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Japanese Candlestick Patterns

admin — Mon, 17 May 2010 04:07:07 +0000

I can’t imagine trading without candlestick charts. Though I do not use the classic patterns for my analysis, I find they they offer a greater depth of information than traditional bar charts – where the high and low are emphasized – candlesticks give emphasis to the relationship between close price and open price. This is a guide that explains most of the most common candlestick patterns for reference.

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The History of Japanese Candlesticks

In the 1700’s a Japanese man named Munehisa Homma, a trader in the Osaka rice futures market, developed a method of technical analysis to analyze the price of rice contracts known as candlestick charting. Homma used Sakata’s Five Methods, patterns derived from rules used by local traders from his hometown of Sakata, as the foundation for his Candlestick Charting analysis. Candlestick analysis had been developed over the years simply due to the tracking of rice price movements. However, in the mid 1700′s they were really fully utilized. “The god of the markets” Homna came into the picture. Munehisa Homna, the youngest son of the Homna family, inherited the family’s business due to his extraordinary trading savvy. This at a time when the Japanese culture, as well as many other cultures, thought it common that the eldest son should inherit the family business. The trading firm was moved from their city, Sakata, to Edo (Tokyo). Homna’s research into historic price moves and weather conditions established more concrete interpretations into what became known as Candlesticks. His research and findings, known as “Sakata Rules” became the framework for Japanese investment philosophy.

After dominating the Osaka rice markets, Homna eventually went on to amass greater fortunes in the Tokyo exchanges. It was said that he had over one hundred winning trades in a row. His abilities became legendary and were the basis of Candlestick analysis.

Japanese Candlestick analysis was never a hidden or secretive trading system. It was successfully used in Japan for hundreds of years. It has been only recently, about 25 years ago, that it first made its way into the U.S. trading community. Until then, there just wasn’t any interest from Western cultures to investigate the Candlestick Technique. Even then, it was not noticed all that much. The perception has been that it was difficult to learn and very time consuming. That may have been true until recently. The first books introducing it into the U.S. trading arena would describe how to make wooden boxes that were backlit. Then the chart graphs could be better viewed. Fortunately, the advent of computers and computer programming has taken Candlestick analysis ahead by leaps and bounds.

Until recently, the investment community knew about Candlesticks, they just didn’t know how to use them effectively. Interest has been increasing dramatically now that the roaring markets have collapsed. Investors, new and old, are now trying to investigate methods that protect them from the severe losses that occurred from March 2000 until now.

Hundreds of years of analysis and interpretation can be much more easily extracted through computer programming. Huge fortunes were amassed with simple charting techniques. The same will be true with all the benefits that computer software provides the investor today.

Free Stock Trading Magazine

admin — Sun, 16 May 2010 13:36:02 +0000

Technical Analysis of Stocks and Commodities Magazine is the premiere magazine for traders. Get a free trial copy of the latest edition to review with no obligation or credit card required. Every month, they provide serious traders with information on how to apply charting, numerical, and computer trading methods to trade stocks, bonds, mutual funds, options, forex and futures. STOCKS & COMMODITIES also examines and explains both old and new trading methods, techniques and products, and brings the best to you every month. Whether you're a beginner or a seasoned veteran, you'll always find the information you need to become a better trader. Get your free copy now!

Corporate Earnings Calendar

admin — Sun, 16 May 2010 13:07:45 +0000

Yahoo Finance maintains a calendar for corporate earnings announcements that may be browsed at a daily or weekly level. You also have access to recorded earnings conference call archives. In addition, this section of Yahoo Finance also has Mergers, stock splits, as well as IPOs.

Market Holidays and Daily Trading Hours

admin — Sun, 16 May 2010 02:35:38 +0000

2010 Stock Market Holidays

2010 – Stock Market Holidays All Major US Stock Exchanges	Date
New Year’s Day	January 1, 2010
Martin Luther King, Jr. Day	January 18, 2010
Washington’s Birthday (Presidents’ Day)	February 15, 2010
Good Friday	April 2, 2010
Memorial Day	May 31, 2010
Independence Day	July 5, 2010 (observed)
Labor Day	September 6, 2010
Thanksgiving Day *	November 25, 2010 *
Christmas Day	December 24, 2010 (observed)
Early Closings * The NYSE and NASDAQ will close trading early (at 1:00 PM ET) on Friday, November 26, 2010 (the day after Thanksgiving). Amex will end trading (1) for those products that normally cease trading at 4:00 p.m. at 1:00 p.m. and (2) for those products that normally cease trading at 4:15 p.m. at 1:15 p.m. The AMEX will start accepting orders for after-hours trading at 1:15 p.m. and all eligible orders will be executed by 1:30 p.m. Stock Market Holiday Calendar 2010 Holiday Market Stock – US

2011 Stock Market Holidays

2011 – Stock Market Holidays All Major US Stock Exchanges	Date
New Year’s Day falls on a Saturday in 2011, so it has no effect on the market schedule	*
Martin Luther King, Jr. Day	January 17, 2011
Washington’s Birthday (Presidents’ Day)	February 21, 2011
Good Friday	April 22, 2011
Memorial Day	May 30, 2011
Independence Day	July 4, 2011
Labor Day	September 5, 2011
Thanksgiving Day **	November 24, 2011 **
Christmas Day	December 26, 2011 (observed)
Early Closings * New Years’ Day (January 1) in 2011 falls on a Saturday. The rules of the applicable exchanges state that when a holiday falls on a Saturday, the preceding Friday is observed unless the Friday is the end of a monthly or yearly accounting period. In this case, Friday, December 31, 2010 is the end of both a monthly and yearly accounting period; therefore the exchanges will be open that day and the following Monday. The NYSE and NASDAQ will close trading early (at 1:00 PM ET) on Friday, November 25, 2011 (the day after Thanksgiving). Amex will end trading (1) for those products that normally cease trading at 4:00 p.m. at 1:00 p.m. and (2) for those products that normally cease trading at 4:15 p.m. at 1:15 p.m. The AMEX will start accepting orders for after-hours trading at 1:15 p.m. and all eligible orders will be executed by 1:30 p.m. Stock Market Holiday Calendar 2011 Holiday Market Stock – US**

Special Stock Market Holiday Rules

There are a few special rules that apply to stock market holidays:

Although the day after Thanksgiving (Friday) is not an official holiday, the market has a tradition of closing at 1:00 p.m. ET.
When any stock market holiday falls on a Saturday, the market will be closed on the previous day (Friday) unless the Friday is the end of a monthly or yearly accounting period.
When any stock market holiday falls on a Sunday, the market will be closed the next day (Monday).

Some market holidays are observed on different dates each year:

Martin Luther King, Jr. Day is always observed on the third Monday in January.
President’s Day is always observed on the third Monday in February.
Memorial Day is always observed on the last Monday in May

NYSE, NASDAQ and AMEX Trading Hours

The New York Stock Exchange is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET

The NASDAQ Stock Market regular trading hours are from 9:30 a.m. to 4:00 p.m. ET.After Hours trading is from 4:00 p.m. to 6:30 p.m. ET.

The Amex Stock Market is open from Monday through Friday 9:30 a.m. to 4:00 p.m. ET.Holiday – Market Stock US – SelectNet Pre-hours Trading Session From 8:00 a.m. to 9:30 a.m. ET

Economic Indicator Calendar

admin — Sun, 16 May 2010 02:31:07 +0000

Yahoo Finance is updated regularly for the current week’s economic indicator releases. You also have the ability to view reports for upcoming weeks.

Types of Market Orders

admin — Tue, 11 May 2010 04:29:25 +0000

You can use a variety of buy or sell orders to take more control over how you enter and exit trades. Some of the orders restrict the transaction by price, while others constrain it by time.

Let’s go over some of these orders, which work whether you are dealing with an Internet-based broker or an actual human.

Market Order
The market order is the simplest and quickest way to get your order filled (or completed).

A market order instructs your broker to buy or sell the stock immediately at the prevailing price, whatever that may be.

If you are following the market, you may or may not get the last price listed. In a non-volatile market, you will probably get a price close to that, but there is no guarantee of any specific price.

One final thing, but important note: Market orders will likely be the most inexpensive of the orders you place.

Limit Orders
Limit orders instruct your broker to buy BELOW or sell ABOVE a stock at a particular price. The purchase or sale will not happen unless you get your price.

Limit orders give you control over your entry or exit point by fixing the price, which can be helpful.

However, you may want to do some math first. Check with your broker to see how the commission on limit orders compares with what you pay for market orders.

If there is a significant difference, you may be better off with a market order (assuming the volume provides adequate liquidity and price is at or near your target) and saving on commissions.

Stop Orders
Stop orders instruct your broker to buy once price is AT OR ABOVE or sell AT OR BELOW a particular price. The purchase or sale will not happen unless you get your price. NOTE: Once your price is reached a stop-order converts to a Market Order so there is no guarantee of the price you will get. (See Stop-Limit Order below)

Much like limit orders, Stop orders give you control over your entry or exit point by fixing the price, which can be helpful.

Once again, do some math first regarding the price you want and the commissions.

Stop Loss Orders
A stop loss order is basically a way of using a stop order to protect an existing position from a large loss.

You enter a stop loss order at a point below the current market price if your are Long or at or above the current price for a Short position. If the stock moves to this price point, the stop loss order becomes a market order and your broker sells the stock. If the stock price continues to move in your favor, the stop loss order does nothing.

Stop loss orders are cheap insurance that protects you from a loss.

Trailing Stops
The trailing stop order is similar to the stop loss order, but you use it to protect a existing profits, as opposed to protect against an initial loss.

If you have a profit in a stock, you can use the trailing stop order to follow the price as it moves in your favor. You enter the trailing stop order as a points or percentages away from the market price. If the stock’s price moves against you by that number of points or percentage, the trailing stop becomes a market order and your broker sells the stock.

If the stock’s price continues in your favor the stop-loss order price moves with it and protects your additional gains.

Good Till Canceled
A Good till canceled order instructs your broker to keep an order active until you cancel it. Obviously, you use this order with other order types to specify a time frame for the order.

Some brokers have limits on how long they will hold a GTC order.

Day Order
A day order is any order that is not a good till canceled order. If your broker does not fill your order that day, you will have to re-enter it the next day.

All or None
The all or none order states you want the entire order filled or none of the order filled. You would use this type of order for thinly traded stocks.

Conclusion
You may find these orders called slightly different names at some brokers, but the concept will be the same.

Trade Tracking & Accounting

admin — Tue, 11 May 2010 03:13:27 +0000

TradeLog – Capital Gains Software

www.armencomp.com

GainsKeeper – Capital Gains Software

www.gainskeeper.com

Charting Software

admin — Tue, 11 May 2010 03:11:00 +0000

A number of calculations for the methods I use are best created with a software package that is designed specifically for trading. I have listed a few of the most popular software packages with which I have some experience. NOTE: I DO NOT provide support for any of these vendors.

TradeStation Securities

www.tradestation.com

Telecharts (My personal favorite!)

www.worden.com

MetaStock

www.metastock.com

StockCharts.com (Another favorite)

www.stockcharts.com

Incredible Charts

www.incrediblecharts.com

BigCharts

AmiBroker

eSignal

Yahoo Finance

Brokers

admin — Tue, 11 May 2010 03:08:58 +0000

I am not affiliated with any of the brokers listed here. They are included only as a helpful reference. Traders should perform their own due diligence before deciding on a broker. (no affiliates links here)

Zecco

www.zecco.com

No minimum amount required to open an account, FREE online stock trading, 10 free stock trades per month

TradeKing

www.tradeking.com

No minimum amount required to open an account. – Remarkable customer service and discounted trades.

TradeStation Securities

www.tradestation.com

A former technical-analysis software vendor turned discount broker. They now lease their software platform and have a large following of developers and programmers.

Interactive Brokers

www.interactivebrokers.com

A discount broker that has a good overall reputation. Highly automated; good commission prices.

Scottrade Securities

www.scottrade.com

A bit overpriced on the commissions, but they do offer the same price for limit and market orders. The website is very easy to use for placing orders, and the customer service is excellent.

Fidelity

www.fidelity.com

This is an excellent choice if you want to house your trading account with other traditional investments. Offers lots of ancillary services, such as check writing and debit cards for your trading account. Also, the trading platform features advanced order handling, which makes things a lot easier.

CyberTrader

www.cybertrader.com

This is a division of Charles Schwab. Offers online trading for active traders and lots of tools to choose from, but the commissions are still a bit high.

Think or Swim

www.thinkorswim.com

Rated #1 overall online broker, “best for frequent traders,” and “best for options traders” in Barron’s ranking of online brokers.

Trading Glossary

admin — Sun, 07 May 2000 04:40:21 +0000

Glossary ( A-C )( D-F )( G-J )( K-M )( N-S )( T-Z )




A Priori: Known ahead of time.
Abandoned Baby Pattern: A rare candlestick pattern in which an upside gap doji star (where the shadows do not touch) is followed by a downside gap black candlestick where the shadows also do not touch; considered a major top reversal signal.

ABC

Elliott wave terminology for a three-wave countertrend price movement. Wave A is the first price wave against the trend of the market. Wave B is a corrective wave to Wave A. Wave C is the final price move to complete the countertrend price move. Elliott wave followers study A and C waves for price ratios based on numbers from the Fibonacci series.

Accumulation

An addition to a trader’s original market position. The first of three distinct phases in a major trend in which investors are buying.

Accumulation/Distribution Line

See Chaikin Oscillator.

Actuals

Refers to actual physical commodities, as distinguished from futures.

ADA

Block-structured programming language developed under the guidance of the U.S. Department of Defense to provide a medium for writing real-time, concurrent applications, for facilitating program verification.

Adaptive Filter

Smoothing and/or forecasting prices with continuously updated weighting of past prices.

Advance-Decline Line

Each day’s number of declining issues is subtracted from the number of advancing issues. The net difference is added to a running sum if the difference is positive or subtracted from the running sum if the difference is negative.

Adverse Excursion

The loss attributable to price movement against the position in any one trade.

AKA

An acronym for “automated knowledge acquisition.” Refers to the use of programs to create knowledge needed by other programs (usually expert systems).

Alpha

Premium that an investment portfolio earns above a given point of reference; a measure of stock performance independent of the market.

American Depository Receipts (ADRs)

Certificates that are issued by a bank of US origin and traded in the U.S. as domestic shares. The certificates represent the foreign securities that the bank holds in that security’s country of origin.

Amortization

Accounting method in which an asset’s cost is spread out.

Analysis of Variance

(Anova) The partitioning of total sum of squares into the sum of squares explained by the model and the remaining sum of squares unexplained.

Anaume

Candlestick formation. An exceptional exhaustion pattern (meaning “gap filling”) composed of five candles. The anaume occurs when the gap is filled in after a market price has changed directions. This pattern coupled with the other patterns indicate a strong potential for a bullish reversal and price advance.

Anchoring-and-Adjustment

Behavioral finance. The tendency to evaluate current decisions in the context of past events.

Andrews Method

A technique whereby a technician will pick an extreme low or high to use as a pivot point and draw a line, called the median line, from this point that bisects a line drawn through the next corrective phase that occurs after the pivot point. Lines parallel to the median line are drawn through the high and low points of the corrective phase. The parallel lines define the resistance and support levels for the price channel.

Annealing (Simulated)

Generally a metallurgical process, in artificial intelligence a process in which a neural net work searches for a set of weights to minimize errors; the search constantly shrinks as the weights find better values, analogous to the rearrangement of the molecules in a heated metal bar as the bar cools.

Annual Earnings Change

(%) The historical earnings change between the most recently reported fiscal year earn ings and the preceding.

Annual Net Profit Margin

(%) The percentage that the company earned from gross sales for the most recently reported 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.

Arbitrage

The simultaneous purchase and sale of two different, but closely 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

Also known as TRading INdex (TRIN):

An advance/decline stock market indicator. A reading of less than 1.0 indicates bullish demand, while greater than 1.0 is bearish. The index is often smoothed with a simple moving average.

Artificial Intelligence

The field of computer science dedicated to producing programs that attempt to mimic the processes of the human brain.

Assign

To transfer to another to whom property is assigned.

Astrophysical Cycle

Any earthly cycle, such as a market cycle, that has been scientifically related to the physics of the planetary system.

At-the-Money

An option whose strike price is nearest the current price of the underlying deliverable.

Attenuation

The fractional part of reduced energy or lost power due to smoothing or filtering.

Autocorrelation

The correlation between the values of a time series and previous values of the same time series.

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.

Autoregressive

Using previous data to predict future data.

Average Directional Movement Index (ADX)

Indicator developed by J. Welles Wilder to measure market trend intensity.

Average True Range

A moving average of the true range.

Indicates where the closing price is within Bollinger bands:

Back Month

The out, or back, contract month, as opposed to the current contract month; the expiration month farther in the future than the current, or spot, month.

Back-Propagation Network

A feedforward multilayered neural network that is a commonly used neural network paradigm.

Back-Testing

A strategy is tested or optimized on historical data and then the strategy is applied to new data to see if the results are consistent.

Balanced Mutual Fund

A mutual fund that seeks a return that is a combination of capital appreciation and current income, generally by building a portfolio of bonds, preferred stocks and common stocks.

Bandpass Filter

An oscillator that accentuates only the frequencies in an intermediate range and rejects high and low frequencies. Implemented by first applying a low pass filter to the data and then a high pass filter to the resulting data (e.g., two SMA crossover system).

Bank Investment Contracts (BICs)

A negotiated-term deposit issued by a commercial bank. See Guaranteed Investment Contracts (GICs).

Bar Chart

Used to plot price movements using vertical bars indicating price ranges.

Basis

The difference between spot (cash) prices and the futures contract price.

Basis Points

The measure of yields on bonds and notes; one basis point equals 0.01% of yield.

Basket Trades

Large transactions made up of a number of different stocks.

Bayes Decision Rule

A rule that states the strategy chosen from those available is that for which the expected value of payoff is the greatest.

Bear Market

A securities market characterized thus based on declining prices.

Beta

A regression of the estimated coefficient that belongs to a particular variable.

Beta (Coefficient)

A measure of the market/nondiversifiable risk associated with any given security in the market. A ratio of an individual’s stock historical returns to the historical returns of the stock market. If a stock increased in value by 12% while the market increased by 10%, the stock’s beta would be 1.2.

Bias

The difference between the expected value of an estimator and the actual value to be estimated.

Bid and Ask

Highest price and lowest price that an investor will pay for a tradable.

Bimodal Distribution

In which observations are displayed as having two distinct peaks.

Black Box

A proprietary, computerized trading system whose rules are not disclosed or readily accessible.

Black-Scholes Option Pricing Model

A model developed to estimate the market value of option contracts.

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

A long-term debt security with a stated interest rate and fixed due dates, issued by a corporation or a government, when interest and principal must be paid. There are many variations.

Boolean

Describes a variable that may have one of only two possible values: true or false. After George Boole, English logician, credited with the invention of “Boolean logic.”

Box-Jenkins Linear Least Squares

The additive structure of Box-Jenkins models with a polynomial structure.

Box-Jenkins Method

From G.E.P. Box and G.M. Jenkins, who authored Time Series Analysis: Forecasting and Control. The method refers to the use of autoregressive integrated moving averages (ARIMA), which fit seasonal mod els and nonseasonal models to a time series.

Box-Jenkins Nonlinear Least Squares

The multiplicative structure of Box-Jenkins models using the Gauss-Newton algorithm with numerical derivatives.

Bozu

Literally “bald” or “monk” in Japanese; in candlestick terminology refers to a situation during which a trading cycle opens or closes on a high or low, indicating a victory for the bulls or the bears.

Bracketing

A trading range market or a price region that is non-trending.

Breakaway Gap

When a tradable exits a trading range by trading at price levels that leaves a price area where no trading occurs on a bar chart. Typically, these gaps appear at the completion of important chart formations.

Breakout

The point when the market price moves out of the trend channel.

Broker-dealer

A firm that handles transactions for its customers and also purchases securities for its own account, selling them to customers.

Broker’s Deck

Orders physically held by the floor broker in the trading pit.

Bull Market

A securities market characterized thus on rising prices.

Buy and Hold

The acquisition of a tradable for the long term rather than quick turnover.

C Language

Widely used systems development language, also block-structured, but with more facilities to control the machine at the level of the hardware.

Call Option

A contract that gives the buyer of the option the right but not the obligation to take delivery of the underlying security at a specific price within a certain time.

Calmar Ratio

Takes the average rate of return for the last 36 months and divides it by the maximum drawdown for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the last three years.

Candlestick Charts

A charting method, originally from Japan, in which the high and low are plotted as a single line and are referred to as shadows. The price range between the open and the close is plotted as a narrow rectangle and is referred to as the body. If the close is above the open, the body is white. If the close is below the open, the body is black.

Capital Gains Distribution

A distribution to investment company shareholders from net long-term capital gains realized by a regulated investment company on the sale of portfolio securities.

Capital Losses

Losses resulting from selling at a loss.

CBOT

Chicago Board of Trade.

Central Limit Theorem

From statistics, the theorem that the distribution of sample means taken from a large population approaches a normal, Gaussian, curve.

Chaikin Oscillator

An oscillator created by subtracting a 10-day EMA from a three-day EMA of the accumulation /distribution line.

Channel

In charting, a price channel contains prices throughout a trend. There are three basic ways to draw channels: parallel, rounded and channels that connect lows (bear trend) or highs (bull trend).

Chaos Theory

Describes the behavior of nonlinear systems. A subset of nonlinear dynamics analysis, chaos theory is a branch of mathematics focusing on irregular and complex behavior that has an underlying order. In the stock market, chaos theory seeks to forecast the future path of stock prices, including sudden changes that occur during periods of intense market activity.

Charts

A display or picture of a security that plots price and/or volume (the number of shares sold). The chart is the foundation of technical analysis, and over the years, many different types of charts have been developed.

Chi Square

A statistical test to determine if the patterns exhibited by data could have been produced by chance. The chi-square test with Yates’s correction using two-way statistics for decline vs. advance is: where: oj = actual observed frequency of test ej = expected or theoretical frequency of test.

Christmas Tree Spread

The simultaneous purchase and writing of options with either a different strike price or expi ration date or combination of the two.

Classifier Systems

In artificial intelligence, these systems perform a type of machine learning that generates rules from examples.

Clone Fund

A smaller version of a retail mutual fund, it is offered as a subaccount in a variable annuity. The daily price of a clone fund is different among variable annuities that carry it because each clone fund starts on a different date and with a base price of $10.

Closed-End Funds

A mutual fund that does not sell unlimited shares; one with a specific number of outstanding shares.

Closed Trades

Positions that have been either liquidated or offset.

Clustering

Locating the presence of groups of vectors that are similar in some fashion.

CME

The Chicago Mercantile Exchange.

Coefficient

A constant used to multiply another quantity or series; as in 3 xand ax, 3 and a are coefficients ofx.

Coefficient of Determination

R-squared. The proportion of the variation in the data explained by the model.

Coincidence

In Gann theory, a projected reversal point.

Colinear

see Multicolinearity.

Combined Forecast

The weighted average of two or more forecasts.

Commodity Futures Trading Commission (CFTC)

A commission that oversees the commodity exchanges in the US.

Comparative Relative Strength

Compares the price movement of a stock with that of its competitors, industry group or the entire market. This is distinct from J. Welles Wilder’s Relative Strength Index, which compares current price movement to previous price movement of the same instrument.

Comparitor

A device of some kind that compares two inputs.

Compounding

The payment, through interest, based on the sum of the original principal amount and its accrued interest.

Confidence Factor

A measure of the degree of likelihood that a rule is correct, which may reflect the percentage of times that it has proven to be correct in the past or just a subjective measure of our confidence in its degree of reliability.

Confidence Level

The degree of assurance that a specified failure rate is not exceeded.

Confirmation

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 series of trading days in which there is no visible progress in price.

Consolidation

Also known as a congestion period. 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 in order to ease the transition of one contract to the next.

Contract

An agreement as in options in which rights are exchanged by law. Correlation Coefficient-When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and Y to the square root of the product of the variance of X and the variance of Y.

Convergence

When futures prices and spot prices come together at the futures expiration.

Conversion Arbitrage

Traders buy and sell two different securities (or synthetic securities), forcing equivalent prices for equivalent securities.

Coppock Curve

Also Coppock Guide. A long-term price momentum indicator: a 10-month weighted moving aver age of the sum of the 14-month rate of change and the 11-month rate of change for the Djia.

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 wave or cycle of waves moving against the current impulse trend’s direction.

Correlation Coefficient

When two random variables X and Y tend to vary together. The measurement is given by the ratio of the covariance of X and T to the square root of the product of the variance of X and the variance of Y.

Correlation Coefficient

Degree to which two series of numbers plot as a straight line. A correlation coefficient of 1 (or -1) indicates that the two series of numbers plot exactly along a straight line. A correlation coefficient of zero indicates that there is no straight line relationship between the two series of numbers. As applied to two portfolios, a high correlation coefficient for the relative returns indicates that the portfolio values have moved in tandem and a low correlation coefficient means the opposite. When the correlation coefficient is high, one portfolio could have been used as a surrogate or a hedge for the other.

Correlogram

A numerical and graphical display of the test statistics of an autocorrelation diagnostic routine.

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; a retracement.

Covariance

Multiplies the deviation of each variable from its mean, adds those products and then divides by the number of observations.

Cover

Purchasing back a contract sold earlier.

Covered Write

Writing a call against a long position in the underlying stock. By receiving a premium, the writer intends to realize additional return on the underlying common stock or gain some element of protection (limited to the amount of the premium less transaction costs) from a decline in the value of that underlying stock.

Crack Spreads

The spread between crude oil and its products: heating oil and unleaded gasoline plays a major role in the trading process.

Credit Spread

The difference in value of two options, where the value of the one sold exceeds the value of the one purchased.

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, as opposed to CTI1, local floor traders.

Cup and Handle

An accumulation pattern observed on bar charts. The pattern lasts from seven to 65 weeks; the cup is in the shape of a “U” and the handle is usually more than one or two weeks in duration. The handle is a slight downward drift with low trading volume from the right-hand side of the formation.

Current Ratio

The current assets of a company divided by its current liabilities. Balance-sheet strength indication.

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. Each security is given a number so that it is easily identifiable.

Cutoff Frequency

A point where higher frequency cycles will not pass through a filter (e.g., a 10-day SMA will eliminate cycles of 20 days or less).

Cycle

A variation where a point of observation returns to its origin.