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What are the basic tenets of Dow Theory - ☑️☑️ 1.) The averages discount everything 2.) The market has three trends 3.) Major trends have three phases 4.) The averages must confirme each other 5.) Volume must confirm trend 6.) A trend is in effect until it gives definitive signals that it has reversed Technical Analysis by Kirkpatrick - ☑️☑️ The study of prices in freely traded markets with the intent of making profitable trading or investment decisions. -Kirkpatrick Basic Assumptions of Technical Analysis by Edwards & Magee - ☑️☑️ -Stock prices are determined solely by the interaction of demand and supply -Stock prices tend to move in trends -Shifts in demand and supply cause reversals in trends -Shifts in demand and supply can be detected in charts -Chart patterns tend to repeat themselves Technical Analysts believe... - ☑️☑️ -"the market is always correct" -that all factors (Fundamental) are already factored into the demand and supply curves and, thus, the price of the company's stock.
The Art of Technical Analysis by Pring - ☑️☑️ -is to identify trend changes at an early stage and to maintain an investment position until the weight of the evidence indicates that the trend has reversed, (Pring, 2002) What is Technical Analysis used for? - ☑️☑️ -to determine the trend, when it is changing, when it has changed, when to enter a position, when to exit a position, and the analysis is wrong and the position mus be closed. -Kirkpatrick Trend - ☑️☑️ - a directional movement of prices that remains in effect long enough to be identified and still playable
- A trend must be recognized early and be long enough for the technician to profit. -Kirpatrick How are trends identified? - ☑️☑️ -Linear Least-Square regression -Moving Averages -Trend lines Accumulation - ☑️☑️ A time when buyers emerge purchasing securities, generally from distressed sellers. It can be seen as a period when equities are absorbed by expanding demand over a period of time resulting in a possible favorable effect on price or a period of price equilibrium following a decline. This can be viewed as the first phase of a bull trend, or perhaps even the beginning of a bull market. Advance-Decline Line - ☑️☑️ Number of stocks advancing divided by the number of stocks declining over a particular time period.
Block - ☑️☑️ A single transaction of large number of shares. The NYSE defines transactions of 10,000 shares or more as blocks. Blow Off - ☑️☑️ The final phase of an uptrend, ending a mark up phase, when prices rise very rapidly usually on high volume, leading to a sharp reaction. See "Climax." Breadth - ☑️☑️ Net number of stocks advancing versus declining. When advances exceed declines, breadth is positive; when the reverse is true, breadth is negative. Breakdown - ☑️☑️ Like "Breakout," but used to refer to the downside. Breakout - ☑️☑️ When stock's price or volume exceeds previously recorded high or low (or resistance or support level) or some other predetermined criteria. Also called "Penetration." Bull Market - ☑️☑️ A long period of time, usually a year or more, when the general trend of securities prices is up. Bull Trap - ☑️☑️ A false move to the upside that does not initiate a new uptrend, but is actually the final rally before a sustained decline, hence "trapping the bulls." A bull trap can be described as a strong rally in the context of a "Bear Market" which traps buyers into believing that the market is turning to the upside. Churning - ☑️☑️ Hesitation in a trend, usually leading to a reaction. Volume is normally relatively high (after an advance), with limited price progress.
Climax - ☑️☑️ (Climatic lowpoint or climatic highpoint). A sudden end to a trend, accompanied by high volatility and high relative volume. Concession or Spread - ☑️☑️ Price differential between trades when blocks of stock are involved. Confirmations - ☑️☑️ Two or more trends or momentum measures extending their trends to new highs (or lows) at the same time. The implication is confidence that the trend will continue. Often said of the Dow Jones Industrial Average versus the Dow Jones Transportation Average. Consolidation - ☑️☑️ A pause in trend with the expectation the trend will be resumed in the same direction. Usually considerably shorter in time than Stabilization. Continuation Pattern - ☑️☑️ Continuation Pattern: Consolidation phase that temporarily interrupts an up or down move and sets the stage for another move in the same direction later on, usually of short duration. Correction - ☑️☑️ A movement in the opposite direction of a trend that will not break or reverse that trend. Usually longer in time than a reflex rally or reflex reaction. Discount - ☑️☑️ The amount by which the price of an option or future falls below the theoretical value, representing the degree or pessimism of market participants. Distribution - ☑️☑️ Process in which demand for a stock is overcome by an expanding supply, which over a period of time has an unfavorable effect on the
Gap - ☑️☑️ When stock's high and low prices on a given day do not overlap the stock's high and low of the previous day. In other words, when instrument trades above the previous day's high or trades below the previous day's low and remains in that direction. When a gap initiates a trend, it is called a breakaway gap; an exhaustion gap ends or reverses a trend, and measuring gaps usually duplicate the most recent move before the gap. Insiders - ☑️☑️ Officers, directors, shareholders and other privy to non-public information that affects a company's stock. Liquidation - ☑️☑️ Phase following distribution, when prices decline relatively easily. Liquidity - ☑️☑️ Ability of the market to absorb significant increases in volume with minor price fluctuations. Long Term - ☑️☑️ More than six months; usually one complete bull-bear cycle, normally averaging four to five years. Market Analysis - ☑️☑️ Using a prescribed discipline to study the market. Common analysis disciplines are "Fundamental Analysis," Technical Analysis," "Quantitative Analysis," etc. Mark Up - ☑️☑️ Phase following accumulation when prices rise relatively easily. Medium or Intermediate Term - ☑️☑️ Five weeks to six months; usually three to five months.
Momentum Indicators - ☑️☑️ Market indicators generally related to price and volume, which attempt to determine overbought and oversold conditions and the underlying strength or weakness of current market trends. Most are moving averages. Moving Average - ☑️☑️ Average of price or volume over a period of time that is used to smooth trends of minor fluctuations. Odd Lot - ☑️☑️ Unit of stock less than 100 shares. Odd Lot Shorts - ☑️☑️ Units of less than 100 shares that are sold short. Since these are usually traded by trend-following individuals (as opposed to institutions) who join a trend very late, a high ratio of odd lot short sales to odd lot sales often signals a mark bottom. Conversely, a low ratio of odd lot shorts often signals an impending market top. On-Balance Volume - ☑️☑️ A cumulative volume figure, the direction of which depends on price movement; ie, a positive change in price indicates the volume for that particular time interval is positive; a negative price change indicates negative volume. Opening Block - ☑️☑️ The first transaction of the day in particular stock, which usually represents an accumulation of individual buy and sell orders but that appears on the tape as a single block. Option - ☑️☑️ The right, if bought, or the obligation if sold, specific quantity of a specific instrument (future, bond, currency, stock, derivative etc.) at a certain price within a specific time. An option is a derivative of an underlying instrument.
Program Trading (or Program Activity) - ☑️☑️ Buying or selling baskets of stocks, often done by institutions making a strategy change or index funds moving into or out of the market. Trading in stocks maybe accompanied by offsetting trades in index futures, index options or stock options, it is has also been called arbitrage program activity. Protection Point - ☑️☑️ See "Stop Point." A point at which the analyst doesn't want to be short or long of the instrument. Pullback - ☑️☑️ See "Reflex Reaction." Movement against a stock's trend that does not break or reverse the trend buy merely corrects an overbought or oversold condition. Also called "Pullback." Rebuilding - ☑️☑️ See "stabilization." A period of sideways price action, usually before a trend is reversed. Sometimes called basing or accumulation after a decline, and top formation or a distribution after an advance. Also call "Rebuilding." Reflex Rally or Reflex Reaction - ☑️☑️ Movement against a stock's trend that does not break or reverse the trend buy merely corrects an overbought or oversold condition. Also called "Pullback." Relative Strength Line - ☑️☑️ The line that represents a stock's (group's) price performance compared with a broad market index (or a group or another stock). It is computed by dividing the price of a sock by the market index for each time period and plotting a line of the resulting ratios. Resistance - ☑️☑️ A price level at which selling is expected to exceed demand and temporarily stop or reverse an advance. Opposite of "Support."
Reversal Pattern - ☑️☑️ A characteristic pattern that signals the end of an up or down move. Secondary Distribution - ☑️☑️ A public sale of an already issued stock or tradable instrument. Many times secondary distributions come from insider groups, an insider selling securities, or the company issuing more shares in the company. Secular Trend - ☑️☑️ The trend that encompasses two or more cyclical trends (also two or more economic cycles) and often lasts 10 to 20 years or more. Also called the "Super Cycle" Sentiment Indicators - ☑️☑️ Indicators that are used to try to gauge changes in human psychology underlying investment decisions. Shakeout - ☑️☑️ A sharp reaction (usually in an uptrend or base) that temporarily violates a trendline or support level, but quickly reverses to the original trend. Traders are "shaken out" of long positions on the violation but stronger holders (investors) retain their positions. Short Covering - ☑️☑️ The purchase of previously shorted stock. Short Selling - ☑️☑️ Selling stock that is not owned (usually borrowed), normally in anticipation of a price decline. Stabilization - ☑️☑️ A period of sideways price action, usually before a trend is reversed. Sometimes called basing or accumulation after a decline, and top formation or a distribution after an advance. Also call "Rebuilding."
Tick Volume - ☑️☑️ Similar to on-balance volume except that the base is not a time period but an individual transaction; e.g., for any one day the net tick volume is computed by subtracting the total volume that occurred on downticks from the total volume that occurred on upticks. Top - ☑️☑️ Period of distribution. Trading Index - ☑️☑️ The ratio of the advance/decline ratio to the upside/downside volume ratio. The index is favorable or overbought when significantly less than 1.00. Extremes are noted below 0.50 and greater than 2.00. Trading Range - ☑️☑️ Upper and lower boundaries of a stock's or index's price range. Normally, a neutral or horizontal trend is implied. Trend Channel - ☑️☑️ Two parallel trendlines that contain between them all or virtually all of the price movement data. Trendline - ☑️☑️ Line that connects two or more points on a chart and represents the slope of movement. Upside/Downside Volume Ratio - ☑️☑️ Number of shares traded in advancing stocks divided by the number of shares traded in declining stocks over a particular time period. Uptick - ☑️☑️ A transaction that occurs at a higher price than previous transaction. Volatility - ☑️☑️ Degree in intraday or interday fluctuation, not necessarily correlated with price movement over time. Measurement of price movement.
Volume - ☑️☑️ Total trading activity in a stock or group of stocks fro a specific time period, usually represented as vertical bars at the bottom of a bar chart. Wedge - ☑️☑️ A pattern of rising tops and rising bottoms in an uptrend or declining tops and declining bottoms in a downtrend, where only marginal progress is made, usually leading to a trend reversal. Zero Downtick - ☑️☑️ A transaction that occurs at the same price as the previous transaction, but lower than the last different price Zero Uptick - ☑️☑️ A transaction that occurs at the same price as the previous transaction, but higher than the last different price. Random Walk Hypothesis - ☑️☑️ *An random walk occurs when future steps cannot be predicted by observing past steps. *Followers believe that no underlying patterns exist in stock prices and prices move in a random fashion and have "no" memory. Efficient Market Hypothesis - ☑️☑️ *EMH argues that price changes occur only on new information, immediately and rationally applied, and that any irregular price action is quickly adjusted back to true value by arbitration.
