Bar chart: A bar chart is a price chart that depicts a trading period (a day, week, month, hour, minute, etc.) as a vertical line ("bar") with the length of the line representing the spread between the low price and the high price of that period and two small hash marks on either side of the bar. The mark on the left indicates the opening price and one on the right indicates the closing price for the period. Other types of charts include line charts (which use just one price such as the closing price), candlestick charts (see below) and point and figure charts (see below).

Base or basing formation: A pattern of relatively sideways price action over a period of weeks or months that consolidates a major price move (trend). It may provide a platform for the continuation of the trend or for a reversal of the trend.

Bear Market: An intermediate-term trend (measured in months) of generally lower prices. Some use a minimum decline of 20% as an indication of a bear market.

Beta: A measure of how closely a stock’s movement correlates to the movement of the entire stock market or a relevant index. A high beta stock will correlate highly with the directional movement of an index and will have a greater percentage change in that direction than the benchmark market or index.

Bid/Ask: Equities have two prices, a price at which someone is willing to buy your shares from you (the bid) and a price at which someone is willing to sell their shares to you (the ask). The difference between the two prices is called ‘the spread.’

Block trade: A single trade of a large number of shares, usually 5-10,000. Block trades are usually made by institutional investors and block trade activity can be a sign of institutional sponsorship, or the lack thereof.

Breakaway Gap: A gap that occurs from a defined base, usually on high volume and which is usually not ‘filled.’ Filling a gap means that the price trades down into the gap area.

Breakdown: A breakdown refers to price moving down through an important support level. Breakdowns can be opportunities for selling short if certain technical, volume and market characteristics are present and if the next important support level is far below.
 

Breakout: A breakout refers to price moving up through an important resistance level. At TSR, "breakout" is used to describe upside moves only, while "breakdown" is used to describe similar downside moves. Breakouts can present buying opportunities if certain technical, volume and market characteristics are present and if the next important resistance level is far above.

Broader market:The collection of stocks represented by, for example, the S&P 500 index, the S&P 400 mid-cap index and the S&P 600 small cap index. We often focus our attention on the Nasdaq market because most of the growth stocks that comprise the Consensus list are found there.

Bull Market: A name for a market or stock in which the intermediate-term trend (measured in months) is up.

Buy Stop: A type of order that executes your trade only if the price of the stock or commodity rises to a particular level.

Call Option: An option which gives the holder the right to buy the underlying security at a specified price for a certain, fixed period of time.

Candlestick chart: A price chart originally developed by Japanese rice traders and that uses narrow rectangles (candles) and thin lines above and below them (resembling ‘wicks’ but called shadows) to represent the opening, high, low and closing price of each trading period. The TSR website will soon have a special section on candlestick terminology to explain this important charting method further. See Steve Nison’s book Japanese Candlestick Charting Techniques for more information.

Close (or 'closing price'): The final trade price of the day (or other time period).

Congestion / consolidation: Congestion or consolidation refers to a period of non-trending or sideways price movement, which may look random or may take various geometric shapes. When it looks like a rectangle it is usually described as a ‘trading range’.

Contrary Indicator: An indicator who’s actual meaning is the reverse of its apparent meaning. For example, highly bullish sentiment readings are considered indicators of impending corrections.

Correction: A correction is a short-term move in the opposite direction to a recent trend. Corrections often retrace 1/3, ½ or 2/3 of a previous move. See also Pullback and Retracement.

Cover: To exit a short position by buying back shares.

Cup and handle pattern: A cup and handle is the name of a particular kind of high-level basing pattern identified by William J. O’Neil, the founder of Investor’s Business Daily. O’Neil associated the successful resolution of this pattern with strong, long-term moves in stocks. The pattern includes a round-bottomed price decline and recovery back to the level where the decline began that looks like a "cup", and then a slight pullback, preferably on declining volume (the "handle"). A glance at the daily stock charts in IBD will afford you many examples.

Cyclicals: Companies whose revenues cycle along with the business cycle.

Defensive stocks: Defensive stocks are those names to which traders flee during periods of market weakness. Defensive stock groups might include utilities, energy, healthcare and pharmaceuticals, reits (real estate investment trusts) and consumer oriented dividend-yielding stocks. Recent market volatility, however, has changed the defensive landscape to some degree. Utility and energy stocks, for example, became momentum stocks in the summer of 2000, so defensive sectors may change with market conditions.

Double bottom: A double bottom is a trend reversal pattern consisting of two significant nearby price troughs that form a ‘W" (or possibly a "U" and a "V") and put an end to a long decline. A bottom is completed and an uptrend often begins when price advances above the top of the ‘W" and stays above it.

Double top:A double top is a trend reversal pattern consisting of two price peaks that form a "M"-like shape. The market rallies to a new high, retraces, then rallies again to the approximate price level of the first peak. Then it drops below the level of the bottom of the "M". When price moves below the bottom of the "M" the uptrend is considered broken and one usually sees further price declines.

Down Trendline: A straight line with a negative slope that connects two or three highs.

Earnings per share: After-tax profits, in dollars, divided by the number of outstanding shares. "Pro forma" earnings are profits before interest expenses, extraordinary items, depreciation, taxes, etc. Since Enron, pro forma earnings have much less value.

Fibonacci numbers: A mathematical series in which each consecutive number is the sum of the two preceding numbers: 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. As the series progresses, the ratio of a Fibonacci number divided by the immediately preceding number comes closer and closer to 1.618, the "golden mean," a ratio found in many natural phenomena. Traders use various combinations of Fibonacci numbers to project the extent of advances and the depth of possible retracements. The common 1/3 and 2/3 retracements roughly coincide with 38.2% and 61.8%, which are among the most commonly used numbers derived from Fibonacci ratios.

Fill: The execution of an order. Fill price is the price at which an order is executed.

Futures: Futures contracts are contracts for the delivery of specified commodities at a specific time. Stock market indices also have futures contracts, which reflect speculation as to the prices of the relevant indices themselves. Futures trade during the normal trading day but also trade before and after the equity markets. Thus, the premarket futures prices influence where the stock market itself opens. Bloomberg, CNBC, CNNfn and other financial news networks report on the index futures as a matter of course in premarket commentary.

Gap: A break in the normal overlapping pattern of price bars creating a ‘window’ or ‘gap’ where no trades occurred. Gaps can be ‘up-gaps’ or ‘down-gaps’ depending on the direction of the trade when it resumes. Gaps commonly occur at the opening of trading due to news that broke before the market opened. Most gaps are eventually ‘filled’, meaning price will come back and trade into the gap area. Certain kinds of gaps, such as ‘breakaway’ gaps, which can occur on significant company news, may never be filled. Gaps usually provide important support and resistance. Steve Nison discusses gaps in detail in his book Japanese Candlestick Charting Techniques.

GARP / GAAP: Growth At a Reasonable Price / Growth At Any Price. The momentum market of the mid to late 90’s was a GAAP market where valuations of high-growth stocks were stretched. GARP is a more conservative method of valuing stocks that compares a company’s PE (price earnings ratio) to their current or future earnings growth rate. A PEG (PE to earnings growth rate) ratio of 1 or less is considered by some to be GARP. Jim Oberweis, one of our Consensus analysts uses a maximum PEG of .5 based on projected 12-month growth. (See PEG)

Good-till-canceled (GTC) order: A trade order that remains open until it is filled, or until you cancel it, or until a pre-set time based on the customary practice of your broker (often 60 days.)

Head and shoulders pattern: A pattern consisting of three price peaks (for a top), where the middle peak (the "head") is higher than the peaks on either side of it (the "shoulders"). A head and shoulders bottom is simply the reverse of this pattern where a lower low is made between two higher lows (the "W" bottom). Head and shoulders patterns should only be thought of as potential reversal patterns when they occur after extended up or down trends.

High-level pattern: An identifiable chart pattern that develops near the highs of a trend. For example, a base that occurs at the top of an uptrend could be called a "high-level base."

Initial Risk: Initial risk is the distance between your entry price and your protective stop.

Inside Day: A trading day in which the day’s range is within the range (high and low) of the previous day.

Key reversal: An intraday pattern of price action that occurs when a stock or market makes an unexpected and dramatic change of direction. The implication is that sentiment has shifted and a reversal of the recent trend is likely.

Limit up or limit down (also "lock limit up" or down): The largest one-day price move allowed in a futures contract, up or down. Limit moves are indicative of panic buying or selling and may ‘lock’ traders into positions for a period of time.

Limit order: A trade order with a specified execution price. For example "Buy 100 shares of Intel at 25 limit" or, "Sell 100 shares of Juniper at 40 5/8 limit." Your broker cannot pay more than $25 for your shares of Intel nor receive less than $40 5/8 for your Juniper shares. A standard limit order is good for the remainder of the day it is entered unless you manually cancel the order. At the end of the day, your broker will cancel the order automatically if it has not been filled unless you specified it as GTC (Good til Cancelled).

Liquidity: The volume of trading activity in a particular stock or market, and therefore a measure of the ease with which you can get in and out. A ‘thin’ or thinly traded stock or market is one with little liquidity. Stocks that lack liquidity may be subject to dramatic price swings on news or in generally volatile times. They may also have wide ‘spreads,’ i.e. the difference between the bid and the ask price, because there is little price competition.

Listed stock: A listed stock is a stock that is traded by a specialist on the NYSE or AMEX. Other exchanges handle trades using electronic matching of buy and sell orders (ECNs).

Low-level (pattern): A pattern that develops near the bottom of a trend. For example, a breakout above the top of a "W" bottom after a long decline could be called a "low-level breakout."

MACD: An abbreviation for a type of exponential moving average developed by Gerald Appel called Moving Average Convergence/Divergence. It is available on most professional charting software.

Market Maker: Market makers create an orderly market in a stock or commodity and are the buyers of last resort.

Market order: A trade order intended to be executed at the best possible price currently available ("at the market"). In this case you are not specifying what price you want. If you do not specify a limit price, your order will be assumed to be a market order.

Measured move: A price projection based on previous price swings. Often we find that succeeding legs of a price move will experience some resistance at price levels corresponding to the length of previous rallies.

Mechanical Trading System: A methodology that automatically determines buy, sell, and stop points without requiring discretionary judgement on the part of the trader.

Meltdown: A colorful non-technical term describing a strong move down.

Melt-up: A colorful non-technical term describing a strong move up.

Momentum: The term refers to the speed or strength of price movement. Stocks that exhibit strong price appreciation for extended periods of time may be referred to as ‘momentum’ stocks.

Moving average: The term refers to the sum of closing prices over a particular period divided by the number of days in that period. For example, a five-day simple moving average would be the sum of the closing prices of the five most recent trading days, divided by five. Each day the most recent closing price is added to the equation and the most distant day is dropped off. An exponential moving average (EMA) is a specific type of moving average that gives more weight to the more recent price action. Moving averages are used to smooth price action to help us track the underlying trend.

Multiple signal: This occurs when several technical indicators and/or chart patterns coincide. If multiple indicators are in agreement, the probability of a particular outcome is increased. For example, when we present a stock chart we may indicate that an important moving average coincides with an important retracement level, trendline or candlestick.

Open (or 'opening price'): The first trade price of the day (or other period).

Open Protective Stop (ops): An open order to exit a long or short position at a specified price. Stops are used to define risk and take profits. See Stop and trailing stop.)

Option premium: The price of an option.

Oscillator: Any technical indicator that tracks changes in price or some other aspect of the market in a wave-like manner. For example, a common one is called a stochastics oscillator, which measures, over-bought and oversold conditions. (see Stochastics)

Overbought: A somewhat subjective term describing a market that has presumably risen too far, too fast and is due for at least a short-term pullback. Stochastics, as well as other oscillators or indicators, can be used to measure this condition but they are calibrated differently by different traders.

Overhead Supply: the stock held by ‘weak hands’ which will be offered for sale when prices rise to old levels after a decline.

Oversold: A somewhat subjective term describing a market that has presumably fallen too far, too fast, and is due for at least a short-term correction. Stochastics, as well as other oscillators or indicators, can measure this condition but are calibrated differently by different traders.

PE (Price Earnings Ratio): The ratio of stock price to earnings per share.

PEG Ratio: A valuation measure comparing a company’s PE ratio (the numerator) to their earnings growth rate (the denominator). A ratio less than 1 (faster earnings growth than PE) is a characteristic of GARP, i.e. growth at a reasonable price (see GARP).

Pivot: A turning point in a short term trend, also called a ‘swing high’ or a ‘swing low’. We use pivots in the Nasdaq to determine reference points for the TSR timing model.

Point and figure chart: A type of price chart used by market technicians that has a variable time or ‘X’ axis that is also price dependent.

Position Trading: Trading in a time frame usually measured in months. This is in contrast to swing trading (days and weeks) and daytrading (intraday trading with few overnight positions.)

Premarket /Aftermarket: Also known as ‘extended hours,’ these are periods of trading before or after normal market hours, i.e. before 9:30 am and after 4:00 pm Eastern Time. Originally developed as a market for institutional traders, some brokerages now offer individual investors trading opportunities in extended hours.

Pullback: A short-term move against the previous trend. For example, pullbacks in an uptrend offer opportunities to enter the trend on a ‘dip’. Pullbacks in a downtrend present short selling opportunities. See also correction and retracement.

Put Option: An option granting the holder the right to sell the underlying security or contract at a certain price for a specified period of time.

Rally: When a stock, index, or commodity makes a general move upward, it is said to be rallying.

Relative Strength (RS): A measure of the price change of a particular market compared to the price change of a benchmark. The most common example is that of an individual stock compared to a stock index. Certain data providers and newspapers such as Investors’ Business Daily provide relative strength information for most stocks.

Resistance: A price level that provides a temporary barrier to further price gains. Prices may rally to these levels and then pull back due to the presence of sellers. One of the basic precepts of technical analysis states that once a resistance level is overcome it becomes a new support level.

Retracement: A short-term move against the previous trend. Retracements often reverse 1/3 to 2/3 of a previous move before ending.

Reversal patterns: Price patterns that suggest a trend reversal rather than a continuation of the current trend. The alphabet soup of bottoms and tops ("W" or "V" or "U") as well as head and shoulders patterns (see head and shoulders) are some examples of reversal patterns. Steve Nison’s book Japanese Candlestick Charting Techniques includes a definitive treatment of reversal patters.

Runaway: A colloquial term for a strongly trending stock that is not pausing to pull back in a customary fashion.

Set up: An identifiable chart pattern, such as a 3-day pullback, a ‘W’ bottom, a ‘morning star candlestick pattern’ etc., that provides a low-risk entry point.

Shorting or short selling: A bet that a stock or market will decline. Shares are ‘borrowed’ from your brokerage and sold. Then, you must eventually repurchase them on the open market (‘covering’) to replace them. A repurchase at a lower price than the original price creates a profit. See the special section on the TSR website on shorting for details.

Short covering rally: A rally fuelled primarily by short sellers buying back shares they previously sold. Short covering can eventually weaken a stock or market because it removes individuals from the pool of potential buyers. Thus run-ups produced by short covering are prone to failure.

Stochastics: An oscillator used to determine oversold and overbought conditions based on the current price relative to the price range over a set period.

Stop or stop-loss order: If long, an order placed below the market's current price level to sell a position. It is intended to define risk and protect profits. Stop orders become market orders as soon as their prices are touched. A stop-limit order specifies the worst price at which a stop can be filled after the stop price is triggered. (See Open Protective Stop and Trailing Stop)

Support: A price level that is expected to have substantial buying demand and which therefore limits further price declines. When a market repeatedly declines to a particular level and then rallies, the market is said to be "offering support" at that level. One of the basic precepts of technical analysis states that once a support level is penetrated it becomes new resistance.

Swing high, swing low (See Pivot)

Swing Trading: Trading the movements from one pivot point to the next, e.g. from a pivot or swing low to a pivot or swing high. Swing trades, if successful, usually last a few days to a few weeks.

Tick: A "tick" is the minimum price increment a stock, future, or option can trade.

Timing Model: The TSR indicator that adjusts investment levels in the Aggressive Portfolio based on percentage moves above and below short-term pivot points in the Nasdaq.

Trading range: A pattern where prices are confined within a relatively narrow range when compared to recent price action. When prices completely break out of the trading range, the direction of the breakout signals the ensuing trend. The longer the time period of the trading range and the narrower its range, the more reliable its forecasting of a major move becomes. A trading range broken in the direction of the main trend is more reliable than a breakout or breakdown in the opposite direction.

Trailing Stop: A stop order that is raised (when long in a rising market) or lowered (when shorting a declining market) to follow an open position and protect profits.

Trend: The tendency for a market to persist in a price direction, either up or down. In a daily timeframe, a trend would be customarily defined as an intermediate to long-term direction in price measured in months to years.

Trend channel: The upper and lower extremes of a trend as it moves forward in time often form a ‘channel’ of parallel lines.

Trendline: A straight line defining a price trend. Up trendlines connect the lows of several price bars while down trendlines connect the highs of price bars.

Up Trendline: A straight line with a positive slope that connects two or three lows.

Volatility: The amount of price movement in a market.

Volatility Index (VIX and VIXN): A measure of sentiment (fear and confidence) that rises and falls according to the price of put and call options. Considered to be a contrary indicator, i.e. low readings, which show confidence are considered bearish and lead to corrections, while high readings that show fear are considered bullish and lead to rallies.

Volume: The number of shares traded in a particular market in a given time period, usually a day.

Whipsaw: When price repeatedly moves above and below a moving average or other key support or resistance level, triggering multiple false trading signals. In a market or stock with high volatility it is more likely one will experience being ‘whipsawed.’

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