Glossary of Technical Analysis Terms

Jun 17, 2011

Written by:
Al Hill

Technical analysis is a means of being secure as a trader in the stock market. It provides the discipline on how to be able to predict movement in prices by studying past market data on price and volume.

Alpha-Beta Trend Channel: This gives a measure of the profit derived from investing riskily on a fund. When positive, it indicates that the profit is higher than the risk taken.
Arms Ease of Movement: This is a tool that tries to measure the ease at which prices of stocks in the market will rise or fall by comparing current prices with volume.
Average True Range: This measures the periodic changes in the prices of securities
Bollinger Bands: This is a technical analysis tool that is used to measure the degree of changes in price of securities when compared with previous prices.

Candlestick Charts: A tool used to understand present prices and predicting future price actions. By the understanding of this, the trader knows when best to buy and sell, thereby making more profits in his transactions.

Chaikin Oscillator: This tool is used to analyze how the flow of money and price action interact by measuring the final price of securities at the end of each day’s trading and comparing it with the high and low prices of securities that were encountered during the day’s trading.

Commodity Channel Index: This is used to know when the prices of securities have risen either very high or very low within a very short period of time. It helps the trader to know when currencies will suffer a pullback. Hence, it helps in effectively managing cyclical trends.

Commodity Selection Index: This is a tool that helps the trader in knowing commodities that are suitable for short term trading. Commodities of this kind are highly volatile and can give quick gains for lesser risks on investments.

Cutler’s RSI: This is used to find out conditions where securities have either been overbought or oversold.

Demand Aggregate: This is the total amount of stocks demanded in the market.

Demand Index: This tool is used to predict future prices on securities by combining price and volume. Most times, the volume tends to get to the peak before prices do.

Detrend: This is eliminating the impact of time on a trend by using retrogression and other statistical techniques to make it easier to predict likely cyclical patterns.

Directional Movement Index: This tool is used to know if an instrument is giving a trend or not.

Elliott Wave Theory: This states that the stock market can be well predicted by understanding patterns of waves (that repeat themselves).

Fibonacci Ratios and Retracements: This is used to predict where and when favorable and unfavorable conditions will be encountered. This can be done by dividing the vertical distance of two extreme positions on the stock market chart by Fibonacci ratios. The ratios are commonly used as 23.6%, 38.2%, 50%, 61.8% and 100%.

Gann Square: This method is used to predict future support or resistance levels by counting from the origin. The origin is the price at which the instrument is always low or high..

Haurlan Index: This is an indicator that is used to measure the size of the market.

Head and Shoulder Pattern: This is a description of the pattern a chart can achieve when it rises and falls abruptly. This happens if the chart rises first to a very high position then falls back very rapidly, rising again the second time to a point higher than the first rise and then falling again sharply. Finally, it rises again but this time, not as high as the second one. The resulting chart will look like a head and shoulders by the combination of the first and third rise (the shoulders) and the second rise (the head).

Herrick Payoff Index: This compares the relationship among daily changes in price, volume and open interest to know the amount of money flowing into or out of a futures contract.

Kagi Chart: This is a chart used in determining price movements so that a trader can know when best to buy stocks. It differs from candlestick chart in that it is independent of time.

MACD (Moving Average Convergence/Divergence): This is an Absolute Price Indicator. That is, it shows the relationship between two moving price averages (a fast and a slow Exponential Moving Average) by taking the difference of their prices.

McClellan Oscillator: A tool used for short and intermediate term trading. It measures the rate at which money enters or leaves the market. The results are used to determine overbought and oversold conditions in the stock market.

Momentum: This is the rate of change in price of stocks.

Moving Averages: This is a technical analysis tool that helps the trader know an average value of the price of a security for a defined period of time. It is best suitable for a volatile market.

Norton High/Low Indicator: This tool picks bottoms and highs on long term price charts. In doing this, it combines results obtained from the Demand Index and Stochastic study.

Notis %V: This is used to measure how volatile or inconsistent the market is by dividing the market into two parts: The downward (DVLT) and the upward (UVLT) parts using its two separate indicators.

On Balance Volume: This uses cumulative total volume in the market and price changes to detect momentum.

Parabolic: This is a strategy that uses the reverse method known as “SAR” (Stop –And-Reversal). It states that if stock trading is below the parabolic SAR, one can sell. But buying is rather encouraged if the stock market is above the parabolic SAR.
Point and Figure Charts:
This chart provides daily changes in price so that the investor can know the present stock prices as well as become able to use emerging trends to know when to buy or sell securities.

Price Patterns: This is a way of analyzing the stock market to know whether prices of security have risen, fallen or remained stable. A rising price pattern occurs when there are more buyers than sellers. A falling price pattern occurs when there are more sellers than buyers. Finally, a stable price pattern occurs when the number of buyers and sellers are equal.

Random Walk Index: This is a tool that tries to find out the cause of changes in price of securities. It tries to explain if the changes in price are following a trend or if they are just random (without a defined direction).

Rate of Change: This is a momentum oscillator that expresses the change in price of stocks as ratios or percentages by comparing current and previous prices.

Relative Strength Index: This is a tool used to analyze the strength of the market by comparing the closing prices at the end of a trading period. In summary, it states that in a strong market, prices will close higher while in a weak market, prices will close lower.

Renko Chart: This chart disregards the changes in time and volume as it measures price movement.

Stochastic: This is a momentum indicator that compares the closing price of a security to the security’s price range over a certain period of time. When the current price is above the high range, it indicates that there is buying pressure while a selling pressure is indicated when it is near the low range.

Stoller STARC Bands: STARC means Stoller Average Range Channels. It is used to give meaning to the volatility of a market by using the Average Time Range (ATR).
Swing Index:
This compares previous prices of a security in a particular period of study with the current prices to know what the actual price of the security might be.

Time Cycles: The knowledge of this helps the investor to be successful in trading. It helps to know how the market is likely going to move.

Trading Index: This is an indicator that explains whether the market is bullish or bearish.

Trix: This means Triple Exponential Average. It is used to show markets that have been overbought or oversold.

Volume Accumulation: This is a tool used to modify results from On Balance Volume Tool. It gives a more accurate and precise value of a day’s volume by expressing only a percentage of it as positive or negative.


Commodity Futures

Do Higher Coffee Futures Prices Hurt Starbucks Stock Price?

When the price of coffee futures fell more than half from the peaks of $137 in August 2015, the benefits of lower coffee prices were passed on by most of the merchants. Starbucks was however the...

4 Strategies for Day Trading Morning Gaps with E-Mini Futures

Gap trading can be one of the simplest of technical trading approaches to day trade the futures markets. Gaps are a common phenomenon in the stock markets where the pre-market and after hours markets...

Commodity Futures

How Does the Price of Gold Affect Gold Stocks?

Gold Bars Gold, also known as the precious metal or yellow metal is one of the most well known commodities to mankind. Gold finds its uses from industrial and manufacturing to personal jewelry and...