Stock Trading Glossary
The stock trading glossary is an extensive range of terms and definitions related to stock trading and financial markets - with references and examples.
Feedback, Corrections and Additions: Glossary Feedback Form 
- %D:
- A stochastics indicator that has had its values smoothed a second time, usually with a three-period moving average.
- 5% Confidence:
- Prior to carrying out 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.
- Abandoned Baby Pattern:
- A rare candlestick pattern in which an upside gap doji star is followed by a downside gap black candlestick.
- References:
- Ref-1
- ABC:
- ABC refers to the Elliott wave terminology for a three-wave countertrend price movement.
- Accumulation:
- An addition to a trader's original market position.
- Accumulation/Distribution Line:
- See Chaikin Oscillator.
- Actuals:
- Actual physical commodities, as distinguished from futures.
- ADA:
- A computer programming language, used by the Department of Defense.
- Adaptive Filter:
- This is smoothing and/or forecasting prices with continuously updated weighting of past prices.
- Advance-Decline Line:
- A line on a graph representing the advance-decline index over a period of time. The direction of the advance-decline line is used to confirm movements in a stock or the market.
- Adverse Excursion:
- Loss attributable to price movement against the position in any one trade.
- References:
- Ref-1
- AKA:
- Abbreviation for "automated knowledge acquisition". This refers to the use of programs to create knowledge needed by other programs.
- Alpha:
- The premium that an investment portfolio earns above a given point of reference.
- American Depository Receipts (ADRs):
- ADRs are certificates that are issued by a bank of US origin and traded in the US as domestic shares.
- Amortization:
- An accounting method in which an asset's cost is spread out.
- References:
- Ref-1
- Analysis of Variance (Anova):
- This is the partitioning of total sum of squares into the sum of squares explained by the model and the remaining sum of squares unexplained.
- Anaume:
- It is one of the candlestick formation.
- References:
- Ref-1
- Anchoring-and-Adjustment:
- The behavioral finance having the tendency to evaluate current decisions in the context of past events.
- Annealing (Simulated):
- This is a process, in artificial intelligence under which a neural network searches for a set of weights to minimize errors; the search constantly shrinks as the weights find better values.
- Annual Earnings Change:
- The percentage value for the historical earnings change between the most recently reported fiscal year earnings and the preceding.
- Annual Net Profit Margin:
- The percentage value that a firm earned from gross sales for the most recent 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.
- References:
- Ref-1
- Arbitrage:
- The simultaneous purchase and sale of two different, but 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:
- A market indicator showing the ratio between the average volume of declining stocks and the average volume of advancing stocks.
- Artificial Intelligence:
- A branch of computer science that studies how to endow computers with capabilities of human intelligence.
- Assign:
- To transfer to another to whom property is assigned.
- Astrophysical Cycle:
- This is any earthly cycle, such as a market cycle, that has been scientifically related to the physics of the planetary system.
- References:
- Ref-1
- Attenuation:
- The loss in power of electromagnetic signals between transmission and reception points.
- At-the-Money:
- An option whose strike price is closest to the current price of the underlying deliverable.
- References:
- Ref-1
- Autocorrelation:
- Correlation of the error terms from different observations of the same variable. Also called serial correlation.
- Autoregressive:
- Using historical data to predict future data.
- 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”.
- Average Directional Movement Index (ADX):
- An indicator to measure market trend intensity.
- Average True Range:
- A moving average of the true range.
- References:
- Ref-1
- Back-Propagation Network:
- A feed forward multilayered neural network used in neural network paradigm.
- References:
- Ref-1
- Back-Testing:
- A process whereby a strategy is tested on historical data and then the strategy is applied to new information to test if the results are consistent.
- Balanced Mutual Fund:
- A mutual fund that seeks a combination of capital appreciation and current income as a return.
- Bandpass Filter:
- Filter with a single transmission band or passband with relatively low attenuation extending from a lower band-edge frequency greater than zero to a finite upper band- edge frequency.
- References:
- Ref-1
- Bank Investment Contracts (BICs):
- BICs are the negotiated-term deposits issued by a commercial bank.
- Bar Chart:
- A charting method which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a horizontal line to the left of the bar, and the closing price, which is marked with a little h
- Basis:
- The difference between cash prices and the futures contract price.
- Basis Points:
- These refer to the yield on bonds, with each percentage point of the yield on the bond equaling 100 basis points.
- Basket Trades:
- Large transactions made up of a number of different stocks.
- References:
- Ref-1
- Bayes Decision Rule:
- A rule stating that the strategy chosen from those available is that for which the expected value of payoff is the greatest.
- References:
- Ref-1
- Bear Market:
- A securities market characterized by declining prices.
- Beta:
- A regression of the estimated coefficient that belongs to a particular variable.
- Beta (Coefficient):
- Beta is the measure of a fund's volatility relative to the market.
- Bias:
- The difference between the expected value of an estimator and the actual value to be estimated.
- Bid and Ask:
- The bid is the highest price a person is willing to pay for a security. The ask is the lowest price at which someone is willing to sell a security.
- Bimodal Distribution:
- In statistics, a bimodal distribution is a distribution with two different peaks - there are two distinct values that measurements tend to center around.
- References:
- Ref-1
- Black Box:
- A proprietary, computerized trading system whose rules are not disclosed.
- Black-Scholes Option Pricing Model:
- This is a statistical formula developed to estimate the market value of a publicly traded stock option.
- References:
- Ref-1
- 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:
- Long-term debt securities with a stated interest rate and fixed due dates.
- Boolean:
- A field of mathematical logic, which allows a database searcher to combine concepts in a keywords search using three commands.
- Box-Jenkins Linear Least Squares:
- The additive structure of Box-Jenkins models with a polynomial structure.
- References:
- Ref-1
- Box-Jenkins Method:
- The method refers to the use of autoregressive integrated moving averages (ARIMA), which fit seasonal models and non-seasonal models to a time series.
- Box-Jenkins Nonlinear Least Squares:
- These are the multiplicative structure of Box-Jenkins models using the Gauss-Newton algorithm with numerical derivatives.
- Bozu:
- A situation during which a trading cycle opens or closes on a high or low.
- Bracketing:
- A trading range market or a price region that is non-trending.
- Breakaway Gap:
- A price gap which occurs in the beginning of a new trend, many times at the end of a long consolidation period.
- References:
- Ref-1
- Breakout:
- The point when the market price moves out of the trend channel.
- Broker-Dealer:
- A securities firm that is acting as a broker or intermediary and/or a dealer or principal in a transaction.
- Bull Market:
- A securities market characterized on rising or high prices.
- Buy and Hold:
- Acquisition of a tradable for the long term rather than quick turnover.
- Call Option:
- A contract which gives the buyer the right, but not the obligation, to buy a specific futures contract at a predetermined price within a limited period of time.
- Calmar Ratio:
- This is a return/risk ratio. Return (numerator) is defined as the Compound Annualized Rate of Return over the last three years. Risk (denominator) is defined as the Maximum Drawdown over the last three years.
- References:
- Ref-1
- Candlestick Charts:
- A chart that indicates the trading ranges for the day as well as the opening and closing price.
- Capital Gains Distribution:
- Payments to mutual fund shareholders of profits from the sale of securities in a fund's portfolio.
- Capital Losses:
- Losses resulting from selling at a loss.
- CBOT:
- Acronym for Chicago Board of Trade.
- Central Limit Theorem:
- A statistical theorem explaining that the distribution of sample means taken from a large population approaches a normal, Gaussian, curve.
- References:
- Ref-1
- Chaikin Oscillator:
- An oscillator created by subtracting a 10-day EMA from a three-day EMA of the accumulation /distribution line.
- References:
- Ref-1
- Channel:
- In charting, a price channel contains prices throughout a trend.
- Chaos Theory:
- The theory of non-linear functions, such that small differences in the input of the function can result in large and unpredictable differences in the output.
- Charts:
- A display or picture of a security that plots price and/or volume.
- Chi Square:
- A statistical test to determine the probability that an observed deviation from the expected event or outcome occurs solely by chance.
- Christmas Tree Spread:
- The simultaneous purchase and writing of options with either a different strike price or expiration date or combination of the two.
- References:
- Ref-1
- Classifier Systems:
- In artificial intelligence, these systems perform a type of machine learning that generates rules from examples.
- Clone Fund:
- A fund which tries to copy the strategy of a successful, existing fund.
- References:
- Ref-1
- Closed Trades:
- The positions that have been either liquidated or offset.
- Closed-End Funds:
- The mutual funds that do not sell unlimited shares.
- Clustering:
- Locating the presence of groups of vectors that are similar in some fashion.
- CME:
- Acronym for Chicago Mercantile Exchange.
- Coefficient:
- A number expressing the amount of some change or effect under certain conditions.
- Coefficient of Determination:
- A measure of the total variance in a dependent variable that is explained by its liner relationship to an independent variable. It is usually denoted R2 and lies between zero and unity; the closer to unity, the greater the explanatory power.
- References:
- Ref-1
- Coincidence:
- In the Gann theory, coincidence is a projected reversal point.
- Colinear:
- See Multicolinearity.
- Combined Forecast:
- The weighted average of two or more forecasts.
- Commodity Futures Trading Commission (CFTC):
- The federal regulatory agency that oversees the futures and options on futures markets in the United States.
- Comparative Relative Strength:
- An index which compares the price movement of a stock with that of its competitors, industry group or the entire market.
- Comparitor:
- A device of some kind that compares two inputs.
- References:
- Ref-1
- Compounding:
- The process by which income is earned on income that has previously been earned.
- Confidence Factor:
- A measure of the degree of likelihood that a rule is correct.
- Confidence Level:
- The degree of assurance that a specified failure rate is not exceeded.
- Confirmation:
- The 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 sequence of trading days in which there is no visible progress in price.
- References:
- Ref-1
- Consolidation:
- 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. This facilitates the transition of one contract to the next.
- Contract:
- An agreement as in options in which rights are exchanged by law.
- Convergence:
- A situation when futures prices and spot prices come together at the futures expiration.
- Conversion Arbitrage:
- A transaction where the asset is purchased and buys a put option and sells a call option on the asset purchased, each option having the same exercise price and expiry.
- References:
- Ref-1
- Coppock Curve:
- A long-term price momentum indicator.
- References:
- Ref-1
- 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 cycle of waves moving against the current impulse trend's direction.
- Correlation Coefficient:
- A numerical value that identifies the strength of relationship between variables.
- Correlogram:
- A measure of spatial dependence (correlation) of a regionalized variable over some distance.
- References:
- Ref-1
- 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.
- Covariance:
- A measure of the relation between two variables. The correlation coefficient is equal to the covariance of x and y divided by the product of the standard deviation of x and the standard deviation of y.
- Cover:
- Purchasing back a contract sold earlier.
- Covered Write:
- The sale of a call option against an existing long (short) position in the underlying contract.
- Crack Spreads:
- The spread between crude oil and its products.
- Credit Spread:
- The difference in value of two options, where the value of the one sold exceeds the value of the one bought.
- 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.
- Cup and Handle:
- An accumulation pattern observed on bar charts, which lasts from seven to 65 weeks.
- Current Ratio:
- Current assets divided by current liabilities. This ratio indicates the extent to which the claims of short-term creditors are covered by assets expected to be converted to cash in the near future.
- 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.
- Cutoff Frequency:
- That frequency beyond which no appreciable energy is transmitted.
- Cycle:
- A variation where a point of observation returns to its origin.
- Data Preprocessing:
- Altering data to some extent to be more accurately analyzed.
- Dead Cat Bounce:
- A rebound in a market that sees prices recover and come back up somewhat.
- References:
- Ref-1
- Debit Spread:
- An option spread in which the premium of the bought option is greater than the premium of the one sold.
- 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 call option which has the strike price of the option well below the current price of the underlying instrument.
- References:
- Ref-1
- Degrees of Freedom:
- 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:
- A statistical measure of the relationship between an option contract's price movement to the price movement of the underlying futures contract or stock price.
- Delta Neutral:
- An option portfolio delta-hedged such that it has no exposure to small moves in the price of the underlying.
- Delta Position:
- A measure of option price vs. the underlying futures contract or stock price.
- Delta-Hedged:
- An option approach which saves an option against small price fluctuations in the option's underlying instrument.
- References:
- Ref-1
- Demand Index:
- A leading indicator which combines volume and price data in such a way as to indicate a change in price trend.
- Density Function:
- A function describing the "density" of a variable at a point.
- 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 c
- Derivatives:
- Instruments, such as options and futures contracts, which derive their value from the value of an underlying security, group of securities or an index.
- Deterministic:
- Known in advance when the sum of one-step ahead forecast mean squared errors is zero.
- Deterministic System:
- In mathematics, a deterministic system is a system in which no randomness is involved in the development of future states of the system.
- References:
- Ref-1
- Detrend:
- To remove the general tendency 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 difference were 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 calculates the percentage of individual series that are positive compared with the aggregate group.
- Directional Movement Index (DMI):
- An index which measures market trend.
- Distribution:
- Any set of related values described by an average, which identifies its midpoint, a measure of spread and a measure of its shape.
- 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 plan offered by some companies where the shareholder’s dividends are used to purchase additional shares in the company.
- References:
- Ref-1
- Doji:
- Single candlestick pattern that forms when the open and close are equal or almost equal.
- Dollar Cost Averaging:
- Investing a set amount of money, at regular intervals, over a long period of time.
- Double Bottom (Top):
- A reversal pattern consisting of two price troughs: The market declines to a new low, retraces, then falls again to the approximate price level of the first trough and retraces again. The implication is that by failing to break below the first price low,
- Double-Smoothed:
- A price series that has been smoothed by a mathematical technique such as a moving average.
- Drawdown:
- The reduction in account equity as a result of a trade or series of trades.
- Drunkard's Walk:
- See Random Walk.
- References:
- Ref-1
- Durbin-Watson Statistic:
- The probability that first order correlation exists.
- Dynamic Data Exchange:
- Ability to automatically update an application from within another application.
- Dynamic Linked Language:
- Refers to programming code that can be used by the main program while running under Windows.
- References:
- Ref-1
- Earnings Estimates:
- The estimated earnings projected for a company for a fiscal year.
- Efficient Market Theory:
- A theory stating that stock prices perfectly reflect all market information that is known by all investors.
- References:
- Ref-1
- Elasticity:
- The ability to recover an original configuration.
- Electronic Communications Network:
- Independent execution systems set up by brokerage firms.
- Elliott Wave Theory:
- The basis of a technical analysis technique for predicting the behavior of the stock market. It is based on the belief that markets exhibit well-defined wave patterns that can be used to predict market direction.
- References:
- Ref-1
- Engulfing Pattern:
- In candlestick terminology, a reversal signal with two opposing-color real bodies making up the pattern.
- References:
- Ref-1
- Entry:
- The point at which a trader gets into a position in the market.
- Envelope:
- Lines surrounding an index or indicator that is, trading bands.
- Equilibrium Market:
- A price region that represents a balance between demand and supply.
- Equivolume Chart:
- A chart that measures the relationship between price and volume. Price is measured on the vertical axis and volume is measured on the horizontal axis.
- ERISA:
- The Employee Retirement Income Security Act.
- References:
- Ref-1
- 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:
- US currency held in banks outside the US, primarily in Europe.
- Evening Star Pattern:
- The bearish counterpart of the morning star pattern; it should be acted on if it arises after an uptrend.
- Exchange-Traded Funds:
- These are not mutual funds in the traditional sense; rather, they are hybrid instruments combining aspects of common stocks and mutual funds and offering many of the benefits of both.
- References:
- Ref-1
- 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 security.
- Exit:
- The point at which a trader closes out of a trade.
- Expert Systems:
- Systems in which human expertise is held in the form of rules which enable the system to diagnose situations without the human expert being present.
- 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.
- Extreme:
- The highest or lowest price during any time period, a price extreme.
- Fade:
- Selling a rising price or buying a falling price.
- 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.
- Failure Swings:
- The failure of price to reaffirm a new high in an uptrend or a new low in a downtrend.
- Fair Values:
- The theoretical prices generated by an option pricing model.
- Fast Fourier Transform:
- An efficient algorithm to compute the discrete Fourier transform (DFT) and it’s inverse. They are of great importance to a wide variety of applications, from digital signal processing to solving partial differential equations to algorithms for quickly mul
- References:
- Ref-1
- Fast Market:
- Rapid movement in a market caused by strong interest by buyers and/or sellers.
- Federal Deposit Insurance Corporation:
- A self-sustaining, independent executive agency established to insure deposits of all US banks entitled to federal deposit insurance.
- Federal Open Market Committee:
- The policymaking committee of the Federal Reserve Bank.
- Federal Reserve Bank:
- The governing central bank of the US.
- Feed forward Computation:
- Neural network in which neurons receive data 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).
- Fibonacci Sequence:
- The sequence of numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...), which is 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 pre
- Fill:
- An executed order.
- Fill Order:
- An order that must be filled or canceled immediately.
- Filter:
- A device or program that separates data, signals or information.
- Filter Point:
- The time at which a portfolio insurance program makes an adjusting trade.
- 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 knowledg
- Fit Criterion:
- A quantitative comparable measure used to minimize model errors.
- References:
- Ref-1
- 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.
- References:
- Ref-1
- 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.
- 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.
- References:
- Ref-1
- Fractals:
- Depiction of mathematical models that may be applied to identify data patterns.
- Framing or Frame Dependence:
- The tendency to evaluate current decisions within the framework in which they have been presented.
- Frequency:
- The number of complete cycles observed per time period
- Frequency Component:
- That part of a time series that may be represented as a cycle.
- Frequency Distribution:
- An arrangement of data to show the number of times an event occurs in a particular way.
- Frequency Domain:
- The analysis of mathematical functions with respect to frequency.
- Frequency Response:
- A measure of what frequencies can be reproduced and how accurately they are reproduced.
- Front Month:
- The first expiration month in a series of months.
- Front-Loaded:
- Commission and fees taken out of investment capital prior to beginning work.
- Front-Running:
- Trading ahead of large orders to take advantage of favorable price movement.
- Fundamental Analysis:
- Research and examination of a corporation's financial statements and balance sheets to predict the future price movements of their securities.
- References:
- Ref-1
- 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 process that can be applied to neural networks, expert systems and other computing methods. These systems process inaccurate information inexactly and describe ambiguity rather than the uncertainty of an occurrence and are useful in perf
- Gann Theory:
- Various analytical techniques developed by legendary trader W.D. Gann.
- Gann's Square of 9:
- A trading tool that relates numbers, such as a stock price, to degrees on a circle.
- Gap:
- A day in which the daily range is completely above or below the previous day's daily range.
- Genetic Algorithms:
- A class of heuristic search methods and computational models of adaptation and evolution based on natural selection.
- Genetic Programming:
- In artificial intelligence, this form of programming automatically generates a program from a set of primitive constructs.
- Give-up:
- When a broker executes an order for another broker's client and the two brokers split the commission.
- Golden Mean or Golden Ratio:
- The ratio of any two consecutive numbers in the Fibonacci sequence, known as phi and equal to 0.618.
- Golden Section:
- A unique measurement phenomenon in nature wherein the off-centered proportional finite value of about 5 to 8 represents a measurement with infinite values.
- References:
- Ref-1
- Greeks:
- Jargon; a loose term encapsulating a set of risk variables used by options traders.
- Gross Domestic Product:
- Value of all goods and services produced domestically.
- Growth Fund:
- A fund designed to provide capital appreciation by investing in stocks with growth potential.
- Guaranteed Investment Contracts (GICs):
- Product offered by life insurance companies to pension funds which pay investors a stated rate of return for a stated term.
- Harami:
- In candlestick terminology, a small real body contained within a relatively long real body.
- Head and Shoulders:
- When the middle price peak of a given tradable is higher than those around it.
- Hedge Fund:
- A mutual fund involving speculative investing in stocks and options.
- Herrick Payoff Index:
- This is a commodity trading tool used for the early spotting of changes in price trend direction. The index is used to differentiate trends that are destined to continue from those that will most likely be short-lived.
- References:
- Ref-1
- Heuristic Bias:
- The use of rules of thumb for decisions.
- Heuristic Method:
- Problem solving approached by trying out several different methods and comparing which pro vides the best solution.
- References:
- Ref-1
- Heuristics:
- A problem-solving technique in which the most appropriate solution is selected using rules. Interfaces using heuristics may perform different actions on different data given the same command.
- Hidden Node:
- Elements that give a neural network the ability to learn nonlinear patterns.
- Hierarchical Neural Network:
- In artificial intelligence, a neural network in which predictions derived from networks at one level of the hierarchy are incorporated as inputs at another level.
- High Pass Frequency Filter:
- A detrending filter that lets pass the high frequency noise and rejects low frequency trend.
- High-Ticking:
- To pay the offered price.
- Hines Ratio:
- A modified put/call ratio that refines traditional option ratio analysis by including the open interest figures in the equation and can be defined as (Total put volume/Total put open interest) divided by (Total call volume/Total call open interest).
- References:
- Ref-1
- Historic Volatility:
- Measuring a contract’s price fluctuation over a past period of time; usually done with a standard deviation of price changes over time.
- Historical Data:
- A series of past daily, weekly or monthly market prices.
- Hook Day:
- A trading day in which the open is above/below the previous day's high/low and the close is below/above the previous day's close with narrow range.
- Implied Volatility:
- A measurement of the market's expected price range of the underlying currency futures based on the traded option premiums.
- Impulse:
- A sharply defined change in a series of input data being studied, such as market prices or volume.
- Impulse Wave:
- A wave or cycle of waves that carries the current trend further in the same direction.
- In Play:
- A stock that is the focus of a public bidding contest, as in a takeover or bear raid.
- Income Dividends:
- The distribution of earnings to stockholders by a company.
- Index Fund:
- A mutual fund that replicates the behavior of a given index.
- Inductive Logic:
- The progress from statements describing particular events to a general statement.
- Inefficient Markets:
- Driven by frame dependence and heuristic bias, when market prices stray from fundamental values.
- Initial Balance:
- The initial auction of the trading day.
- Initial Public Offering:
- When a stock is officially available for the public to buy.
- References:
- Ref-1
- Inside Day:
- A day in which the daily price range is completely within the previous day's daily price range.
- Interest Rate Swaps:
- An agreement to swap interest rate exposures from floating to fixed or vice versa. There is no swap of the principal.
- Intermarket Analysis:
- Observing the price movement of one market for the purpose of evaluating a different market.
- In-the-Money:
- A put option that has a strike price higher than the underlying futures price, or a call option with a strike price lower than the underlying futures price.
- Intrinsic Value:
- The amount by which the price of a warrant or call option exceeds the price at which the warrant or option may be exercised.
- Investment Clubs:
- A group of individuals who pool money together for investments in the stock market.
- IRA:
- Individual Retirement Account. An interest-earning retirement savings account in which the allowable contributions and earnings are not taxed until the funds are withdrawn.
- Irregular Flat:
- A type of Elliott wave correction that has a 3-3-5 wave pattern, where the B wave terminates beyond the start of wave A.
- Island:
- Electronic communications network.
- Jumbo Certificate of Deposit:
- A CD worth at least $100,000.
- References:
- Ref-1
- Kalman Filters:
- 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.
- Kelly's Law:
- Bet bigger when the odds are in your favor.
- Knowledge Base:
- In artificial intelligence, a given inventory of knowledge specific to a set of rules.
- Kondratieff, Nikolai:
- Developer of a wave theory.
- KST:
- A weighted summed rate of change oscillator.
- Kurtosis:
- Descriptive measure of how flat or pointed a distribution is.
- References:
- Ref-1
- Latest Quarterly Earnings:
- The percentage change from the latest earnings reported compared with the same quarter a year earlier.
- Law of Series:
- A succession of random events.
- Lead:
- The number of data points that a filter precedes the input price data.
- LEAPS:
- Acronym for long-term equity anticipation securities , which are long-term listed options, with maturities that can be as long as two and a half years.
- Least Squares Method:
- A technique of fitting a curve close to some given points that minimizes the sum of the squares of the deviations of the given points from the curve.
- Leg:
- One side of a spread.
- Leg Out:
- In rolling forward in futures, a method that would result in liquidating a position.
- Limit Move:
- A change in price that exceeds the limits set by the exchange on which the contract is traded.
- Limit Order:
- An order to buy or sell when a price is fixed.
- Limit Up, Limit Down:
- Commodity exchange restrictions on the maximum upward or downward movements permitted in the price for a commodity during any trading session day.
- LISP:
- A programming language based on predicate logic and is the one most commonly used in artificial intelligence applications.
- Ljung-Box Statistic:
- A chi-square test of significance of higher order correlation existence.
- References:
- Ref-1
- Load:
- Situation in which a front-loaded mutual fund takes commission and fees out of investment capital before the money is put to work.
- Local:
- The trader in a pit of a commodity exchange who buys and sells for his or her account.
- Locked Limit:
- A market that, if not restricted, would seek price equilibrium outside the limit but, instead, moves to the limit and ceases to trade.
- Long:
- Establishing ownership of the responsibilities of a buyer of a tradable.
- Lookback Interval:
- The number of periods of historical data used for observation and calculation.
- References:
- Ref-1
- Low Pass Frequency Filter:
- A data smoother or filter that lets pass low frequency trend sinusoids and rejects high frequency noise (see SMA).
- Low-Ticking:
- To sell at the bid price.
- Macro:
- A computer method commonly used in spreadsheets to automate repetitive steps by recording the necessary keystrokes.
- Major Auction:
- The overall trend of the market such as might be observed on a bar chart.
- Managed Futures:
- A fund that uses the futures market as its primary asset.
- Mandelbrot Set:
- A set of complex numbers that has a highly convoluted fractal boundary when plotted.
- References:
- Ref-1
- Mapping:
- A function, or relation between values.
- Margin:
- In stock trading, an account in which purchase of stock may be financed with borrowed money.
- Marginal Significance Level of Test-Statistics:
- The probability distribution used to test the hypothesis that the beta coefficient does not equal zero.
- Marked to Market:
- At the end of each business day the open positions carried in an account held at a brokerage firm are credited or debited funds based on the settlement price of the open positions that day.
- Market Breadth:
- The shares of a particular stock traded during a specific period.
- Market If Touched:
- Resting order with the floor broker that becomes a market order to be executed if the trigger price is traded.
- Market Maker:
- A person or firm authorized to create and maintain a market in an instrument.
- Market on Close:
- An order specification that requires the broker to get the best price available on the close of trading.
- Market Order:
- An order to buy or sell a futures or options contract at whatever price is obtainable when the order reaches the trading floor.
- Market Risk:
- The uncertainty of returns attributable to fluctuation of the entire market.
- Market Sentiment:
- A measurement of bullish or bearish attitudes among investors and traders.
- Market Timing:
- Using analytical tools to devise entry and exit methods.
- Market Value:
- Company value determined by investors.
- Markov Chain:
- A set of processes where the probabilities for the next state are dependent on the present state.
- References:
- Ref-1
- Martingale:
- A system that requires doubling your bet after each loss, so that winning once you recoup the amount originally bet.
- MATIF:
- The Marche A Terme Des Instruments Financiers exchange in Paris.
- Maxima:
- The highest or maximum value.
- Maximax:
- Optimistic decision-making that identifies the decision alternative with the best possible outcomes.
- References:
- Ref-1
- Maximin:
- Pessimistic decision-making that identifies the decision alternative with the worst possible outcomes.
- Maximum Adverse Excursion:
- A historical measurement of the closed losing trades versus the closed profitable trades of a trading system.
- Maximum Entropy Method:
- A tool for spectrum analysis and a method of adaptive filtering and trend forecasting.
- Maximum Entropy Spectrum Analysis:
- See Maximum Entropy Method.
- References:
- Ref-1
- Mean:
- When the sum of the values is divided by the number of observation.
- Mean Deviation:
- The average absolute value of the difference between the population of numbers and the mean.
- Mean P/L:
- The average profitability of a trader's account.
- Mean Return:
- The average monthly total return of a stock.
- Mean Reverting:
- The state when price is oscillating randomly about some mean value.
- Median Line:
- The line that is drawn from an extreme that bisects a line drawn through the next corrective phase after the pivot point.
- MEM:
- See Maximum Entropy Method.
- Mental Stop-Loss:
- A stop-loss order kept in your head instead of instructing your broker.
- MESA:
- See Maximum Entropy Spectrum Analysis.
- Minima:
- The lowest or minimum value.
- Minor Auction:
- The latest trend of the market.
- Mode:
- The most frequently occurring value.
- Model:
- Equation.
- Modern Portfolio Theory:
- Investing theory in which portfolio managers estimate and manage risk and return.
- Modified Endowment Contract:
- Life insurance in which funds are considered as gross income and are subject to income tax.
- References:
- Ref-1
- Momentum:
- Time series representing change of today's price from some fixed number of days back in history.
- Momentum Filter:
- A measure of change, derivative or slope of the underlying trend in a time series.
- Momentum Indicator:
- A market indicator utilizing price and volume statistics for predicting the strength or weakness of a current market.
- Money Flow:
- An indicator that calculates an indexed value based on price and volume for the number of bars specified in the input length.
- Money Market:
- The market for short term debt instruments maturing in one year or less.
- Money Market Fund:
- A mutual fund investing in short term money market instruments.
- References:
- Ref-1
- Money Stop:
- A fixed amount of money that a market participant would lose if a stop were hit.
- Monowave:
- In Elliott wave theory, a single wave within a range of waves.
- Morning Star:
- A bottom reversal pattern, according to Steve Nison a signal that the bulls have seized control.
- Moving Average:
- A mathematical procedure to smooth or eliminate the fluctuations in data and to assist in determining when to buy and sell.
- Moving Average Convergence/ Divergence (MACD):
- The crossing of two exponentially smoothed moving averages that are plotted above and below a zero line.
- References:
- Ref-1
- Moving Average Crossovers:
- The point where the various moving average lines intersect each other or the price line on a moving average price bar chart.
- Moving Window:
- Snapshot of a portion of a time series at an instant in time.
- Multicolinearity:
- The situation in which the independent variables used in a regression analysis are related to each other.
- Multiple Linear Regression:
- More than one independent variable is used to account for the variability in one dependent variable.
- References:
- Ref-1
- Mutual Fund:
- A company that invests money of its shareholders in a variety of areas, usually stocks.
- Narrow Range Day:
- A trading day with a smaller price range relative to the previous day's price range.
- National Association of Investors Corporation:
- Also known as the National Association of Investment Clubs.
- Near-Month Contract/Far-Month Contract:
- Contract whose expiration is near/far.
- Near-the-Money:
- An option with a strike price close to the current price of the underlying tradable.
- Neckline:
- A trendline drawn along the support or resistance points of various reversal and consolidation pattern.
- Negative Amortization:
- A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create negative amortization.
- References:
- Ref-1
- Negative Divergence:
- When two or more averages, indices or indicators fail to show confirming trends.
- Net Asset Value:
- The total market worth of all securities contained in a mutual fund.
- Neural Network:
- An artificial intelligence program that is capable of learning through a training process of trial and error.
- No-Action Letter:
- An SEC letter sent in response to a written request for clarification of the legality of an activity saying that no civil or criminal action will be taken against an individual engaging in the specific activity questioned.
- Noise:
- Price and volume fluctuations that can confuse interpretation of market direction.
- Noisy Signal:
- A signal in which the effects of random influences cannot be dismissed.
- No-Load:
- Without any sales charge.
- Nonlinear Dynamics Analysis:
- Analysis of relationships that start from well-defined outcomes to complex and chaotic results.
- References:
- Ref-1
- Nonlinear Statistics:
- Statistics theory that attempts to define probability distribution from disorder to either a more orderly state or a sharp trend reversal.
- Non-Seasonal Autocorrelation:
- Autocorrelation that shows up other than at 12-month lag intervals.
- Non-Trend Day:
- A narrow range day lacking any discernible movement in either direction.
- Normal Distribution:
- The normal distribution (a bell-shaped curve) represents a theoretical frequency distribution of measurements. In a normal distribution, scores are concentrated near the mean and decrease in frequency as the distance from the mean increases.
- Normalized:
- Adjusting a time series so that the series lies in a prescribed normal, standard range.
- Notice Day:
- The day that a notice of intent to deliver is issued to a futures contract holder.
- Null Hypothesis:
- The hypothesis that there is no validity to the specific claim that two variations (treatments) of the same thing can be distinguished by a specific procedure.
- References:
- Ref-1
- OBV:
- See On-Balance Volume.
- Odd Lot:
- An order to buy/sell fewer than 100 shares of stock.
- Off Farm:
- The amount of stocks held by non-producers including supplies held at mills, elevators, terminals, and processors.
- On Farm:
- The amount of stocks held by producers.
- On-Balance Volume:
- Plotted as a line representing the cumulative total of volume.
- References:
- Ref-1
- One-Tailed T-Test:
- A statistical test of significance for a distribution that changes its shape as N gets smaller.
- OPEC:
- Organization of Petroleum Exporting Countries.
- Open Trades:
- Current trades that are still held active in the customer's account.
- Opening Call:
- A period at the opening of a futures market in which the price for each contract is established by outcry.
- Opening Print:
- The first price of a stock that comes across the ticker for the session.
- Opening Range:
- The range of prices that occur during the first 30 seconds to five minutes of trading, depending on the preference of the individual analyst.
- Opportunity Costs:
- Income foregone by the commitment of resources to another use.
- Optimization:
- Finding the solution that is the best fit to the available resources.
- Option:
- A security that represents the right, but not the obligation, to buy or sell a specified amount of any security at a specific price before or at a specific time.