Trading Glossary
- A Priori
- Known ahead of time.
- Abandoned Baby Pattern
- A rare candlestick pattern in which an upside gap doji star (where the shadows do not touch) is followed by a downside gap black candlestick where the shadows also do not touch; considered a major top reversal signal.
- ABC
- Elliott wave terminology for a three-wave countertrend price movement. Wave A is the first price wave against the trend of the market. Wave B is a corrective wave to Wave A. Wave C is the final price move to complete the countertrend price move. Elliott wave followers study A and C waves for price ratios based on numbers from the Fibonacci series.
- Accumulation
- An addition to a trader’s original market position. The first of three distinct phases in a major trend in which investors are buying.
- Accumulation/Distribution Line
- See Chaikin Oscillator.
- Actuals
- Refers to actual physical commodities, as distinguished from futures.
- ADA
- Block-structured programming language developed under the guidance of the U.S. Department of Defense to provide a medium for writing real-time, concurrent applications, for facilitating program verification.
- Adaptive Filter
- Smoothing and/or forecasting prices with continuously updated weighting of past prices.
- Advance-Decline Line
- Each day’s number of declining issues is subtracted from the number of advancing issues. The net difference is added to a running sum if the difference is positive or subtracted from the running sum if the difference is negative.
- Adverse Excursion
- The loss attributable to price movement against the position in any one trade.
- AKA
- An acronym for “automated knowledge acquisition.” Refers to the use of programs to create knowledge needed by other programs (usually expert systems).
- Alpha
- Premium that an investment portfolio earns above a given point of reference; a measure of stock performance independent of the market.
- American Depository Receipts (ADRs)
- Certificates that are issued by a bank of US origin and traded in the U.S. as domestic shares. The certificates represent the foreign securities that the bank holds in that security’s country of origin.
- Amortization
- Accounting method in which an asset’s cost is spread out.
- Analysis of Variance
- (Anova) The partitioning of total sum of squares into the sum of squares explained by the model and the remaining sum of squares unexplained.
- Anaume
- Candlestick formation. An exceptional exhaustion pattern (meaning “gap filling”) composed of five candles. The anaume occurs when the gap is filled in after a market price has changed directions. This pattern coupled with the other patterns indicate a strong potential for a bullish reversal and price advance.
- Anchoring-and-Adjustment
- Behavioral finance. The tendency to evaluate current decisions in the context of past events.
- Andrews Method
- A technique whereby a technician will pick an extreme low or high to use as a pivot point and draw a line, called the median line, from this point that bisects a line drawn through the next corrective phase that occurs after the pivot point. Lines parallel to the median line are drawn through the high and low points of the corrective phase. The parallel lines define the resistance and support levels for the price channel.
- Annealing (Simulated)
- Generally a metallurgical process, in artificial intelligence a process in which a neural net work searches for a set of weights to minimize errors; the search constantly shrinks as the weights find better values, analogous to the rearrangement of the molecules in a heated metal bar as the bar cools.
- Annual Earnings Change
- (%) The historical earnings change between the most recently reported fiscal year earn ings and the preceding.
- Annual Net Profit Margin
- (%) The percentage that the company earned from gross sales for the most recently reported fiscal year.
- Annual Sales Change
- (%) The percentage change in sales between the most recently reported fiscal year and the preceding.
- Annualized
- Translating the figures for a given year into an annual rate.
- Antithetic Forecasts
- Two forecasts whose errors are negatively correlated.
- Arbitrage
- The simultaneous purchase and sale of two different, but closely related, securities to take advantage of a disparity in their prices.
- ARIMA
- See AutoRegressive Integrated Moving Average
- ARMAX (AutoRegressive Moving Average eXogenous variables model)
- The combination of fundamental variables outside the particular market that correlates with the independent variable added with the ARMA modeling of the remaining residuals.
- Arms Index
- Also known as TRading INdex (TRIN):
- An advance/decline stock market indicator. A reading of less than 1.0 indicates bullish demand, while greater than 1.0 is bearish. The index is often smoothed with a simple moving average.
- Artificial Intelligence
- The field of computer science dedicated to producing programs that attempt to mimic the processes of the human brain.
- Assign
- To transfer to another to whom property is assigned.
- Astrophysical Cycle
- Any earthly cycle, such as a market cycle, that has been scientifically related to the physics of the planetary system.
- At-the-Money
- An option whose strike price is nearest the current price of the underlying deliverable.
- Attenuation
- The fractional part of reduced energy or lost power due to smoothing or filtering.
- Autocorrelation
- The correlation between the values of a time series and previous values of the same time series.
- AutoRegressive Integrated Moving Average (ARIMA)
- A linear stochastic model forecasting methodology described by Box and Jenkins in their book Time Series Analysis, Forecasting and Control.
- Autoregressive
- Using previous data to predict future data.
- Average Directional Movement Index (ADX)
- Indicator developed by J. Welles Wilder to measure market trend intensity.
- Average True Range
- A moving average of the true range.
- %b
- Indicates where the closing price is within Bollinger bands:
- Back Month
- The out, or back, contract month, as opposed to the current contract month; the expiration month farther in the future than the current, or spot, month.
- Back-Propagation Network
- A feedforward multilayered neural network that is a commonly used neural network paradigm.
- Back-Testing
- A strategy is tested or optimized on historical data and then the strategy is applied to new data to see if the results are consistent.
- Balanced Mutual Fund
- A mutual fund that seeks a return that is a combination of capital appreciation and current income, generally by building a portfolio of bonds, preferred stocks and common stocks.
- Bandpass Filter
- An oscillator that accentuates only the frequencies in an intermediate range and rejects high and low frequencies. Implemented by first applying a low pass filter to the data and then a high pass filter to the resulting data (e.g., two SMA crossover system).
- Bank Investment Contracts (BICs)
- A negotiated-term deposit issued by a commercial bank. See Guaranteed Investment Contracts (GICs).
- Bar Chart
- Used to plot price movements using vertical bars indicating price ranges.
- Basis
- The difference between spot (cash) prices and the futures contract price.
- Basis Points
- The measure of yields on bonds and notes; one basis point equals 0.01% of yield.
- Basket Trades
- Large transactions made up of a number of different stocks.
- Bayes Decision Rule
- A rule that states the strategy chosen from those available is that for which the expected value of payoff is the greatest.
- Bear Market
- A securities market characterized thus based on declining prices.
- Beta
- A regression of the estimated coefficient that belongs to a particular variable.
- Beta (Coefficient)
- A measure of the market/nondiversifiable risk associated with any given security in the market. A ratio of an individual’s stock historical returns to the historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock’s beta would be 1.2.
- Bias
- The difference between the expected value of an estimator and the actual value to be estimated.
- Bid and Ask
- Highest price and lowest price that an investor will pay for a tradable.
- Bimodal Distribution
- In which observations are displayed as having two distinct peaks.
- Black Box
- A proprietary, computerized trading system whose rules are not disclosed or readily accessible.
- Black-Scholes Option Pricing Model
- A model developed to estimate the market value of option contracts.
- Block Trades
- Large transactions of a particular stock sold as a unit.
- Blow-Off Top
- A steep and rapid increase in price followed by a steep and rapid drop in price.
- Bonds
- A long-term debt security with a stated interest rate and fixed due dates, issued by a corporation or a government, when interest and principal must be paid. There are many variations.
- Boolean
- Describes a variable that may have one of only two possible values: true or false. After George Boole, English logician, credited with the invention of “Boolean logic.”
- Box-Jenkins Linear Least Squares
- The additive structure of Box-Jenkins models with a polynomial structure.
- Box-Jenkins Method
- From G.E.P. Box and G.M. Jenkins, who authored Time Series Analysis: Forecasting and Control. The method refers to the use of autoregressive integrated moving averages (ARIMA), which fit seasonal mod els and nonseasonal models to a time series.
- Box-Jenkins Nonlinear Least Squares
- The multiplicative structure of Box-Jenkins models using the Gauss-Newton algorithm with numerical derivatives.
- Bozu
- Literally “bald” or “monk” in Japanese; in candlestick terminology refers to a situation during which a trading cycle opens or closes on a high or low, indicating a victory for the bulls or the bears.
- Bracketing
- A trading range market or a price region that is non-trending.
- Breakaway Gap
- When a tradable exits a trading range by trading at price levels that leaves a price area where no trading occurs on a bar chart. Typically, these gaps appear at the completion of important chart formations.
- Breakout
- The point when the market price moves out of the trend channel.
- Broker-dealer
- A firm that handles transactions for its customers and also purchases securities for its own account, selling them to customers.
- Broker’s Deck
- Orders physically held by the floor broker in the trading pit.
- Bull Market
- A securities market characterized thus on rising prices.
- Buy and Hold
- The acquisition of a tradable for the long term rather than quick turnover.
- C Language
- Widely used systems development language, also block-structured, but with more facilities to control the machine at the level of the hardware.
- Call Option
- A contract that gives the buyer of the option the right but not the obligation to take delivery of the underlying security at a specific price within a certain time.
- Calmar Ratio
- Takes the average rate of return for the last 36 months and divides it by the maximum drawdown for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the last three years.
- Candlestick Charts
- A charting method, originally from Japan, in which the high and low are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. If the close is above the open, the body is white. If the close is below the open, the body is black.
- Capital Gains Distribution
- A distribution to investment company shareholders from net long-term capital gains realized by a regulated investment company on the sale of portfolio securities.
- Capital Losses
- Losses resulting from selling at a loss.
- CBOT
- Chicago Board of Trade.
- Central Limit Theorem
- From statistics, the theorem that the distribution of sample means taken from a large population approaches a normal, Gaussian, curve.
- Chaikin Oscillator
- An oscillator created by subtracting a 10-day EMA from a three-day EMA of the accumulation /distribution line.
- Channel
- In charting, a price channel contains prices throughout a trend. There are three basic ways to draw channels: parallel, rounded and channels that connect lows (bear trend) or highs (bull trend).
- Chaos Theory
- Describes the behavior of nonlinear systems. A subset of nonlinear dynamics analysis, chaos theory is a branch of mathematics focusing on irregular and complex behavior that has an underlying order. In the stock market, chaos theory seeks to forecast the future path of stock prices, including sudden changes that occur during periods of intense market activity.
- Charts
- A display or picture of a security that plots price and/or volume (the number of shares sold). The chart is the foundation of technical analysis, and over the years, many different types of charts have been developed.
- Chi Square
- A statistical test to determine if the patterns exhibited by data could have been produced by chance.
- Christmas Tree Spread
- The simultaneous purchase and writing of options with either a different strike price or expi ration date or combination of the two.
- Classifier Systems
- In artificial intelligence, these systems perform a type of machine learning that generates rules from examples.
- Clone Fund
- A smaller version of a retail mutual fund, it is offered as a subaccount in a variable annuity. The daily price of a clone fund is different among variable annuities that carry it because each clone fund starts on a different date and with a base price of $10.
- Closed-End Funds
- A mutual fund that does not sell unlimited shares; one with a specific number of outstanding shares.
- Closed Trades
- Positions that have been either liquidated or offset.
- Clustering
- Locating the presence of groups of vectors that are similar in some fashion.
- CME
- The Chicago Mercantile Exchange.
- Coefficient
- A constant used to multiply another quantity or series; as in 3 xand ax, 3 and a are coefficients ofx.
- Coefficient of Determination
- R-squared. The proportion of the variation in the data explained by the model.
- Coincidence
- In Gann theory, a projected reversal point.
- Colinear
- see Multicolinearity.
- Combined Forecast
- The weighted average of two or more forecasts.
- Commodity Futures Trading Commission (CFTC)
- A commission that oversees the commodity exchanges in the US.
- Comparative Relative Strength
- Compares the price movement of a stock with that of its competitors, industry group or the entire market. This is distinct from J. Welles Wilder’s Relative Strength Index, which compares current price movement to previous price movement of the same instrument.
- Comparitor
- A device of some kind that compares two inputs.
- Compounding
- The payment, through interest, based on the sum of the original principal amount and its accrued interest.
- Confidence Factor
- A measure of the degree of likelihood that a rule is correct, which may reflect the percentage of times that it has proven to be correct in the past or just a subjective measure of our confidence in its degree of reliability.
- Confidence Level
- The degree of assurance that a specified failure rate is not exceeded.
- Confirmation
- Indication that at least two indices, in the case of Dow theory the industrials and the transportation, corroborate a market trend or a turning point.
- Congestion Area or Pattern
- A series of trading days in which there is no visible progress in price.
- Consolidation
- Also known as a congestion period. A pause that allows participants in a market to reevaluate the market and sets the stage for the next price move.
- Consumer Price Index
- The gauge of US inflation.
- Continuation Chart
- A chart in which the price scale for the data for the end of a given contract and the data for the beginning of the next contract are merged in order to ease the transition of one contract to the next.
- Contract
- An agreement as in options in which rights are exchanged by law. Correlation Coefficient-When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and Y to the square root of the product of the variance of X and the variance of Y.
- Convergence
- When futures prices and spot prices come together at the futures expiration.
- Conversion Arbitrage
- Traders buy and sell two different securities (or synthetic securities), forcing equivalent prices for equivalent securities.
- Coppock Curve
- Also Coppock Guide. A long-term price momentum indicator: a 10-month weighted moving aver age of the sum of the 14-month rate of change and the 11-month rate of change for the Djia.
- Correction
- Any price reaction within the market leading to an adjustment by as much as one-third to two-thirds of the previous gain.
- Correction Wave
- A wave or cycle of waves moving against the current impulse trend’s direction.
- Correlation Coefficient
- Degree to which two series of numbers plot as a straight line. A correlation coefficient of 1 (or -1) indicates that the two series of numbers plot exactly along a straight line. A correlation coefficient of zero indicates that there is no straight line relationship between the two series of numbers. As applied to two portfolios, a high correlation coefficient for the relative returns indicates that the portfolio values have moved in tandem and a low correlation coefficient means the opposite. When the correlation coefficient is high, one portfolio could have been used as a surrogate or a hedge for the other.
- Correlogram
- A numerical and graphical display of the test statistics of an autocorrelation diagnostic routine.
- Cost Basis
- The cost of a given share or group of stock shares.
- Countermove
- A price bar showing movement opposite to the direction of the prior time period; a retracement.
- Covariance
- Multiplies the deviation of each variable from its mean, adds those products and then divides by the number of observations.
- Cover
- Purchasing back a contract sold earlier.
- Covered Write
- Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock.
- Crack Spreads
- The spread between crude oil and its products: heating oil and unleaded gasoline plays a major role in the trading process.
- Credit Spread
- The difference in value of two options, where the value of the one sold exceeds the value of the one purchased.
- Cross Correlations
- The extent to which the revenue streams of individual traders within a single enterprise tend to exhibit similar patterns over time.
- CTI2
- Market Profile terminology for commercial clearing members, as opposed to CTI1, local floor traders.
- Cup and Handle
- An accumulation pattern observed on bar charts. The pattern lasts from seven to 65 weeks; the cup is in the shape of a “U” and the handle is usually more than one or two weeks in duration. The handle is a slight downward drift with low trading volume from the right-hand side of the formation.
- Current Ratio
- The current assets of a company divided by its current liabilities. Balance-sheet strength indication.
- Curve
- The continuous image of the unit interval.
- Curve-Fitting
- Developing complicated rules that map known conditions.
- CUSIP
- The number assigned by the Committee of Uniform Security Identification Procedure that appears on all securities documents. Each security is given a number so that it is easily identifiable.
- Cutoff Frequency
- A point where higher frequency cycles will not pass through a filter (e.g., a 10-day SMA will eliminate cycles of 20 days or less).
- Cycle
- A variation where a point of observation returns to its origin.
- %D
- A stochastics indicator that has had its values smoothed a second time, usually with a three-period moving average.
- Daily Range
- The difference between the high and low price during one trading day.
- Data Preprocessing
- Altering data to some extent to be more accurately analyzed; smoothing, reducing unwanted data, removing trend. Processing data is mathematically transforming the data from one form into another with the goal of amplifying pertinent information for traders.
- Dead Cat Bounce
- A rebound in a market that sees prices recover and come back up somewhat.
- Debit Spread
- The difference in value of two options, where the value of the long position exceeds the value of the short position.
- Deductive Logic
- Logic traditionally used in expert systems, which defines a method for reasoning from the general to the specific.
- Deep-in-the-Money
- A deep-in-the-money call option has the strike price of the option well below the current price of the underlying instrument. A deep-in-the-money put option has the strike price of the option well above the current price of the underlying instrument.
- Degrees of Freedom
- The number of independent observations; the number of observations minus the number of parameters to be estimated.
- Delay
- The amount of time that elapses between a change in an input event and the resultant change in a related output event or time series.
- Delta
- The amount by which the price of an option changes for every dollar move in the underlying instrument.
- Delta-Hedged
- An options strategy that protects an option against small price changes in the option’s underlying instrument. These hedges are constructed by taking a position in the underlying instrument that is equal in magni tude but opposite in sign (+/-) to the option’s delta.
- Delta Neutral
- This is an “options/options” or “options/underlying instrument” position constructed so that it is rela tively insensitive to the price movement of the underlying instruments. This is arranged by selecting a calculated ratio of offsetting short and long positions.
- Delta Position
- A measure of option price vs. the underlying futures contract or stock price.
- Demand Index
- An index that shows the buying and selling power of markets and stocks from mathematical calcu lations of volume and price ratios.
- Density Function
- For any measure m , a function that gives rise to m when integrated with respect to some other specified measure. A probability density function is a function whose integral over any set gives the probability that a random variable has values in this set.
- Dependence
- A relationship between two different experimental results in which the first result does not directly influence the chances of the second result occurring, but instead, the two results are indirectly related because they are subject to influences from a common outside factor.
- Derivatives
- Financial contracts the value of which depend on the value of the underlying instrument commodity, bond, equity, currency or a combination.
- Deterministic
- Known in advance when the sum of one-step ahead forecast mean squared errors is zero.
- Deterministic
- The fundamental continuous effect of an exogenous variable such as money supply that can be deter mined to be explanatory.
- Deterministic System
- A system in which the outcome is determined by an equation; a system in which cause and effect is easily determined.
- Detrend
- To remove the general drift, tendency, or bent of a set of statistical data as related to time.
- Difference-in-Means Test
- A statistical test that indicates the likelihood of observing the difference if the true differ ence were zero. A large value of this statistic leads to nonacceptance of the null hypothesis that the true difference is zero.
- Differencing
- Subtracting previous from current values to obtain a stationary (detrended) time series: P stationary = Pt – Pt-1.
- Diffusion Equation
- A partial differential equation, used in solving a random walk problem.
- Diffusion Index
- An index that measures the percentage of individual series that are positive compared with the aggregate group that is, the percentage of S&P groups that are above their 30-week moving average.
- Directional Movement Index (DMI)
- Developed by J. Welles Wilder, DMI measures market trend.
- Distribution
- Any set of related values described by an average (that is, mean), which identifies its midpoint, a measure of spread (that is, standard distribution) and a measure of its shape (that is, skew or kurtosis).
- Divergence
- When two or more averages or indices fail to show confirming trends.
- Dividend
- Stockholder payment of a share of a company’s profits.
- Dividend Reinvestment Plan
- A program offered by a publicly held company in which dividends are used to buy more shares of the company.
- Doji
- A session in which the open and close are the same (or almost the same). Different varieties of doji lines (such as a gravestone or long-legged doji) depend on where the opening and close are in relation to the entire range. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.
- Dollar Cost Averaging
- Using the same amount of funds to regularly invest (often quarterly or monthly) and not take into consideration whether the securities being purchased are high or low in price. By using this method, an investor will see an average between their investment costs and the market’s up and down movements.
- Double Bottom (Top)
- The price action of a security or market average where it has declined (advanced) two times to the same approximate level, indicating the existence of a support (resistance) level and a possibility that the down ward (upward) trend has ended.
- Double-Smoothed
- A price series that has been smoothed by a mathematical technique such as a moving average. This first series of smoothed price data is then smoothed a second time.
- Double Top
- See Double Bottom. A price pattern seen on a chart. The patterns occurs when prices rise to a resistance level on significant volume, retreat to a support level, and subsequently return to the resistance level on decreased volume. Prices then decline and break through the support level, marking the beginning of a new downtrend in the price of the stock.
- Drawdown
- The reduction in account equity as a result of a trade or series of trades.
- Drunkard’s Walk
- See Random walk.
- Durbin-Watson Statistic
- The probability that first order correlation exists. With a range between zero and 4, the closer to 2.0, the lower the probability is.
- Dynamic Data Exchange
- Ability to automatically update an application from within another application.
- Dynamic Linked Language
- Refers to programming code that can be used (”called”) by your main program while running under Windows.
- Early Entry
- A large price movement in one direction within the first 15 minutes after the open of the daily session.
- Earnings Estimates
- The estimated earnings projected for a company for a fiscal year.
- Efficient Market Theory
- All known information is already discounted by the market and reflected in the price due to market participants acting upon the information.
- Elasticity
- The ability to recover an original configuration.
- Electronic Communications Network
- Independent execution systems set up by brokerage firms, matching new retail limit orders with compatible orders already in the system.
- Elliott Wave Theory
- A pattern-recognition technique published by Ralph Nelson Elliott in 1939, which holds that the stock market follows a rhythm or pattern of five waves up and three waves down to form a complete cycle of eight waves. The three waves down are referred to as a “correction” of the preceding five waves up.
- EMA
- See Exponential Moving Average.
- Engulfing Pattern
- In candlestick terminology, a multiple candlestick line pattern; a major reversal signal with two opposing-color real bodies making up the pattern. (Also referred to as tsutsumi. )
- Envelope
- Lines surrounding an index or indicator that is, trading bands.
- Entry
- The point at which a trader gets into a position in the market.
- Equilibrium Market
- A price region that represents a balance between demand and supply.
- Equivolume Chart
- Created by Richard W. Arms, a chart in which the vertical axis is the high-low range for each day, while the horizontal axis represents the volume of shares of stock or the number of contracts traded for the day. The purpose of the chart is to highlight the relationship between price and volume.
- ERISA
- The Employee Retirement Income Security Act.
- Estimated EPS Change
- (%) Change in estimated mean earnings for the current fiscal year from the last month, last three months and last six months to the current month.
- Eurodollar
- Dollars deposited in foreign banks, with the futures contract reflecting the rates offered between London branches of top US banks and foreign banks.
- Evening Star Pattern
- The bearish counterpart of the morning star pattern; a top reversal, it should be acted on if it arises after an uptrend.
- Exchange-Traded Funds
- Collections of stocks that are bought and sold as a package on an exchange, principally the American Stock Exchange (AMEX), but also the New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE).
- Ex-Dividend Date
- The day on or after which the right to receive a current dividend is not automatically transferred to a buyer.
- Exercise
- The process by which the holder of an option makes or receives delivery of shares of the underlying secu rity.
- Exit
- The point at which a trader closes out of a trade.
- Expert Systems
- Dynamic but not adaptable, expert systems are rule-driven systems that cannot learn as the result of new information being fed into its system as opposed to neural networks, which can.
- Expiration
- The last day on which an option can be traded.
- Explained
- The relative reduction in the variation of variable Y that can be attributed to a knowledge of variable X and its relationship to Y.
- Exponential Smoothing
- A mathematical-statistical method of forecasting that assumes future price action is a weighted average of past periods; a mathematic series in which greater weight is given to more recent price action.
- Expert Systems
- Dynamic but not adaptable, expert systems are rule-driven systems that cannot learn as the result of new information being fed into its system as opposed to neural networks, which can. Most successful in financial applications where governing rules are consistent.
- Extreme
- The highest or lowest price during any time period, a price extreme; in the CBOT Market Profile, the highest/lowest prices the market tests during a trading day.
- F Statistics
- The ratio of the variance explained by treatments to the unexpected variance.
- Fade
- Selling a rising price or buying a falling price. A trader fading an up opening would be short, for example.
- Failure Swings
- The inability of price to reaffirm a new high in an uptrend or a new low in a downtrend.
- Failure
- In Elliott wave theory, a five-wave pattern of movement in which the fifth impulse wave fails to move above the end of the third, or in which the fifth wave does not contain the five subwaves.
- Fair Values
- The theoretical prices generated by an option pricing model (i.e. , the Black-Scholes option pricing model).
- Fast Fourier Transform
- A method by which to decompose data into a sum of sinusoids of varying cycle length, with each cycle being a fraction of a common fundamental cycle length.
- Fast Market
- A declaration that market conditions in the futures pit are so disorderly temporarily to the extent that floor brokers are not held responsible for the execution of orders.
- Federal Deposit Insurance Corporation
- A self-sustaining, independent executive agency established to insure deposits of all US banks entitled to federal deposit insurance, as stated by the Federal Reserve Act.
- Federal Reserve Bank
- The governing central bank of the US.
- Federal Open Market Committee
- The policymaking committee of the Federal Reserve Bank. They meet on a regular basis to make decisions on economic policy.
- Feedforward Computation
- Neural network in which neurons receive information only from the previous layer and send outputs only to the following layer.
- Fibonacci Ratio
- The ratio between any two successive numbers in the Fibonacci sequence, known as phi (f). The ratio of any number to the next higher number is approximately 0.618 (known as the Golden Mean or Golden Ratio), and to the lower number approximately 1.618 (the inverse of the Golden Mean), after the first four numbers of the series. The three important ratios the series provides are 0.618, 1.0 and 1.618.
- Fibonacci Sequence
- The sequence of numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233…), discovered by the Italian mathematician Leonardo de Pisa in the 13th century and the mathematical basis of the Elliott wave theory, where the first two terms of the sequence are 0 and 1 and each successive number in the sequence is the sum of the previous two numbers. Technically, it is a sequence and not a series.
- Fill
- An executed order; sometimes the term refers to the price at which an order is executed.
- Fill Order
- An order that must be filled immediately (or canceled).
- Filter Point
- The time at which a portfolio insurance program makes an adjusting trade.
- Filter
- A device or program that separates data, signal or information in accordance with specified criteria.
- Fire
- (verb) In expert system programming, ordinarily used to describe the “triggering” or “activation” of a rule. A rule is “fired,” “triggered” or “activated” when its conditions have been met, and its “consequents” (resultant facts) are added to the knowledge base.
- Fit Criterion
- A quantitative comparable measure used to minimize model errors.
- 5% Confidence
- Before conducting statistical tests, an analyst must select a confidence level that will be used to determine when to accept the null hypothesis. A 5% confidence level indicates that one is not willing to accept the null hypothesis when the average net return calculated from the sample could have occurred in only five of 100 samples if the null hypothesis were true.
- Flaglike
- Sideways market price action that has a slight drift in price counter to the direction of the main trend; a consolidation phase.
- Flash Fill
- Order filled immediately by hand signal on the trading floor.
- Float
- The number of shares currently available for trading.
- Floor Traders
- Employees of brokerage firms working on exchange trading floors.
- Flyers
- Speculative or high-risk trades.
- Forecast Origin
- The most recent historical period for which data is used to build a forecasting model. The next time period is the first forecast period.
- Forward-Rate Agreements (FRAs)
- Cash payments are made daily as the spot rate varies above or below an agreed -upon forward rate and can be hedged with Eurodollar futures.
- Fractal Dimension
- From fractal geometry, used to describe the irregular nature of lines, curves, planes or volumes.
- Fractals
- Depiction of mathematical models that may be applied to identify data patterns.
- Framing or Frame Dependence
- Behavioral finance. The tendency to evaluate current decisions within the framework in which they have been presented. Making decisions based on perceptions of risk/return rather than pure risk and return. The usual example is categorization of where money comes from and what it is “assigned” to instead of recognizing its fungibility. The alternative is to speak of frame independence, wherein behavior is not influenced by how the decision is framed. Examples are loss aversion, hedonic editing, loss of self-control, regret, and money illusion.
- Frequency
- The number of complete cycles observed per time period (i.e., cycles per year).
- Frequency Component
- That part of a time series that may be represented as a cycle.
- Frequency Distribution
- A chart showing the number of times (or “frequency”) an event occurs for each possible value of the event. The vertical or y-axis of the chart is the frequency axis and the horizontal or x-axis shows the different values the variable being measured can take.
- Frequency Domain
- Variation in a time series is accounted for by cyclical components at different frequencies.
- Frequency Response
- The transfer of the frequency of the underlying data, usually prices, to the frequency of its moving average.
- Front-Loaded
- Commission and fees taken out of investment capital before the money is put to work.
- Front Month
- The first expiration month in a series of months.
- Front-Running
- The practice of trading ahead of large orders to take advantage of favorable price movement. Brokers are prohibited from this practice.
- Fundamental Analysis
- The analytical method by which only the sales, earnings and the value of a given tradable’s assets may be considered.
- Fundamentals
- The theory that holds that stock market activity may be predicted by looking at the relative data and statistics of a stock as well as the management of the company in question and its earnings.
- Future Volatility
- A prediction of what volatility may be like in the future.
- Fuzzy Systems
- A problem-solving method that can be applied to neural networks, expert systems and other comput ing methods. Fuzzy systems process inexact information inexactly and describe ambiguity rather than the uncer tainty of an occurrence and are useful in performing control and decision-making tasks. Not Boolean
- Various analytical techniques developed by legendary trader W.D. Gann.
- Jargon; a loose term encapsulating a set of risk variables used by options traders.
- Value of all goods and services produced domestically.
- When the middle price peak of a given tradable is higher than those around it.
- A mutual fund involving speculative investing in stocks and options.
- An index requiring two inputs, one of which is a smoothing factor known as the multiplying factor and the other of which is the value of a one-cent move.
- The use of rules of thumb for decisions.
- A mutual fund that replicates the behavior of a given index.
- Behavioral finance. Driven by frame dependence and heuristic bias, when market prices stray from fundamental values.
- When a stock is officially available for the public to buy.
- Small, private organizations in which a group of investors, usually novices, pool their time and resources to learn more than they could on their own about various forms of investments and then invest their own money as a group.
- Individual Retirement Account. An employer’s retirement plan that, as specified by tax law, allows employees to elect to have their federal taxable income be deducted and set aside for retirement.
- Electronic communications network.
- The tendency for securities prices to recover in January after tax-related selling is completed before the year-end.
- A CD worth at least $100,000.
- One of three types of Japanese candlestick charts that does not have time on the horizontal axis.
- A linear system in which the mean squared error between the desired and the actual output is minimized when the input is a random signal.
- Bet bigger when the odds are in your favor. In management wisdom, if anything does go wrong, it will do so in triplicate. Also, an executive will always go back to work early if no one takes him.
- Developer of a wave theory.
- A fund that uses the futures market as its primary asset.
- The shares of a particular stock traded during a specific period. Usually refers to the overall strength and trading volume of the market.
- The average profitability of a trader’s account, as measured over a given period.
- A stop-loss order kept in your head instead of instructing your broker.
- Investing theory in which portfolio managers estimate and manage risk and return.
- Life insurance in which funds such as policy loans, assignments, pledges, and partial surrenders are considered gross income and subject to income tax.
- A number of technical indicators that incorporate volume and price action to measure buying or selling pressure.
- The market in which dealers trade riskless, short-term securities such as certificates of deposit and Treasury bills.
- A mutual fund made up of money market instruments that are short term in nature.
- A fixed amount of money that a market participant would lose if a stop were hit.
- A bottom reversal pattern, according to Steve Nison a signal that the bulls have seized control.
- More than one independent variable is used to account for the variability in one depen dent variable.
- A company that invests money of its shareholders in a variety of areas, usually stocks.
- Also known as the National Association of Investment Clubs.
- This means that a payment of the stated size is insufficient to repay even the interest on the debt, meaning the total debt actually increases each month instead of falling.
- The Federal Reserve, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) agrees to take no action to block a proposal by an exchange or company in conducting some aspect of the securities business. The aspect could be for almost anything, but the most common is a new contract listing or a new security issuance.
- The amount of stocks held by nonproducers including supplies held at mills, elevators, terminals, and processors.
- The amount of stocks held by producers.
- Organization of Petroleum Exporting Countries Opening Print
The first price of a stock that comes across the ticker for the session.
- A methodology by which a system is developed with rules tailored to fit the data in question precisely.
- A contract that provides the right but not the obligation to buy or sell a specified amount of a security within a specified time period.
- Buying additional shares made through the dividend reinvestment account.
- A mismatched trade between two traders in the pit, and which is settled the next day.
- To pass beyond or over a specific targeted level.
- A short compact wedge accompanied by receding volume.
- A statistic that adjusts the usual wins/losses statistic to estimate the worst return from trading results. It reduces the number of wins by the square root of the actual number and increase the number of losses by the square root of the actual number of losses. The resulting numbers of wins or losses are multiplied by the average win or loss and the sum of the resulting wins/losses is divided by the required investment.
- Used to describe the frequency, amplitude, and phase of all frequency components of the signal.
- In market activity, a price reversal point.
- The ratio of profits extracted on winning transactions versus losses suffered on trades that liquidate unprofitably.
- Selling tradables that have appreciated since initial purchase in order to take advantage of the appreciation.
- Report published by the company that operates a mutual fund. It describes the fund’s investment objectives; its managers and their experience; the fees and charges associated with the fund; and policies and restrictions.
Rally Tops
- The R-squared value adjusted for the number of degrees of freedom.
- The difference between trading revenues that are generated on positions that have been offset and closed, versus those associated with the marking of open positions to current market prices.
- A trading area bounded by horizontal, or near horizontal, lines. It can either be a reversal or continuation pattern, depending on the breakout.
- The annualized return on an investment in excess of the average three-month US Treasury bill yield during the same period as the investment. This statistic measures the return on an investment relative to what would have otherwise been earned on a risk-free investment.
- Measures the amount of variability of the relative return. A large relative return standard deviation indicates that the relative return experienced during the holding period fluctuated dramatically and, if the holding period was different, a significantly different relative return would have been achieved. A small relative return standard deviation indicates the opposite.
- A kind of candlestick chart that does not take time into account for constructing the chart.
- Behavioral finance. Judgment by stereotype.
- On a chart, a line drawn indicating the price level at which rising prices have stopped rising and have moved sideways or reversed direction.
- An order placed with a condition or qualifer but not yet executed.
- Percentage of a firm’s aftertax profits that can be put to those earnings retained.
- An exponential moving average computed working backward through the time series, rather than forward, as is the case with a standard EMA. A REMA is used so the target would reflect only future price behavior, not past action that would induce spurious correlation.
- Another measure of risk-adjusted profitability, derived as the ratio between P/L and value at risk.
- An individual retirement account where contributions are not deductible, taxes are not paid on distributions and allows penalty-free withdrawals for first-time homebuyers and retirees.
- The growth in sales in a company.
- A service charge of a mutual fund that is added to the costs of owning a stake in the fund.
- Chart formation in which the price dips momentarily, forming a cup, before resuming its upward course.
- When a block of investment professionals cash out of one industry sector to invest in another.
- The percentage of trades in a given account that liquidate profitably.
- A Nasdaq execution technology.
- Share owner of company stock as registered in company files.
- Program used by banks and other institutions to verify a signature.
- Computerized system developed by Nasdaq for immediate electronic execution of up to 1,000 shares of stock.
- A mathematical technique to choose the independent variables that best describe the behavior of the dependent, in order of improving description.
- After a trend, the market will enter into a trading range and have a tendency to trade to levels where stop-loss orders have been placed.
- Buy stops are orders that are placed at a predetermined price over the current price of the market. The order becomes a “buy at the market” order if the market is at or above to the price of the stop order. Sell stops are orders that are placed with a predetermined price below the current price. Sell-stop orders become “Sell at the market” orders if the market trades at or below the price of the stop order.
- Stock ownership in which shares are registered to a brokerage or other financial institution and held.
- NYSE execution technology.
- On a chart, a line drawn indicating the price level at which falling prices have stopped falling and have moved sideways or reversed direction.
- T-Statistics
- The probability distribution used to test the hypothesis that a random sample of n observations comes from a normal population with a given mean.
- T-Test
- A statistical test of significance for a distribution that changes its shape as N gets smaller; based on a variable t equal to the difference between the mean of the sample and the mean of the population divided by a result obtained by dividing the standard deviation of the sample by the square root of the number of individuals in the sample.
- Tangibles
- Cash equivalents of the futures contracts.
- Tax-Deferred
- In which an investment allows an investor to postpone paying taxes on money put into the investment until the investor literally takes possession of the money invested.
- Technical Analysis
- A form of market analysis that studies demand and supply for securities and commodities based on trading volume and price studies. Using charts and modeling techniques, technicians attempt to identify price trends in a market.
- Telegrapher’s Equation
- A variation of the Diffusion Equation that describes minor differences in the drunkard’s walk, in which the random decision controls the change in direction rather than the direction itself.
- Term Structure
- Also known as yield curve. The slope of the term structure is the yield on long-term government bonds minus the yield on short-term instruments such as Treasury bills.
- Theta
- The measurement of the time decay of a position.
- Thrust
- A comparison between the price difference of successively lower pivot bottoms or higher pivot tops. For example, a reduction in the difference between pivot bottoms shows loss of momentum; an increase in the difference shows increased momentum.
- Tick
- The minimum fluctuation of a tradable. For example, bonds trade in 32nds, while most stocks trade in eighths.
- Tick Indicator
- The number of stocks whose last trade was an uptick or a downtick.
- Time Domain
- Variation of a time series is accounted for by an autocorrelation function and other time series.
- Time Series
- A collection of observations made sequentially in time and indexed by time.
- Time Value
- The difference between the premium paid for an option and the intrinsic value. As the option approaches expiration, the time value erodes, eventually to zero.
- TPO
- Time-Price Opportunity; a price that occurs during designated half-hour periods of trading; a price-time relationship developed for the Chicago Board of Trade’s Market Profile and Liquidity Data Bank reports.
- Tradable
- Trading instrument.
- Trade Facilitation
- Liquidity.
- Trading Bands
- Lines plotted in and around the price structure to form an envelope, answering whether prices are high or low on a relative basis and forewarning whether to buy or sell by using indicators to confirm price action.
- Trading Range
- The difference between the high and low prices traded during a period of time; in commodities, the high/low price limit established by the exchange for a specific commodity for any one day’s trading.
- Trailing Stop
- A stop-loss order that follows the prevailing price trend.
- Transfer Agent
- Financial institution that manages ownership records of company stock.
- Transfer Function
- The mathematical relationship between the output of a control system and its input for a linear system, it is the Laplace transform of the output divided by the Laplace transform of the input under conditions of zero initial energy.
- Transfer Response
- Refers to the shape of the wave coming out of a filter in comparison to the shape going into it.
- Transform
- A process to change or convert. For example, a simple moving average is a filter to reduce noise; the moving average is the transform function.
- Trend
- The general drift, tendency or bent of a set of statistical data as related to time.
- Trend Channel
- A parallel probable price range centered about the most likely price line. Historically, this term has been used to denote the area between the base trendline and the reaction trendline defined by price moves against the prevailing trend.
- Trend Day
- A day in which the price of a futures contract moves consistently away from the opening range and does not return to the opening range prior to the close.
- Trend-Following
- Moving in the direction of the prevailing price movement.
- Trending Market
- Price moves in a single direction, generally closing at an extreme for the day.
- Trendless
- Price movement that vacillates to the degree that a clear trend cannot be identified.
- Trendline
- A line drawn that connects either a series of highs or lows in a trend. The trendline can represent either support as in an uptrend line or resistance as in a downtrend line. Consolidations are marked by horizontal trendlines.
- Triangle
- A pattern that exhibits a series of narrower price fluctuations over time; top and bottom boundaries need not be of equal length.
- Triangular Moving Average
- A moving average in which each day’s data are multiplied by a weight that increases in value at steady increments to a peak value and then declines to zero at equivalent increments. The sum of the weighted daily data is divided by the number of variables.
- TRIN
- See Arms Index Trix-The one-period difference of the triple exponential smoothing operating on the log of price.
- True Range
- The largest of the following: Today’s high minus today’s low, today’s high minus yesterday’s close, today’s low minus yesterday’s close.
- True Strength Index
- A momentum indicator developed by William Blau that double-smoothes the ratio of the market momentum to the absolute value of the market momentum.
- Tulip Sector
- A sector that is the intense focus of speculators at the moment.
- Turning Point
- The approximate time at which there is a change in trend.
- Tweezers Bottoms and Tops
- Candlestick formations. Both candles must have identical highs and lows. Significant when found at contract highs or lows, and can indicate a breakout.
- Uncovered Option
- The buy or sale of an option without a position in the underlying futures contract; also known as a naked option.
- Underlying Instrument
- A trading instrument subject to purchase upon exercise.
- Underlying Security
- In options, a stock subject to purchase upon exercise of the option.
- Uniform Gifts to Minors Acts
- A law that allows minors to own property without the use of a trust.
- Univariate
- Involving only one variable.
- Upthrust
- Occurs when price moves above a pivot top and a widespread reversal ensues as follows: a) two previous closes are reversed, b) close is below pivot top, c) close is below opening and mid-range, d) daily price range is greater than the previous day’s range.
- Value Area
- The price range on the CBOT Market Profile in which approximately 70% of the day’s trades occur.
- Value at Risk (VaR)
- A measure of exposure within a given portfolio, which attempts to estimate how much the portfolio would be expected to lose, given the recent behavior of the securities contained therein.
- Value Averaging
- In which the average is taken of a series of values.
- Value-Weighted Index
- A market average such as Standard & Poor’s 500 Index that takes into account the market value of each security rather than calculating a straight price average.
- Variable-Length Moving Average
- A moving average where the number of periods selected for smoothing is based on a volatility measurement of price. Typically, the standard deviation of price is used to measure price volatility. The more volatile the price is, the shorter the number of periods used is for smoothing.
- Vega
- The amount by which the price of an option changes when the volatility changes.
- Vertical Spread
- A stock option spread based on simultaneous purchase and sale of options on the same underlying stock with the same expiration months but different strike prices.
- Vesting
- The rights that an employee gains for working at a firm for a specific length of time.
- Volatility
- A measure of a stock’s tendency to move up and down in price, based on its daily price history over the latest 12 months.
- Volume
- The shares that are traded for a given market or tradable within a specified time period.
- Volume Price Trend (VPT)
- In which a running sum is maintained when a day’s total volume is added if the market closes positive or the day’s total volume is subtracted if the market closes lower. See On-balance volume.
- W Formation
- A double-bottom formation.
- Warrant
- A company-issued certificate that represents an option to buy stock shares at a given time.
- Wasting
- A term depicting how an option’s value decreases over time; as each day after acquisition passes a portion of the option’s time value is lost or wasted.
- Wave
- In Elliott wave theory, a sustained move by a market’s price in one direction as determined by the reversal points that initiated and terminated it.
- Wave Cycle
- An impulse wave followed by a correction wave, the impulse wave being made up of five smaller, numbered waves of alternating direction designated 1, 2, 3, 4 and 5, and the correction wave being composed of three smaller alternating waves designated a, b, and c.
- Wedge
- A pattern in which two converging lines connect a group of price peaks and troughs.
- Weighted Average Purchase Price
- Multiply each purchase order bought by the associated purchase price, add them together and divide the total by the number of blocks. The result is the weighted average purchase price.
- Weighted Industry Index
- An index where the importance of each stock is related to its market capitalization.
- Weighted Moving Average (WMA)
- A moving average that puts more weight on recent prices. A three-day weighted moving average would add a multiple of 1 to the first date, 2 to the second date and 3 to the third date.
- Whiplash
- Alternating buy and sell signals that result in losses.
- Whipsaw
- Losing money on both sides of a price swing.
- Wildcards
- Characters in a quote symbol or Dos file name that indicates an undefined, but categorized, value.
- Williams’ %R
- Overbought and oversold indicator that is used to determine market entry and exit points.
- Window
- Set period of time such as a lookback period for market indicator in question.
- Wizard
- A preprogrammed step-by-step procedure to aid the user in accomplishing a specific task.
- Yates’s Correction
- When a small amount of data is available for testing, the chi-square formula is adjusted to account for the small sample base.
- Zero-Coupon Government Bonds
- Government bonds that are purchased at a deep discount and pay no cash dividend, unlike regular bonds.
- Zeta
- The percentage change in an options price per 1% change in implied volatility.
- Zigzag
- In a bull market, an Elliott three-wave pattern that subdivides into a 5-3-5 pattern with the top of wave B noticeably lower than the start of wave A. In a bear market, this pattern will be inverted.
This dictionary is still in it’s editing stage. The content is being compiled from various sources. Sources used so far, include Livecharts.co.uk, Stocks and Commodities and Wikipedia
Bookmark
