
get today’s value. For example, exponential averages are
recursively defined formulas. Today’s value of a 10% exponential
average is 10% of today’s price plus 90% of yesterday’s
exponential average value. Recursive formulas begin with an
initial value (perhaps the close) and hold the recursion values
each day thereafter.
Relative Strength Index
An indicator created by J. Welles Wilder that measures the
internal strength of a price curve by determining how much of
the recent price movement is up-movement ("recent" depends on
the parameter n). The calculation returns a number between 0 and
100.
result series
A type of time series. When two time series are combined
through a mathematical operation, a result series is formed.
reversal
An integer used to decide when to change columns in a point &
figure pattern. The reversal is one of the two parameters
required to draw a P&F chart. The other is boxsize.
S
selling pressure
One of two preliminary indicators used to compute the Demand
Index. Selling pressure tries to measure that part of the
trading volume that comes from selling the issue. This indicator
uses price-movement measurements to weight the volume as either
up-volume or down-volume. Its companion indicator is buying
power.
semilog price scale
On a chart, this scale type shows distances between moves
based on percentage changes. Semilog scales show price moves of
the same percentage the same physical distance on the chart,
regardless of the actual price.
Short-term Trading Index
The quotient of the ratio of NYSE advances to declines
divided by the ratio of up-volume to down-volume. TRIN values
above 1 are bearish, and values below 1 are bullish.
simple moving average
A moving average that gives equal weight to each price value
in its time span. For example, if the closing prices of a
particular stock have been recorded for the last 12 trading
days, then the average closing price of the 12-day span is the
sum of the 12 prices divided by 12. By calculating this simple
average, you can determine if the price is above or below its
average value over the last 12 days. The other two moving
averages are weighted and exponential.
Smoothed Short-term Trading Index
An overbought or oversold indicator similar to Zwieg’s
Breadth Thrust Indicator. STIX high values are bullish; low
values are bearish.
speed-resistance lines
Line segments drawn at an angle from the starting point of a
trendline. They represent support when an up-trendline is broken
and resistance when a down-trendline is broken.
spread-type analysis
Taking a long position on one issue and a short position on a
second issue, buying and selling both at the same time. You take
profit based on the difference (i.e., the spread) between the
two positions; you don’t really care about actual contract
prices. Generally, spread trading (also called straddling) is
less risky than trading actual contract prices because you are
both long and short at the same time. As a result, it is also
less profitable.
standard deviation
A measure of how much the numbers in a modified series vary
from the arithmetic mean (simple average) of the numbers. Think
of it as a measure of dispersion, or volatility, of the modified
series.
stochastics
A family of overbought/oversold indicators based on position
in range. The curves produced reflect where the current price is
in relation to the trading range over a period of time. The
values vary between 0 and 100. Values above 80 are overbought,
and values below 20 are oversold.
stock test
A type of test that mimics how common stocks are traded,
buying and selling in fixed-share blocks. In each transaction,
you buy or sell a number of shares, paying or receiving the
total cost of each purchase or sale when it takes place,
including any commissions. When a position is opened, the rule specifies the number
of shares involved. You can make partial liquidations based on a
percentage or a specific number of shares, or close the entire
position. Multiple positions are allowed. Entry and exit fees
are tracked (either fixed or percentage).
strategy
A plan or system for making trading decisions. Strategies
consist of formulas, which are technical indicators; signals,
which define logical relationships among the formulas; and
rules, which tell TechniFilter Plus how to manage the trading
process.
Strong Double Bottom
A standard point & figure pattern. This Double Bottom
variation has an extra condition placed on the relationship
between the tops of the last two O columns. Namely, the last O
column must top at the same level as the previous O column. The
Strong Double Bottom, which occurs less frequently than the
Double Bottom, is considered a slightly stronger bearish signal.
Strong Double Top
A standard point & figure pattern. This Double Top variation
has an extra condition placed on the relationship between the
bottoms of the last two X columns. Namely, the last X column
must bottom at the same level as the previous X column. The
Strong Double Top, which occurs less frequently than the Double
Top, is considered a slightly stronger bullish signal.
support/resistance lines
Straight lines constructed from past trading patterns. A
support line designates a price level above which an issue’s
price is expected to remain. A resistance line designates a
price level below which an issue’s price is expected to remain.
After a support or resistance line is breached, it often changes
to the opposite designation. For example, in the case of a
support line breakout, some buyers at the support level could
have been left holding stock that they would rather be without.
So, when the price returns to this level, they become willing
sellers. In the case of a broken resistance line, buyers who
missed the initial breakout remain willing to buy when the price
returns to the previous resistance level, thus making it a
support line.
Swing Index
Using the high, low, close and open on two consecutive days,
this indicator attempts to determine the "real" market price of
a security by measuring the price swing.
syntax
The structure of a software formula. To create a
valid formula, you must be familiar with the
parts of a formula (e.g., building blocks, modifiers) and how
they must be arranged.
T
tilde expressions
To use a fixed issue in a TechniFilter Plus formula, you
enclose the issue’s symbol within tilde expressions, ~< and >~.
For example, to compute the relative strength of an issue to the
S&P 500 index (symbol SPX), you could use the formula ((
C/~<SPX>~)/TY00)*100. This formula takes the issue’s close, and
divides it by the close of SPX. The result then is divided by
the quantity at the beginning of the time series. Finally, the
ratio is multiplied by 100.
time series
When recorded over a length of time, each pricing element
(high, low, close, open, open interest, volume) determines its
own time series. There is also a family of technical indicators
that combine price and volume to form new time series known as
volume indicators. You study time series using formulas designed
to identify specific technical patterns. Each time series is
represented by a single letter known as a building block, one of
the three formula-writing tools (e.g., the high time series
building block is H; the On-Balance Volume building block is K).
The other formula-writing tools are combiners and modifiers.
T-operator
A special building block that represents the most recently
computed quantity within the current formula. For example,
(H+L+C)/TY10 is the ratio of (H+L+C) to the same value 10 days
ago. The T represents the quantity on the other side of the
combiner, a division sign. (H+L+C)/TY10 evaluates the same as
(H+L+C)/(H+L+C)Y10, but without the T-operator the H+L+C
calculation must be done twice. In recursive formulas, T refers
to the result time series. So, TY1 is the previous day’s result.
trendlines
Diagonal support/resistance lines that indicate upward or
downward price movement. Support trendlines are drawn below the
issue’s price and trend upward. Resistance trendlines are drawn
above the issue’s price and trend down. Breakthrough of either
trendline, particularly on large volume, is a signal that the
trendline is no longer viable.
Triple Bottom
A standard point & figure pattern. The most recent column is
an O column that is lower than the previous two O columns.
Because it takes five columns to form, it is considered a
stronger bearish signal than the Double Bottom, the Strong
Double Bottom and the Bear Pattern formations.
Triple Top
A standard point & figure pattern. The most recent column is
an X column that exceeds the previous two X columns. Because it
takes five columns to form, it is considered a stronger bullish
signal than the Double Top, Strong Double Top and Bull Pattern
formations.
U
units
A generic term used to refer to individual blocks of time in
your data, since you could be following the issue daily, weekly,
monthly or quarterly. Sometimes we use the phrase time units.
utility functions
A family of modifiers used for a variety of analytic
functions such as absolute value, log, exponential, sine, cosine
and extreme values. The parameter (0 through 99) determines
which function is applied to the original series. Many
calculations for the U-modifiers can be done using logical
combiners such as > and <. Among other things, U-modifiers make
it possible to count and to determine where curves cross.
Vvalley
A point on the curve that is lower than the point to its
immediate right and at least as low as the point to its
immediate left. Making a succession of lower price valleys is a
bearish signal. One way to identify lower valleys is to look at
the slope of the trendline determined by the valleys. If the
slope is down, the valleys are falling. If it is up, then they
are rising.
vertical lines
A line tool that lets you see price values as you move the
line across a displayed chart.
volume
The daily total of shares bought and sold. When recorded over
a length of time, the volume figures form a time series,
represented in formulas by the building block V.
volume indicators
A family of technical indicators that combine price and
volume to form time series that can be used in formulas. In
theory, volume leads price, so you should be able to predict
where price is going by examining volume. Volume indicators try
to capitalize on this belief. In formulas, On-Balance Volume is
a volume indicator represented by the building block K .
volume spike
Unusually large volume, graphed on a bar chart as a spike. To
locate volume spikes, you compare a single day’s volume to
average volume. If one day’s volume is two to three times the
average volume, it will appear as a spike. Unusually large
volume often foreshadows a major change in price trend.
W
weighted moving average
A moving average that gives more weight to recent price
values and less weight to earlier price values within its time
span. The time span must be less than (or equal to) the number
of units read from disk. The other two moving averages are
simple and exponential.
weighted volume indicator
A type of volume indicator formed by looking at a running sum
of volume multiplied by some quantity that depends on price. The
multiplier (the weight) denotes how bullish volume and bearish
volume is defined for the particular indicator. The built-in
weighted volume indicators include On-Balance Volume, Price
Volume Trend, Accumulation Distribution Indicator and Daily
Volume Indicator.
Zzigzag functions
A family of modifiers that look for major moves in a time
series and ignore the moves that you have deemed insignificant
with the parameter. For example, the time series HZ5 is based on
the high price time series and ignores moves of less than 5%. To
compute HZ5, TechniFilter Plus looks through the high curve,
marking peaks and valleys that are at least 5% apart. Generally,
the Z-modifier works with major moves and ignores minor curve
fluctuations, making it especially useful in divergence studies.
Zwieg’s Breadth Thrust Indicator
The 10-day average of the ratio of NYSE advancing issues to
the sum of advancing issues and declining issues. (Also known as
BTI.)
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