GLOSSARY

A   B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W 

A

Above the Market - A limit order to buy or sell a security for a specified price that is higher than the current market price. A sell order may be placed above the market in an attempt to sell at higher prices. However, if the market does not reach these prices, the order will go unfilled.

Accumulation - The first phase in a bull market when investors are buying shares from other investors who are uncertain about the market.

Advance Decline Line - The line that measures the net daily difference between the number of advancing issues and the number of declining issues thus reflecting market breadth. It provides an indication as to the overall strength of the market.

After-Hours Trading - Trading activity which occurs in a stock after the market is closed.

All or None (AON) - A trade order to buy or sell a stock in one order or not at all. This prevents a trader from having an order "half-filled."

American Stock Exchange (AMEX) - Regulated by the SEC, this exchange offers facilities for the trading of equities, options, and debt securities.

Analyst - Employee of a brokerage or fund management house who studies companies and makes buy and sell recommendations on their stocks. Most specialize in a specific industry.

Annual Report - A record of a publicly held company's financial condition. It includes a description of the firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all shareholders. A more detailed version is called a 10-K.

Arbitrage Activity - (1) When traders try to profit from buying and selling two related securities at the same time. (2) Profiting from differences in the price of a single security that is traded on more than one market.

ARCA (Archipelago) - An electronic communications network (ECN).

Arms Index - Also known as TRading INdex (TRIN) - The TRIN is calculated by dividing the Number of advancing issues by the number of declining issues and taking that total and dividing it by the total volume of advancing issues by the total volume of declining issues. Less than 1.0 indicates bullish demand, while above 1.0 is bearish. A ratio of 1 indicates the market is in balance. This indicator was developed by Richard Arms.

Ascending Triangle - This is typically a bullish continuation pattern in an uptrending stock. An ascending triangle consists of higher lows and comparable highs, creating a right-angle triangle where the slope rises from left to right. When the highs are broken a buy signal is given.

Asking Price - Also referred to as the offer. The lowest price anyone is willing to sell a specific stock or commodity at a given moment in time. Also called the offer. This is the price a buyer would have to pay to guarantee purchase of a stock or commodity.

At the Market - An order to buy or sell at the best price obtainable in the market.

Avalanche - A reversal pattern which occurs after a strong bull run followed by a rapid pullback to support, typically a moving average such as the 20 sma. The next step in this setup is a bear flag hugging the support level. When that flag breaks a short is signaled.

Average Daily Volume (ADV) - The number of shares traded over a period of days and then divided by that same period.

Average Directional Index (ADX) - The ADX is an indicator that was developed by Welles Wilder. It is a calculation based upon positive directional movement (+dma) and minus directional movement index (-dma). The ADX is used to measure how strong a trend is, regardless of if this trend is up or down. A high ADX measure reflects a strongly trending market and a low ADX reflects a non-trending market.

Averaging Down - Where a price moves against a trader and they add to the position to create a lower average price for the shares they bough. Generally speaking the intent is to create a lower exit price at which they can make a profit. For many traders though this can lead to even larger losses.

Ax - The key market maker in a stock, sometimes known as the hammer in a stock.

B

Back Testing - Using historical data to test a strategy.

Bar Chart - A graphic representation of price activity. The high and low of the session define the top and bottom of a vertical line. The open is marked with a short horizontal bar attached to the left of the vertical line. The close for the period is marked with a short horizontal bar attached to the right of the vertical line. Price is on the vertical scale. Time is on the horizontal scale.

Base (Basing Pattern) - A pattern in which a stock is trading in a relatively narrow price range over a period of time.

Basis Point - Used to calculate differences in interest rate yields. For example, the difference between 4.25% and 5.00% is 75 basis points.

Basket Trades - Trading a number of different stocks at the same time, usually all from the same sector, or having similar characteristics.

Bear - Anyone who takes a pessimistic view of the forthcoming long-term trend in a market. One who think that a market is or will soon be in a long-term downtrend.

Bear Flag - A counter-trend move categorized as a continuation pattern. They are characterized by higher highs and higher lows with parallel trend lines.

Bearish - Descriptive of a market that is trending lower, or of the disposition of a trader who believes the market will decline.

Bear Market - A long-term downtrend (a downtrend lasting months to years) in any market, especially in the stock market, characterized by lower intermediate lows (those established in a time frame of weeks to months) interrupted by lower immediate highs.

Bear Trap - A bear trap 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. A bear trap is another form of whipsaw and relates to the spring.

Below the Market - A limit order to buy or sell a security for a specific price that is lower than the current market price. Buy orders may be placed below the bid in an attempt to purchase at lower prices. However, if the market does not reach these prices, the order will go unfilled.

Be right back (brb) - Often used in chat rooms.

Beta - Beta is a measure of the security's systematic or market risk. Most stocks move in the same direction as the stock market. The level of the beta indicates the degree of correlation between a security and the market. The market is the benchmark and has a beta of 1.

Bid Price - Also referred to as the bid. The highest price any buyer is prepared to pay for a stock or commodity at a given moment in time. This is the price a seller would have to take to guarantee sale of the stock or commodity.

Block Trade - A trade so large that the normal auction market cannot absorb it in a reasonable time at a reasonable price. In general, 10,000 shares of stock or $200,000 worth of bonds would be considered a block trade.

Bollinger Bands (BB) - Developed by John Bollinger, Bollinger Bands are bands plotted two standard deviations away from a simple moving average. Because standard deviation is a measure of volatility, Bollinger Bands adjust themselves to the market conditions. When the markets become more volatile they widen and contract during less volatile periods. By using standard deviations rather than a fixed percentage, the bands adjust for volatility. During volatile periods, the bands move further away from the average, when the market is flat, the bands move closer to the average.

Bottom - The lowest price a stock traded at within a certain period of time.

Bottom Fishing - Buying stocks whose prices have bottomed out.

Breadth - The difference between advancing issues and declining issues in the market. If there are more advancing issues then breadth is positive. If there are more declining issues then breadth is negative.

Break-Even Point - (b/e) The point at which gains equal losses. Often use as an exit when a winning trade moves against you.

Breakout - (1) When the price moves out of its recent trading range. (2) When a stock successfully penetrates through support or resistance, or any technical pattern.

Broker - (1) An individual or firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services.

Bull - Anyone who takes an optimistic view of the forthcoming long-term trend in the market. One who thinks that a market is or soon will be in a long-term uptrend.

Bull/Bear Ratio - Published by Investor's Intelligence, this shows the ratio between those investment advisors who feel positive or negative about the market. Used as a contrary indicator.

Bull Flag - A counter-trend move categorized as a continuation pattern. They are characterized by lower highs and lower lows with parallel trend lines.

Bullish - Descriptive of a market that is trending higher, or of the disposition of a trader who believes the market will rise.

Bull Market - A long-term (months to years) price movement in any market characterized by a series of higher intermediates highs (those established within weeks to months) interrupted by higher consecutive intermediate lows.

Bull Trap - A bull trap 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. A bull trap is another form of whipsaw and relates to the upthrust.

Buy - (1) A recommendation to purchase a specific security. (2) To acquire an asset in exchange for currency.

Buy Signal - A buy signal is 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.

Buy Stop - An order to buy a security that is entered at a price above the current offering price and that is triggered when the market price touches or goes through the buy stop price. Traders using a buy stop hope to gain if momentum gains on a particular stock. If the price exceeds the price you have set, it will automatically trigger a market order.

C

Candlestick Chart - A candlestick chart is similar to a bar chart. The major difference is the graphical depiction of each period in a "candlestick." The candlestick is formed from the open, high, low and close of a specific time period. The period can be anything from a minute to a month. The color of the candlestick is determined by the relationship between the open and close. If the close is higher than the open, a white body is formed. This is referred to as an open candlestick. If the close is lower than the open, a black body is formed. This is referred to as a closed candlestick. The thin lines above and below the real bodies represent the high and the low for the period and are referred to as shadows. The high for the period is the upper shadow and the low is the lower shadow. It is these shadows, which look like wicks on a candle, that give rise to the term "candlestick."

Capital Gain - When a stock is sold for a profit, it's the difference between the net sales price of securities and their net cost, or original basis. If a stock is sold below cost, the difference is a capital loss.

Capital Loss - The difference between the net cost of a security and the net sale price, if that security is sold at a loss.

Capitulation - In stocks this term is associated with "giving up" any previous gains in the stock price. True capitulation involves extremely high volume and sharp declines (oversold stocks), it usually indicates panic selling.

CBOE Volatility Index (VIX) - A volatility index for the Chicago Board Options Exchange known by its ticker symbol "VIX". It is calculated by taking a weighted average of the implied volatility from eight calls and puts on the S&P 100 index. The VIX measures the volatility of the US equity market, many investors say if the VIX goes above 35 then it signals a bottom in the stock market.

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

Chart - The display of price data over a period of time in a chart format. Price is on the Y axis and time is on the X axis.

Chartist - A trader who uses charts showing past price formations with price on one axis and time on the other to attempt to forecast future price movements.

Chasing a Stock - Trying to buy a stock moving up in price, usually very quickly, by increasing your bid after the stock has already gone up several price levels from your ideal entry point.

Chicago Board of Trade (CBOT) - The oldest commodity exchange in the US, established in 1886. The CBOT lists many agricultural commodity futures such as corn, oats and soybeans among other financial instruments.

Chippies - Traders using the ECN ARCA (Archipelago) and trading with small share size.

Choppy Market - A market characterized by large swings around a mean value, where traders, both long and short, get "chopped-up" trying to establish positions. Also referred to as a trading range.

Close - The end of a trading session.

Closed - When referring to a position, this means one has made an equal and opposite trade to one already held and so has no more exposure to the market on that trade.

Commission - A service charge assessed by an agent in return for arranging the purchase or sale of a security or real estate. The commission must be fair and reasonable, considering all the relevant factors of the transaction. Commissions vary widely from broker to broker.

Commodity Channel Index (CCI) - Developed by Donald Lambert, the Commodity Channel Index (CCI) measures the variation of a security's price from its statistical mean. High values show that prices are unusually high compared to average prices whereas low values indicate that prices are unusually low. Contrary to its name, the CCI can be used effectively on any type of security, not just commodities.

There are two basic methods of interpreting the CCI: looking for divergences and as an overbought/oversold indicator.

* A divergence occurs when the security's prices are making new highs while the CCI is failing to surpass its previous highs. This classic divergence is usually followed by a correction in the security's price.
* The CCI typically oscillates between ±100. To use the CCI as an overbought/oversold indicator, readings above +100 imply an overbought condition (and a pending price correction) while readings below -100 imply an oversold condition (and a pending rally). Previous highs and lows in the CCI will also tend to trigger reversals even when not at ±100 levels.

I prefer to use the CCI only on daily charts as an overbought/oversold indicator with the setting of P=15. In such a case the oscillation occurs between ±200 instead of ±100.

Conditional Order - An order that is activated when a certain set of conditions is met. Those conditions can be related to moving average prices, NASDAQ prices, etc. in addition to stock's price.

Confirmation - When one or more indicators substantiate the action of another.

Congestion Zone - See base.

Consolidation - A narrow trading range such as a base within a trend. In a consolidation the trading range is merely a pause in the overall trend and once it breaks the trend will continue.

Continuation Pattern - A technical pattern that suggests a continuation of the prior trend. For example, a flag is a continuation pattern.

Contrarian - An individual who generally believes it is usually better not to do what the majority are doing because the majority so not make money.

Correction - A short term reversal in the overall trend which gives the trend a chance to catch its breath before continuing. A correction is typically not significant enough to reverse the overall trend and can be through time or price but is generally a bit of both.

Crossover - When a faster indicator crosses above (bullish crossover) or below (bearish crossover) the slower indicator.

Cyclical Stocks - Cyclical stocks are those that are highly sensitive to economic performance. Cyclical stocks tend to perform well when the economy is growing and suffer when the economy contracts. Chemical (Dupont), transportation (FDX Corp), auto (GM), paper (International Paper) and steel (Nucor) represent a few of cyclical industries and stocks.

D

Day Order - A trade order to buy or sell a security during the market hours of a particular day.

Day Trader - A trader who tries to capitalize on short-term price swings within one trading session. A true day trader will not hold open positions past the closing bell.

Dead Cat Bounce - A tiny bounce or "false" recovery after a major decline in a stock.

Dead Zone - Also known as the mid-day doldrums. The trading hours between approximately 11:30 A.M. ET - 2:00 P.M ET typically characterized by low volume and decreased liquidity. Market risk at this time is thus higher than the rest of the trading day.

Descending Triangle - This is typically a bearish continuation pattern in a downtrending stock. A descending triangle consists of lower highs and comparable lows, creating a right-angle triangle where the slope is declining from left to right. When the lows are broken a sell signal is given.

Discount Broker - A stockbroker who charges a reduced commission and provides no investment advice.

Discount Rate - The interest rate local banks pay to the central bank for secured loans. The discount rate is typically set by the central bank, in the US it is set by the FOMC.

Distribution Phase - This takes place near market tops, or at the end of a bull market, when intuitive investors sell their shares to others who believe the market will continue higher. In this phase rallied tend to occur on lower volume.

Divergence - (1) When a technical indicator disagrees with a certain price. (2) In charting, when two charting lines such as trend lines or moving averages grow further apart or extend in different directions from a cross-over point or close to a cross-over point.

Diversification - The simultaneous trading of several unrelated markets or sectors to reduce risk.

Doldrums - See dead zone.

Dollar Cost Averaging - A popular investment approach which consists of investing the same amount of money at regular time intervals.

Doji Candlestick Pattern - A doji is a candlestick which forms when the open and close are equal or almost equal. The resulting candlestick looks somewhat like a cross or a plus sign (+). A doji is an indecision bar. It can often occur at highs or lows or as a continuation pattern. Long upper and lower shadows form from wide swings and indicate volatility.

Double Bottom - A reversal pattern. It is a decline twice to the same price level and is typically followed by a bounce off the support from the prior low.

Double Top - A reversal pattern. It is a rise twice to the same price level and is typically followed by a reversal off the resistance from the previous high.

Double Witching - Similar to triple witching, but instead of three classes of options or futures expiring on the same day, in this case it is only two (any two). The three classes are stock options, index options, and index futures. The market tends to be more volatile than normal but not as much so as on triple witching days.

Dow Jones Industrial Average (DJIA) - Published by Dow Jones & Co, Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 blue-chip stocks. Because it is price weighted, stocks with the highest prices will have the most influence and those with the lowest, the least influence. The DJIA is calculated by adding the closing prices of the stocks and then dividing by a number that takes into account splits, large dividends, substitutions and mergers.

Downside Risk - An estimation of the potential that a security might decline in price if the market conditions turn bad and thus gives an indication of what a trader could lose on a position.

Downtick - On the NYSE it is a trade taking place at a lower price than the previous trade. On the NASDAQ, a lowering in price of the best bid.

Downtrend - A series of lower highs and lower lows in the market, indicating a decrease in price.

Dragonfly Doji - Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

Drawdown - Reduction is account equity as a result of losing trades, usually referred to in the context of trading a system or methodology.

Due Diligence - The careful investigation by the underwriters that is necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors.

Dumper - A stock that has retreated significantly, usually due to bad news or missed earnings, followed by an over-reaction by sellers.

E

Earnings - Usually refers to the net income for a company during a specific period after taxes. Earnings show how profitable a company is.

Earnings Surprise - When analysts expect one number and a company releases a different number.

ECN - Electronic Communication Network. An electronic system that attempts to eliminate third party orders by directly matching buyers and sellers. This order execution vehicleis available to subscribers of the ECN only or via SelectNet preference orders. Examples of ECNs are INCA, ISLD, REDI, BTRD, ARCA, ATTN, STRK, NTRD, and BRUT.

Elliot Wave Theory - Named after Ralph Nelson Elliott, who concluded that the movement of the stock market could be predicted by observing and identifying a repetitive patterns of waves. The main theory is that prices have 5 waves in the direction of the main trend followed by three corrective waves.

EOD - End of day.

Execution Costs - In system trading, the sum of slippage and commissions.

Exit Strategy - The plan a trader has made to close a position. It can be a strategy based on exiting with profits or exiting as a stop loss.

Exponential Moving Average - Exponential moving averages are calculated by applying a percentage of the current bar's closing price to the previous bar's moving average value, giving greater weight to the more recent data.

F

Fading - Selling as the market is rising or buying as the market is selling.

Federal Open Market Committee (FOMC) - Also referred to simply as the Feds. A committee that makes decisions concerning the Fed's operations to control the money supply. The committee meets 8 times each year. Also referred to simply as the Feds.

Fibonacci - An Italian mathematician who formulated a series of numbers based on adding the prior two numbers. See also Fibonacci Ratios.

Fibonacci Ratios - These are ratios based upon calculations made using the Fibonacci series in which each number in the series is made by adding the prior two numbers. The most common Fibonacci levels used in retracement analysis are 61.8%, 38.2% and 50%. When an upward move starts to reverse the 3 price levels are calculated (and drawn using horizontal lines) using a movements low to high. These retracement levels are then interpreted as likely levels where counter moves will stop. It is interesting to note that the Fibonacci ratios were also known to Greek and Egyptian mathematicians. The ratio was known as the Golden Mean and was applied in music and architecture.

Fill - A buy or sell order that has been executed.

Fill or Kill - A trade order that is to be executed immediately and in totality or be canceled.

Flag - A technical charting pattern. Flags result from price fluctuations within a narrow range, they mark a consolidation before the previous move resumes.

Flat - (1) Having no open positions. (2) A position that is at the same price as when entered.

Float - The total number of outstanding shares owned by the public that are available for trading. The float is calculated by subtracting restricted shares from outstanding shares.

Fundamental Analysis - A method of evaluating securities by attempting to measure the intrinsic value of a particular stock. Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies.

Fundamental Trader - A trader who takes positions in the market based on his/her perception of current economic realities.

G

Gap - Also referred to as a window. When a stock moves, either up or down, with a price void between the previous bar's close and the current bar's open. Gaps usually occur between one trading day and the next. A gap up occurs when the opening price to the current bar is higher than the closing price of the previous bar. A gap down occurs when the opening price is lower than the closing price of the previous bar.

Good 'til Canceled - Sometimes simply called "GTC", it means an order to buy or sell stock that is good until you cancel it. Brokerages usually set a limit of 30-60 days, at which the GTC expires if not restated.

Gravestone Doji - Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. The resulting candlestick looks like an upside down "T" with a long upper shadow and no lower shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low.

Grinding - See scalping.

H

Hammer/Hanging Man - The hammer and the hanging man candlesticks look exactly alike. The difference between them depends on the chart pattern that precedes the formation of these candles. Hammers tend to occur at lows while hanging man candlesticks occur at highs. Hammer and hanging man candlesticks form when a security moves significantly lower after the open, but rallies to close well above the intraday low. The resulting candlestick looks like a hammer and hence the name. The long stick below represents the long lower shadow that forms from the intraday low. The high for the day is near the open or the close, depending on which of the two is higher. If the open is higher than the close, then the candlestick's body will be black/closed and the high will be just above the open. If the close is higher than the open, then the candlestick's body will be white/open and the high will be just above the close.

Harami - See inside range bar.

Head and Shoulders - A technical analysis term used to describe a chart formation in which a stock's price rises to a peak and then declines, then rises above the former peak and again declines, and then rises again but not to the second peak and again declines. The first and third peaks are shoulders, and the second peak forms the head. This pattern is considered to be bearish.

Hedge - Any strategy where a potential loss is offset by a contra-reacting position.

Hit the Bid - Selling a stock at the current inside bid.

HOLDRS - HOLDRS are Holding Company Depository Receipts. Launched by Merrill Lynch, HOLDRS trade just like stocks on the American Stock Exchange. Each HOLDRS is a basket of stocks designed to track the performance of a particular industry segment. More information on HOLDRS can be found at Merrill Lynch's HOLDRS Web Site: http://www.holdrs.com The following are HOLDRS outstanding at the time of writing:

* Biotech HOLDRS (BBH)
* Broadband HOLDRS (BDH)
* B2B Internet HOLDRS (BHH)
* Europe 2001 HOLDRS (EKH)
* Internet HOLDRS (HHH)
* Internet Architecture HOLDRS (IAH)
* Internet Infrastructure HOLDRS (IIH)
* Market 2000+ HOLDRS (MKH)
* Oil Services HOLDRS (OIH)
* Pharmaceutical HOLDRS (PPH)
* Regional Bank HOLDRS (RKH)
* Retail HOLDRS (RTH)
* Semiconductor HOLDRS (SMH)
* Software HOLDRS (SWH)
* Telecom HOLDRS (TTH)
* Utilities HOLDRS (UTH)
* Wireless HOLDRS (WMH)

I

Index - A weighted value given to a group of issues. Some well-known indexes are the Dow 30, S&P 500, NASDAQ Composite, Dow Transport, Dow Utility, etc.

Indicator - Anything used to predict future financial or economic trends.

Industry - An industry is a grouping of companies in the same line of business. As opposed to sector groupings, industry groupings are more specific to the business. For example: airfreight, airline, trucking, railroad and shipping industry groups belong to the transportation sector.

Inside Market - The highest bid and lowest offer/ask make the inside market.

Inside Range Bar/Day (IRD) - When the price range of a current bar or current day is narrower than the previous bar or day and occurs within the range of the previous bar or day. In candlestick charting this pattern is called a Harami. Harami means pregnant in Japanese.

Insider - Someone with at least 10% ownership in a company, an officer , or a director.

Insider Information - Relevant information about a company that has not yet been made public. It is illegal for holders of this information to make trades based on it, however received.

Instinet - An ECN that allows subscribers to display quotes and trade during, before, and after market hours.

Institutional Ownership - Shares owned in bulk by mutual funds, banks, 401K, etc.

Intraday - Information pertaining to a stock during any given day.

IPO - Initial Public Offering of a stock. The first time a stock is traded in a public market.

iShares - Developed by Barclays Global Investors, iShares are index funds that trade like stocks. Like HOLDRS, they allow smaller investors to get the diversification of 50 or more companies without having to buy each individual stock. These shares can be bought or sold like normal stocks and are designed to track:

* Broad-based US indices such as the S&P 500 and Russell 2000.
* Sectors such as healthcare and financial services.
* International stock markets such as France (CAC40) and Hong Kong (Hang Seng).

Each iShare represents a basket of stocks designed to track its given index. The international iShares are based on Morgan Stanley Capital International (MSCI) Indexes and designed to track the performance of that countries stock exchange.

ISLD (Island) - An electronic communications network (ECN.) Allows subscribers to display quotes and trade during, before, and after market hours. For more information on Island, see their website at http://www.island.com/

K

Keltner Bands - Keltner Bands are standard deviation based channels that often provide support/resistance at the channels or the center line. A Keltner Band is based on a 45-day moving average (day, week, month, intraday price bar, etc.), and a standard deviation move away from the 45-bar based on the average true range.

Keynesian Economics - The economic theory that active government intervention in the marketplace and monetary policy is the best method of ensuring economic growth and stability.

L

Lagging Indicator - A measurable economic factor that changes after the economy has started to follow a particular pattern or trend. Lagging indicators are believed to confirm long-term trends. Examples include average duration of unemployment, corporate profits and labor cost per unit of output

Laughing out loud (lol) - Often used in chat rooms.

Level I - Shows current or inside bid and ask.

Level II - Shows current or inside bid and ask as well as all market makers and ECN's at different price levels on the bid and ask.

Limit Move - The maximum permissible change in a price in one day. This number is specified by the exchange and is particular to each commodity. When a market reached the limit, trading stops. Limits are designed in an attempt to minimize excessive price volatility.

Limit Order - An order to buy a stock at or below a specified price or to sell a stock at or above a specified price. For instance, you could tell a broker "Buy me 100 shares of XYZ Corp. at $8 or less" or to "sell 100 shares of XYZ at $10 or better."

Liquidity - Liquidity is the ease with which a stock may be bought or sold in volume on the marketplace, without causing dramatic price fluctuations. A large amount of trading and a large pool of buyers and sellers mean that a stock can be described as highly liquid.

Listed Stock - Stock listed on the NYSE or American Stock Exchange.

Locked Market - When the inside bid and ask are the same. Nasdaq prohibits intentional locking of markets.

Logarithmic - In a logarithmic scale, the distance between each unit of distance reflects an equal percentage change. The distance between 20 to 40 and 40 to 80 would be identical, because each change is a 100 percent increase.

Long-legged Doji - Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market. Long-legged doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open.

Long Position - A position in which the issue is owned.

Long Term - Holding an asset for an extended period of time. The length of time is subjective. For some it might mean a matter of years, while other might consider long term to mean a few weeks or longer. Usually this term is in reference to investment portfolios.

M

Main Street - Used to describe the investing public, where as terms like "Wall Street" is used to investment professionals and brokers.

Manipulation - When a person or group or people illegally inflate or deflate the price of a stock.

Margin - Extended credit granted by a broker to an investor which is governed by the NASD.

Margin Call - A demand by the trader's broker for the trader to put up more money as his stocks have declined in value to satisfy margin requirements set by Federal regulation on the amount of credit that may be advanced by the broker to the trader.

Mark to Market - Recording the price or value of a security, portfolio, or account to reflect the current market value.

Market Capitalization - Market Capitalization, or market cap, is the total market value of a company (number of shares outstanding multiplied by the price of the stock).

Market if Touched - An order to purchase or sell a security as soon as a specific price is reached. Once the order reaches a certain price it automatically becomes a market order.

Market Maker (mm) - A broker-dealer on the NASDAQ who makes a market in a stock. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Market makers are required to honor their quote should they receive an order to buy or sell at their published price but they are only required to honor orders up to the size they are quoting. You can view the size a market maker is offering on a level II quote screen.

Market On Close (MOC) - This is a type of order that will allow you to buy or sell on the close of the market.

Market Order - An order to buy or sell a security at the current market price. Sometimes referred to as "at the market", these orders are usually filled immediately by the market maker. A sell order placed at the market will most likely be filled at the bid price and a buy order will be filled at the ask price.

Market Timing - Attempting to determine changes in market direction before they occur in order to sell a stock or portfolio at or near highs and buy a stock or portfolio at or near lows.

Market Value - The total number of shares outstanding times the curent price per share.

Marubozu Candlestick - Marubozu candlesticks do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

McClellan Oscillator - Developed by Sherman and Marian McClellan, the McClellan Oscillator is a breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. Primarily for short and intermediate term trading. To calculate subtract a 39 day EMA of advancing issues minus declining issues from a 19 day EMA of advancing issues minus declining issues.

(19 Day EMA of Advances - Declines) - (39 Day EMA of Advances - Declines)

When the 19-day EMA (shorter moving average) moves above the 39-day (longer moving average) EMA, it signals that advances are gaining the upper hand. Conversely, when the 19-day EMA declines below the 39-day EMA, it signals that declining issues are dominant.

Buy and sell signals are generated as well as overbought and oversold readings. Usually, readings above +100 are considered overbought and below -100 oversold. These numbers my vary though, depending on previous levels of support and resistance which held.

Mid-cap Stock - Short for "Middle Cap", it usually refers to stocks with a market capitalization of between $250 million and $1 billion.

Momentum - The rate of change at which a stock is rising or falling.

Money Flow - A technical analysis indicator that tracks the money flowing in and out of a stock. Calculated by averaging the high, low and closing prices and multiplying by the daily volume.

Most Active - The stocks on an exchange which had the highest volume over a given period, usually a single days trading.

Moving Average - Shows an average price over a specific period of time. The time periods can vary. The longer the period, the greater lag between the average and the current price.

Moving Average Convergence/Divergence (MACD) - The Moving Average Convergence/Divergence (MACD) indicator is a combination of three exponentially smoothed moving averages. It is calculated by subtracting the 12-period exponential moving average of a given security from its 26-period exponential moving average. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD.

There are 3 common methods to interpret the MACD:

1. Crossovers - When the MACD falls below the signal line it is a signal to sell. Vice versa when the MACD rises above the signal line.
2. Divergence - When the security diverges from the MACD it signals the end of the current trend.
3. Overbought/Oversold - When the MACD rises dramatically (shorter moving average pulling away from longer term moving average) it is a signal the security is overbought and will soon return to normal levels.

N

NASD - National Association of Securities Dealers which is responsible for the operations and regulations of the NASDAQ.

NASDAQ - National Association of Securities Dealers Automated Quotations. Usually just referred to as the NASDAQ Stock Market.

NASDAQ Composite Index - The NASDAQ Comp. is a market capitalization-weighted index of over 5000 stocks.

Neckline - A line connecting the lows of the head in a head and shoulders pattern or highs in an inverse head and shoulders. A move under the neckline of a head and shoulders top is bearish; a move above the neckline of an inverse head and shoulders is bullish.

Net Change - The difference between the closing price of a security on the trading day and the previous day's closing price.

Nikkei - The leading and most respected index of Japanese stocks.

Noise - Fluctuations in the stock market which cloud the interpretation of a stock's trend or pattern.

NYSE - New York Stock Exchange

NYSE Composite Index - The NYSE Comp. is an index that measures the market value of all common stocks listed on that exchange, adjusted to account for capitalization changes, new stocks added to the list, and stocks removed from the list.

O

Odd Lot - An amount of a security that is less than the normal unit of trading for that security. Generally, an odd lot is fewer than 100 shares of stock or five bonds.

Odd Lot Theory - A technical analysis theory based on the assumption that the small investor is always wrong. Therefore, if odd lot sales are up, meaning small investors are selling stock, it is probably a good time to buy.

Offer - See asking price.

On Balance Volume (OBV) - A method developed by Joe Granville and used in technical analysis to detect momentum, the calculation relates volume to price change. OBV provides a running total of volume and show if this volume is flowing in or out.

Open - (1) An un-executed order that is still valid. (2) The start of trading on a securities exchange.

Order - An instruction to buy or sell stocks and in what manner.

Oscillator - A momentum line that fluctuates off a center, usually a zero value line. They are used to measure overbought/oversold levels, show negative and positive divergence, and can be used to measure a price move's velocity.

Outperform - A recommendation often used in broker recommendations, it means the stock is expected to do slightly better than the market return.

Outstanding Shares - The number of shares that are currently owned by investors. This includes restricted shares (shares owned by the company's officers and insiders) and shares held by the public. Shares that the company has repurchased are not considered outstanding stock.

Over-the-Counter (OTC) - A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone, and their activities are monitored by the NASD. The NASDAQ is considered to be an OTC market.

Overbought - Overbought is a technical condition that occurs when prices are considered too high and susceptible to a decline.

Oversold - Oversold is a technical condition that occurs when prices are considered too low and susceptible to a bounce.

Overtrading - Excessive buying and selling, often to a trader's detriment.

P

Panic Selling - A situation where sellers are in abundance, rushing to sell their stocks and causing a sharp decline in the stock's price.

Paper Trading - A way to test out different strategies and setups. No actual transaction takes place as real money is not on the line and profits and losses are said to occur "on paper" only.

Pattern Day Trader (PDT) - Traders who make 4 or more day trades within a 5 day period, unless his/her day-trading activities do not exceed 6% of his/her total trading activity for that time period. If you have only 4 daytrades in a 5 day period but have done more than 67 trades during that time, then less than 6% of the trades were day trades and hence do not categorize a trader as a PDT.

Pennant - A specific type of flag.

Penny Stock - A stock that typically sells for less than $1 a share, although it may rise to as much as $10/share as a result of heavy promotion. All are traded OTC.

Phoenix - A reversal pattern which occurs after a downtrend. Initially the stock or market will pull sharply off lows. This is then followed by a gentle pullback to support. When the high of the previous bar are broken a buy setup occurs with a stock under the low of the pullback or under the low of the entry bar.

Pivot - A price reversal that looks like a "V."

Point - A point is equal to $1.00 in a stock's price.

Point and Figure Charting - Point & Figure charts consist of columns of Xs (showing price rises) and Os (showing price falls) arranged on a square grid. When the index increases, a rising column of black X's is created indicating a rally. When the index falls, a descending column of red O's appears indicating a decline.

Position - An interest in the market, either long or short, in the form of shares held or sold short.

Position Trading - Position trading means holding open positions for an extended period of time, typically a few weeks to a few months. Contrast this with day trading, where a trader buys, then sells before the market closes that day.

Pre-Market Trading - Trading that occurs on weekdays from 8:00-9:30 ET.

Preferencing - Directing an order directly to a specific market maker via SelectNet. The market maker is not obliged to fill the order.

Price/Earnings Ratio - Sometimes referred to as the multiple. P/E Ratio = Market Value per share/Earnings per share (EPS)

EPS is usually from the last four quarters (the trailing P/E ratio), but sometimes from the estimates of the earnings expected in the next four quarters (the projected P/E ratio), or from the sum of the last two actual quarters and the estimates of the next two quarters. Useful for comparing companies.

Print - The price and number of shares for each transaction as shown in the Time and Sales (TOS) portion of the level II screen.

Program Trading - Trades based on signals from computer programs, usually entered directly from the trader's computer to the market's computer system and executed automatically.

Protective Stop - A predetermined exit point used to limit losses in cases where the market goes against your position.

Pump and Dump - An illegal practice in which a small group of informed people buy a stock before recommending it to thousands of traders or investors leading to a quick spike in the price of the stock during which the small group who bought before the recommendation exit their positions. The price spike tends to be followed by an equally steep drop. Companies pumped and dumped in this manner tend to be OTC with a small float so it is difficult for traders to exit at desired prices once the stock starts to pull back.

Pyramiding - Increasing the size of an existing position by opening further positions in the same stock, usually in decreasing increments.

Q

Quote - Short for quotation. The current or delayed price being offered for a particular stock.

R

Rally - A strong upward move in the market, stock, option, etc.

Range - Also known as trading range. A security's low price and high price for a particular trading period, such as the close of a day's trading, the opening of a day's trading, or a day, month or year

Reaction - A price movement opposite the prevailing trend.

Relative Strength Index - An oscillator developed by Welles Wilder. The RSI compares the ratio of up closes to down closes over a specified period of time. The RSI ranges from 0 to 100. The RSI is useful in detecting the following:

* Movement which might not be as readily apparent on the bar chart.
* Failure swings above 70 or below 30 which can warn of coming reversals.
* Support and resistance levels.
* Divergence between the RSI and price which is often a useful reversal indicator.

Resistance Level - A level at which a stock or market will have difficulty breaking. Reversals or trading ranges are common effects of resistance.

Retracement - A price reversal. Also known as a pullback. Common retracement levels are 38%, 50%, and 62%. Other common retracement levels are prior highs and lows, whole numbers, and the opening and closing prices of a gap.

Return - The gain or loss for a security in a particular period, consisting of income plus capital gains relative to investment, usually quoted as a percentage.

Reversal - A directional change in the overall trend. A reversal from an uptrend is a downtrend.

Risk - The amount of money a trader will lose if they are wrong.

Round Lot - The normal unit of trading of a security, which is generally 100 shares of stock or five bonds.

S

Scalp - To trade for small gains. Scalping normally involves establishing and liquidating a position quickly, usually within the same day, hour or even just a few minutes.

Scan - To search for tradable market patterns and setups.

SEC - The Securities and Exchange Commission, the primary federal regulatory agency of the securities industry.

Sector - A group of related stocks. Biotechs and Airlines are two examples of sectors.

Security - A financial asset including any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in a firm.

SelectNet (SNet) - An automated service for the NASDAQ which allows traders to route orders directly to a market maker. The market maker is not obliged to fill the order.

Selling Short - Selling a stock not owned by the trader by borrowing it from a broker with the intent of replacing it at a lower price than it was borrowed and profiting from the price decline.

Selloff - A downward price movement.

Sentiment - The emotional and psychological attitudes of analysts, investors, and traders toward the market. Market sentiment can be bullish, bearish or neutral.

Settlement Date - The date on which payment is made to settle a trade.

Shooting Star - A reversal candlestick occurring at highs in a trend. It looks like an upside-down hammer. The shooting star candlestick has a large upper tail with the body of the candlestick occurring at lows with little or no lower shadow.

Short Covering - Sometimes referred to as buyback. The purchasing of shares previously sold short so the open position is closed.

Short Interest - This is the total number of shares of a stock that investors have sold short looking for a decline in the security's price.

Short Squeeze - This occurs when traders short a stock are faced with rising prices in that stock. Those short begin covering, aiding in the rise of the stock's price. Remaining shorters are squeezed as their losses increase until they too cover their positions.

Sideways Trend - This trend occurs when prices move up and down within an established price range.

Simple Moving Average - A simple, sometimes called arithmetic, moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods.

Slippage - The difference between estimated transaction costs and actual transaction costs. The difference is usually composed of revisions to price difference or spread and commission costs.

Small Order Execution System (SOES) - SOES is a computer network that automatically executes trades in NASDAQ market securities and some NASDAQ SmallCap securities. This allows individual investors the ability to execute trades in fast moving markets.

Specialist - A stock exchange member who stands ready to quote and trade certain securities either for his own account or for customer accounts. The specialist's role is to maintain a fair and orderly market in the stocks for which s/he is responsible

Split - An increase in the number of a corporation's outstanding shares that decreases the par value of its stock. The market value of the total number of shares remains the same. The proportional reductions in orders held on the books for a split stock are calculated by dividing the market price of the stock by the fraction that represents the split.

Spread - (1) In a quotation, the difference between the bid and the ask prices of a security. (2) An options position established by purchasing one option and selling another option of the same class but of a different series.

Standard & Poor's 500 Index (S&P 500) - An index of the 500 largest and most actively traded stocks on the NYSE.

Stochastic Oscillator - Developed by George Lane, the Stochastic Oscillator is a momentum indicator that measures the price of a security relative to the high/low range over a set period of time. The indicator oscillates between 0 and 100, with readings below 20 considered oversold and readings above 80 considered overbought.

Stop - A predetermined price at which a trader will exit to limit risk when a position goes against him/her.

Stop Limit Order - An order placed with a broker to buy or sell at a specified price or better after a given stop price has been reached or passed.

Stop Loss - The predetermined amount that a trader is willing to lose should a position go against him/her.

Stop Order - An order to exit a stock when the price hits a specified level. A stop buy is an order to buy a stock when it hits a certain price above the current market. A stop sell is an order to sell a stock when it hits a certain price below the current market. Stop orders are often used to limit losses or enter positions you cannot watch closely.

Stop-loss Order - An order placed a broker to buy or sell when a certain price is reached. It is designed to limit a trader's loss on a security position, sometimes called stop market order.

Stopped Out - When a position is closed to limit losses at a predetermined stop level.

Support Level - An area where buyers are expected to hold the price up. Often we will expect a rest or reversal at areas of support.

Swing Trade - Holding a position overnight or for several days.

Symmetrical Triangle - A trading range in which each new high is lower than the last and each new low is higher than the last. The range constricts and risk increases on trading within the triangle until a breakout occurs.

T

Technical Analysis (TA) - A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value.

Thin Market - A market with few bid and ask offers. The market is characterized by low liquidity, high spreads, and high volatility.

Tick - (1) The smallest possible price move in a stock. An uptick occurs when the last trade in a security takes place at a higher price than the prior trade. A downtick occurs when the last trade in a security takes place at a lower price than the prior trade. (2) The NYSE tick ($TICK) is an indicator which measures stocks trading on an uptick versus stocks trading on a downtick. Upticks - Downticks = NYSE tick

Time and Sales - A transaction report which records the time, number of shares, and price for each trade.

Trading Curb - A temporary restriction in trading, in a particular security, usually to reduce dramatic price movements.

Trading Halt - A pause in the trading of a particular security on one or more exchanges, usually in anticipation of a news announcement or to correct an order imbalance. During a trading halt, open orders may be canceled and options may be exercised. Trading halts can also be imposed for purely regulatory reasons.

Trading Range - The difference between the high and low prices traded during a period of time.

Trading System - Rules for making trades based on signals generated from evolving price patterns.

Trailing Stop - A stop loss level which is adjusted as the stock moves in the desired direction to maximize gains and limit losses.

Trend - The market's prevalent price direction. There are three primary trends: the uptrend, the downtrend, and the sideways trend.

Trendline - A line on a chart that is used to visualize the trend. An uptrend connects higher lows while a downtrend connects lower highs.

TRIN - See Arms Index.

Triple Witching - This happens four times a year. The 3rd Friday of March, June, September and December. It occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day.

U

Underperform - When a stock is not as strong as the overall market.

Upside - The potential dollar amount by which the market or a stock could rise by.

Uptick - On the NYSE it is a trade taking place at a higher price than the previous trade. On the NASDAQ, a rise in the price of the best bid.

Uptrend - An upward move with higher highs and higher lows.

V

V Bottom/Top - When a stock suddenly reverses direction to form a pattern that look like the letter V for a bottom or an inverted V for a top.

VIX - See CBOE Volatility Index.

Volatility - A measurement of price fluctuation in a stock. When a stock moves sharply it is considered to be volatile.

Volume - The total number of shares traded over a period of time.

W

Wash Sale - The Illegal practice whereby an investor simultaneously buys and sells a security through two different brokers creating the illusion of activity. It is often done to recognize a tax loss without changing one's position.

Wash Sale Rule - Rule of the IRS prohibiting a taxpayer from claiming a loss on the sale of an investment when the same investment was purchased within 30 days before or after the sale date. Also know as the 30-Day Wash Sale Rule.

Whipsaw - A sharp reversal in a market followed very quickly by another sharp reversal. This is a higher risk trading environment as trader's tend to lose no matter which direction they are positioned due to the rapid changes in direction. This is also known as choppy.