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Author Topic: Glossary Of Technical Analysis and Trading Terms  (Read 5428 times)
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Dr PennyStock
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« on: April 16, 2008, 12:15:57 PM »

ACCUMULATION - The act of buying more shares of a security without causing the price to increase significantly. After a decline, a stock may start to base and trade sideways for an extended period. While this base builds, well-informed traders and investors may seek to establish or increase existing long positions. In that case, the stock is said to have come under accumulation.


ADX - (Average Directional Index): Part of the Directional Movement Indicator system developed by J. Welles Wilder, the ADX line is based on the spread between the +DI and -DI lines from that same system.

ADX is one of the most powerful and reliable technical indicators. The indicator gives a basic buy signal when  +DI (green) cross above –DI (red), and the reverse for a sell.  The signal is that much more potent if the ADX line is (or soon after) begins trending up.  If you go to stockcharts.com, you'll find the color coding I've mentioned. ADX gives a somewhat late signal, but it is typically very reliable.  I like to filter it with other tools such as MACD and RSI.The more technical messages you see that are saying the same thing, the more successful your trade is likely to be.

J. Welles Wilder developed the Average Directional Index (ADX) to evaluate the strength of a current trend, be it up or down. It's important to determine whether the market is trending or trading (moving sideways), because certain indicators give more useful results depending on the market doing one or the other.

The ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend and high readings, above 40, indicate a strong trend. The indicator does not grade the trend as bullish or bearish, but merely assesses the strength of the current trend. A reading above 40 can indicate a strong downtrend as well as a strong uptrend.

ADX can also be used to identify potential changes in a market from trending to non-trending. When ADX begins to strengthen from below 20 and moves above 20, it is a sign that the trading range is ending and a trend is developing.

When ADX begins to weaken from above 40 and moves below 40, it is a sign that the current trend is losing strength and a trading range could develop.

Positive/Negative Directional Indicators:

The ADX is derived from two other indicators, also developed by Wilder, called the Positive Directional Indicator (sometimes written +DI) and the Negative Directional Indicator (-DI).

In its most basic form, buy and sell signals can be generated by +DI/-DI crosses. A buy signal occurs when +DI moves above -DI and a sell signal when -DI moves above the +DI. Be careful, though, when a security is in a trading range, this system may produce many whipsaws. As with most technical indicators, +DI/-DI crosses should be used in conjunction with other aspects of technical analysis.

The ADX combines +DI with -DI, and then smooths the data with a moving average to provide a measurement of trend strength. Because it uses both +DI and -DI, ADX does not offer any indication of trend direction, just strength. Generally, readings above 40 indicate a strong trend and readings below 20 a weak trend. To catch a trend in its early stages, you might look for stocks with ADX that advances above 20. Conversely, an ADX decline from above 40 might signal that the current trend is weakening and a trading range is developing.


ALL OR NONE - A type of order issued to a broker by a buyer or seller to fill the order completely or not at all. There are no partial transactions.


ASCENDING TREND CHANNEL - An ascending line that connects the bottoms of the down waves and is parallel to a trendline. The ascending channel line and the trendline form borders on an uptrend.


ASCENDING TRIANGLE - A sideways price pattern between two converging trendlines in which the lower line is rising while the upper line is flat. This is generally a bullish pattern.


ASK - Also known as the "offer", the price that the market maker guarantees to fill a buy order. A buy order placed at the market will usually be filled at the current asking (offer) price. The ask price is usually greater than the bid price.


BEAR TRAP - A situation that occurs when prices break below a significant level and generate a sell signal, but then reverse course and negate the sell signal, thus "trapping" the bears that acted on the signal with losses.


BID - The price at which the market maker guarantees to fill a sell order. A sell order placed at the market will usually be filled at the current bid price. The bid price is usually less than the ask price.


BREAKOUT - Price of a security emerging from a previous trading pattern. The new price "breaks out" above the high (or below the low) trading pattern lines that enclose all other prices for that security in the preceding period. Breakouts are used by technical analysts to predict substantial upside or downside movement.


BULL TRAP - A situation that occurs when prices break above a significant level and generate a buy signal, but suddenly reverse course and negate the buy signal, thus "trapping" the bulls that acted on the signal with losses.


BUYBACK - A company's repurchase of it's own shares of stock.


BUY SIGNAL - A condition that indicates a good time to buy a stock. The exact circumstances of the signal will be determined by the indicator that an analyst is using. For example, it's considered a buy signal when the MACD crosses above its signal line.


CANDLESTICK CHART - A form of Japanese charting that has become popular in the West. A narrow line (shadow) shows the day's price range. A wider body marks the area between the open and the close. If the close is above the open, the body is white (not filled); if the close is below the open, the body is black (filled).


CHANNEL - When prices trend between two parallel trendlines, this is referred to as a channel.


CHANNEL LINE - A straight line drawn parallel to the basic trendline. In an uptrend, the channel line slants up to the right and is drawn above rally peaks; in a downtrend, the channel line is drawn below price troughs and slants down to the right. Prices often meet resistance at rising channel lines and support at falling channel lines.


CONTINUATION PATTERN - A type of chart pattern that occurs in the middle of an existing trend. The previous trend resumes when the pattern is complete.


CORRECTION - After an advance, a decline that does not penetrate the low from which the advance began is known as a correction. Also referred to as a retracement, a correction usually retraces 1/3 to 2/3 of the previous advance.


CROSSOVER - A point on a graph where two lines intersect. Depending on which lines they are, a crossover may indicate a buy or sell signal. For example, the price line crossing above a moving average line may generate a buy signal. Oscillators such as MACD experience centerline crossovers.


CUP WITH HANDLE - A bullish chart pattern that marks a consolidation period followed by a breakout. The "cup" part of the pattern resembles a rounding bottom, and is followed by a "handle" that acts as a final consolidation before a breakout.


DAY TRADING - A style of trading where all positions are cleared before the end of the trading day. Contrast this with position trading, where stocks or securities may be held for longer periods. Day traders typically enter several trading positions for just a fraction of a trading day. The typical day trader might hold a stock for only a few hours and may aim for a profit of, say, 30 or 40 cents. The percentage gains that day traders attempt to capture are often minuscule, but when these gains are multiplied by large volumes of hundreds - or even thousands - of shares, they can be quite profitable. The typical day trader will usually trade several different stocks in a single day.


GTC ORDER (GOOD TILL CANCEL) - A good till cancel order will remain on the broker's books until you actively cancel the order. Traders should keep careful track of all outstanding good till cancel orders they have put in place.


LIMIT ORDER - A limit order states the maximum price you are willing to pay for a stock. You can use this type of order to avoid entering a position if a stock gaps up or down at the opening and you want to avoid entering at an extreme price. Limit orders can be combined with "buy" or "sell on stop" orders as well.


LONG POSITION - When you buy a stock from the long side, you are purchasing the shares with the hope that they will rise in price. This is the exact opposite of a short sale.


PPS - Price Per Share.


REAL BODY - The difference between the open and the close as shown on a candlestick chart.


RESISTANCE - Resistance is a price level at which there is a large enough supply of a stock available to cause a halt in an upward trend and turn the trend down. Resistance levels indicate the price at which most investors feel that prices will move lower. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance.


SUPPORT - A price level at which there is sufficient demand for a stock to cause a halt in an downward trend and turn the trend up. Support levels indicate the price at which most investors feel that prices will move higher.  The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support.


TARGET PRICE - The "target price" is the price objective for each trade. I often set this target based on the next highest resistance level.


TECHNICAL ANALYSIS - Technical analysis is the science and art of interpreting a stock chart trying to prevent the future price of the stock. It is based on the belief that all of the market's hopes, fears and decisions are already expressed in this chart. Decode the chart's message and predict whether a stock will go up or down. Make a correct prediction and be rewarded by making money.
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« Reply #1 on: April 20, 2009, 08:16:00 AM »

The +DI above the -DI is very positive, and, in this case, is also above the ADX line, this means that at this moment the +DI has not any resistance, and it has much room to run till the overbought zone, about 60 - 80.

The ADX line is flat and on the down side, this means that the trend is flat and weak, the stock has not a defined trend.

The RSI is still below 50, usually, above 50 is the MOMO zone, it's when the stocks make great spikes, it's pointing up and should break this line soon.

The PAR SAR is a buy or sell indicator, when the stock breaks the PAR SAR to the up side, gives a buy signal, right now BEHL has the PAR SAR as support.

   
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