P
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PAPER TRADING or PHANTOM TRADING
An excellent tool for investors and potential investors
to test trading plans, risk tolerances, and other strategies without
exposing yourself to actual risk. Fundamentally you make purchase
choices and exit plans and memorialize them. Track the price movement
and decide for yourself how well or poorly those choices performed. Use
accounting paper, an electronic spreadsheet, a database, whatever
tools you are comfortable using and easily accommodate arithmetic.
There is a tremendous impulse to change your selections retroactively.
Don’t do it. Keep track of the bad choices as well as the
good so you don’t inadvertently make the same choice with
real money. You might want to try “Buddy Trading”
where you send your selections and exits to a friend who keeps track
of the results. You do the same for them. Remember to check the
highs and lows to see if there would have been executions of stop
loss or other orders.
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PARABOLIC STOP AND REVERSAL (PSAR)
Sometimes called Parabolic SAR, P-SAR, or PSAR, the
Parabolic Stop and Reversal is a price and time trending
indicator that is more often used
to set exit points, but can also be
used to detect new entry points for both long
and short positions. More
about this technical analysis indicator . . .
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PERCENTAGE PRICE OSCILLATOR (PPO)
The Percentage Price Oscillator (PPO) is based on the
difference between two exponential
moving averages, expressed as a percentage. It has the advantage
that it allows comparisons across issues
and across time periods for the same issue.
More about this technical analysis indicator
. . .
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PIVOT POINT REVERSE TRADING SYSTEM (PPRTS)
The Pivot Point Reverse Trading System (PPRTS) is
a simple way to determine minor changes in trend
direction. However, it can only provide results a day after
an event has occurred. More about
this technical analysis indicator . . .
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POSITIVE DEVELOPMENT
A positive development occurs when a technical
analysis indicator (TAI), or combinations of TAIs, foretells
a price increase.
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POSITIVE DIVERGENCE - See Divergence
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PRIMARY DATA
For any issue under
consideration, primary data is the opening price, the high price,
the low price, the closing price, and the volume. For mutual funds,
sectors, or indices, there may only be a closing price.
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Q
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R
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R-SQUARED
The r-Squared technical analysis indicator (TAI)
shows the strength of a trend:
the more closely prices move in a straight line over time, the stronger
the trend. More
about this technical analysis indicator . . .
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REGRESSION ANALYSIS
Regression analysis is a way to measure the relationship
between two or more sets of data. Linear regression attempts to
explain a relationship by fitting a straight-line to the data, then
extending that line to predict future values.
The most common method for fitting a regression line is the method
of least-squares. This method calculates the best-fitting line for
the observed data by minimizing the sum of the squares (“least
squares”) of the vertical deviations from each data point
to the line.
If a point lies exactly on the fitted line, then its vertical deviation
is zero. Since the deviations are squared first and then summed,
negative and positive values do not cancel each other out. The closer
the line calculated sits to the data points, the smaller the sum
or "error" of a line.
If you think of this trend line as describing an "equilibrium"
price, then any moves above or below the trend line indicate overzealous
buyers or sellers. Linear regression is commonly used, in the case
of security prices, as a quantitative way to determine an underlying
trend and to see when prices are overextended.
The slope of the linear regression trend line is the Linear Regression
Slope.
The formula for any straight line is
y = a + bx
where
x = the current time period
n = the total number of time periods.
Each summation is over the entire period under analysis.
The Linear Regression Slope is the quantity b in the formulas
above.
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RELATIVE AVERAGE TRUE RANGE (RATR)
Average True Range (ATR)
is a measurement of volatility
measured in currency. One issue might have an ATR of $1.00 another
of $2.00. This does not make the second issue more volatile than
the first. ATR are not directly comparable.
Relative ATR (abbreviated RATR) is the end of day ATR divided by
the closing price. The result is a measurement of ATR as a percentage
of the closing price. Consider
| Issue |
ATR |
Closing Price |
RATR |
| First |
1.00 |
20.00 |
1/20 = 5% |
| Second |
2.00 |
80.00 |
2/80 = 2.5% |
We can see the RATR (comparable volatility) for the second issue
is half that of the first issue even though the second ATR value
is twice the first ATR value.
Look at the chart for Average
True Range then look at the sample
RATR chart. Both are for IBM over the same period. The charts
have the same general appearance, but the ATR chart is in dollars,
the RATR chart is in percent. The percents are comparable across
issues. The dollars are not.
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RESISTANCE
When referring to the price of an issue
over time, resistance refers to a price ceiling that the issue does
not exceed. There are several possible reasons that the price can’t
rise above this resistance level. One of the more common reasons
is that, at that resistance price, the number of shares that sellers
want to sell exceeds the number of shares that buyers want to buy.
Hence, the supply exceeds the demand, so the price will fall to
an equilibrium point where trades can take place. When the price
won’t fall through a price, that is support.
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REVERSAL PATTERN
A reversal pattern is any chart pattern that indicates
that the current trend may be reversed.
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S
SECTOR
A sector refers to a group of securities that are within
industries (for example,
technology or airlines) or share other characteristics, such as
maturity, type, or rating. Sectors include Basic Materials, Capital
Goods, Conglomerates, Consumer Cyclical, Consumer Non-Cyclical,
Energy, Financial, Healthcare, Services, Technology, Transportation,
and Utilities.
A company is usually in both an industry and a sector. For example,
International Business Machines Corporation (IBM) is in both the
Computer Hardware industry and the Technology sector. To find the
sector and industry for a particular security, see Yahoo Finance.
The link that follows is for IBM http://finance.yahoo.com/q/pr?s=IBM.
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SECULAR MARKET
Secular means long and large cycles. Within the large
cycles there are smaller, cyclical cycles. See also Cyclical
Market.
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SELL
The trade of an
issue when initiated by a seller.
The transaction must be completed before it can be called a sell.
For every trade there is a seller
and a buyer. See also Buy.
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SHORT
When investors are “short,” it means they
believe that prices will be declining and have invested accordingly.
If they believe that prices will be rising, investors go long.
SHORT TERM - See Term
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SIC (STANDARD INDUSTRIAL CLASSIFICATION SYSTEM) -
See Industry
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SIMPLE MOVING AVERAGE (SMA)
Also known as the arithmetic moving average the SMA
is computed by summing the values and dividing by the number of
values summed. For example: SMA (2, 4, 6, 8) = (2 + 4 +6 + 8) /
4 = 20 / 4 = 5.
For other types of moving average, see Moving
Averages.
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SLIPPAGE
Slippage is the inability to buy or to sell at a particular
price.
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SMA(4/9)(PRICE)
A new positive development (NPD)
occurs when the 4-day simple moving average (SMA)
of an issue’s closing
price crosses over the 9-day SMA of the closing price. More
about this technical analysis indicator . . .
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SMA(1/49)(PRICE)
A positive
development occurs when the 1-day simple moving
average (SMA) of an issue's
closing price crosses over the 49-day SMA. More
about this technical analysis indicator . . .
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SMA(1/199)(PRICE)
A positive
development occurs when the 1-day simple moving
average (SMA) of an issue's
closing price crosses over the 199-day SMA. More
about this technical analysis indicator . . .
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SMA(5/200)(PRICE)
Sometime Called a Golden Cross, a positive
development occurs when the 50-day simple moving average (SMA)
of an issue's closing price
crosses over the 200-day SMA of the issue’s closing price.
More about this technical analysis
indicator . . .
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SMA(50/200)(VOLUME)
Sometimes abbreviated SMAV. A positive
development occurs when the 50-day simple moving average (SMA)
of an issue's daily volume crosses
over the 200-day SMA of the issue’s daily volume. More
about this technical analysis indicator . . .
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STANDARD INDUSTRIAL CLASSIFICATION SYSTEM (SIC) - See Industry
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STANDARD DEVIATION
In statistics, its symbol is the lower case Greek
letter sigma ( ).
The standard deviation is a statistical measure of dispersion, or
volatility in TA terms. It is used as a component of other technical
analysis indicators (TAIs), such as Bollinger
Bands. More about this TAI
. . .
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STOCHASTIC MOMENTUM INDEX
Sometimes abbreviated to SMI, the Stochastic Momentum
Index provides a refinement of the Stochastic
Oscillator indicator, which shows the distance between the current
close and the recent n-period high/low range. In comparison,
the SMI shows where the close is relative to the midpoint of the
same range. The SMI ranges between +100 and -100 and is somewhat
less erratic than a Stochastic Oscillator over the same period.
The SMI is used here in conjunction with the Chande
Momentum Oscillator. More about the
SMI technical analysis indicator . . .
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SUPPORT
When referring to the price of an issue
over time, support refers to a floor that the price won’t
break through. There are several possible reasons that the price
won’t fall below this support level. One of the more common
reasons is that, at that support price, the number of shares that
buyers want to buy exceeds the number of shares that sellers want
to sell. Hence, the demand exceeds the supply, so the price will
rise to an equilibrium point where trades can take place. When the
price won’t rise through a price, that is resistance.
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