What is the Arms Index (TRIN)?The Short-Term Trading Index (TRIN), also known as the Arms Index, is used to identify market sentiment by comparing advancing/declining stocks ratio to the advancing/declining volume ratio. It is part of a trader’s technical analysis tool kit, as it serves as a good indicator of future, intraday price movements in the financial markets. [Read More]
What is a Sentiment Index? A sentiment index is a type of indicator that seeks to quantify a qualitative data point: How a particular group of people feel about the economy as a whole or a market in particular. There is a wide variety of sentiment indicators, measuring everything from general consumer sentiment to market investor sentiment. [Read More]
What does overbought mean?Traders and investors usually refer to a security as overbought if it is trading at a price that is higher than they believe the security is worth. [Read More]
What does oversold mean?Traders and investors usually refer to a security as oversold if it is trading at a price that is lower than they believe the security is worth. [Read More]
What is the advance/decline index?The advance/decline index is a type of indicator used in to identify trends in the overall market. The advance/decline index is calculated by subtracting all number of stocks that decreased in value in a given time period from those that increased in value over the same period, and then adding that net number to the previous time period’s to determine if the market is advancing or declining. [Read More]
What is the absolute breadth index? The absolute breadth index is a market volatility indicator that is almost identical to the advance/decline index, but with one exception. Whereas the advance/decline can yield positive (more stocks are advancing) or negative (more stocks are declining) results, the absolute breadth index takes the absolute value of the difference between advancing and declining stocks to get an overall view of market volatility. [Read More]
What is price change? One of the most important components of the markets is price change. Price change in financial markets refers to change in the price of a specific security at any point in time, but unless specified, refers to the to a security’s closing price versus the closing price of the previous day. [Read More]
What does divergence mean?When the price of a particular security moves opposite of a technical analysis indicator, divergence has occurred. Its primary use is as a technical analysis indicator that the current price trend of the security could be coming to an end. [Read More]
What is the cumulative volume index? The cumulative volume index (also known as CVI) is a specific type of indicator that focuses on the number of stocks that are advancing and the number that are declining in order to identify the momentum within the market. [Read More]
What is on-balance volume? On-balance volume (OBV) is a momentum indicator that is utilized in technical analysis to predict price changes for a given security. Developed by Joseph Glanville almost 60 years ago, it utilizes both the volume of shares of a stock that are traded AND the stock’s market price per share to deliver its results. [Read More]
What is a correction? A correction is when either an individual security or asset or an entire market declines in value by more than 10% from its recent highest value. Corrections can last anywhere from a couple of days to months, with the average correction lasting approximately 90 to 120 days. [Read More]
What is convergence? Convergence has two different connotations within the financial world. The first refers to the event where the cash value and futures value of a contract for a commodity converge towards the same value. The second refers to an event noticed in technical analysis where the price of a security tracks in line with a similar security. [Read More]
What are EMAs? An exponential moving average (EMA for short) is one of the moving average indicators that weights recent security price performance more heavily than older data. EMAs can be constructed for any specific length of time and tend to be better than simple moving averages (SMA) at being more responsive to current changes in price. [Read More]
What are SMAs? A simple moving average (SMA for short) is one of the various moving average indicators utilized by analysts and traders. It is called “simple” because the calculation of it is simply the average price (usually closing price) of a security over a specific time period. [Read More]
What is the death cross? The death cross is a specific chart pattern that has been identified as a forerunner for large downturns in the financial markets over the past century. It occurs when the security’s, or market’s, 50-day moving average crosses its 200-day moving average, forming a cross on the chart. The death cross is usually accompanied by an uptick in volume in the market. [Read More]
What is a bear market?A bear market is the opposite bull market. Just like the bull market, there is no standard definition, but the most commonly accepted one is a situation when the stock market falls by 20% or more over a specified length of time. [Read More]
What is a doji? A doji (Japanese for mistake) is a market session where a security has nearly identical open and close prices, creating a horizontal line or small box on a candlestick chart indicating the similarities of the open and close prices. Doji sessions are rare, and is a neutral indicator in technical analysis, meaning it must be utilized in conjunction with other indicators to identify whether the trends indicated are in fact accurate. [Read More]
What is a false indicator? A false indicator is when a particular indicator depicts a potential price change that is not in alignment with either the micro or macroeconomic conditions at the time. While there are numerous root causes for false indicators (corrupt data, timing issues, or improper coding), it is possible to limit them utilizing several techniques, such as averaging results for a given period of time to smooth out the data and eliminate short-term fluctuations that might not represent conditions as a whole. [Read More]
What is money flow? Money flow is a market indicator used by analysts and investors to spot changes in a security’s price before it happens, thus giving them a trading advantage. Money flow is broken down into two types: Positive and negative. Positive money flow is when a security is purchased at a higher price than the previous trade while negative money flow is when a security is purchased at a lower price than the previous trade. [Read More]
What is the Golden Cross?A golden cross is a type of technical analysis indicator that appears on a candlestick chart when a short-term moving average (usually the 50-day moving average) is moving in an upward direction and crosses the long-term moving average (usually the 200-day moving average). This intersection is known as a golden cross and is an indicator that a bull market might develop in the near future. [Read More]
What is a bull market?While no standard definition for a bull market exists, the most commonly accepted one refers to a situation when the stock market rises by 20% or more after falling 20% or more. [Read More]
What is a stochastic indicator?A stochastic oscillator is a type of technical analysis momentum indicator that identifies potentially overbought or oversold conditions. It does this by comparing the closing price of a security to its high and low prices over a given time period, usually 14 days. It is what is known as a “range bound” indicator, meaning that its values will always fall between 0 and 100, with a value of 20 or less indicating an oversold condition and a value of 80 or more indicating and overbought condition. [Read More]
What is the VIX? The Chicago Board Options Exchange created the Volatility Index, or VIX for short, to put a numerical value on market volatility for the next 30 days. Using a complex mathematical formula that looks at SPX options for the future 30 days, the VIX is able to generate a numerical value that is sometimes referred to as the “fear index” in that it gauges market sentiment for the month to come. Traditionally, a low VIX number indicates a calm market while a large VIX number indicates a market that is very concerned about the next 30 days. [Read More]
What is the VVIX? The VIX of VIX (or VVIX for short) seeks to quantify the volatility in the pricing of the VIX. Created by the Chicago Board Options Exchange to accompany the VIX, the VVIX seeks to quantify how quickly (the rate of change) the sentiment in the market shifts from positive (confident) to negative (fearful). [Read More]
What is historical volatility? Historical volatility is the measure of either a security’s or index’s volatility over a specific period of time. Volatility is the use of standard deviation to show the degree to which a security’s or index’s daily price varies from the mean over a given period of time. [Read More]
What is the Put/Call Ratio? The put/call ratio is the number or trade volume of put options for an exchange, index, or security divided by the number or trade volume of call options for the same exchange, index, or security. It is utilized by analysts and investors as a temperature gauge of overall market sentiment and can be applied to a specific security as well. [Read More]
What is 'Max Pain' for options? Max pain, short for the max pain price, is the strike price with the largest number of open put and call contracts. Taken from the Maximum Pain theory, it is also known as the stock price which would cause financial loss for the most option holders upon expiration of the options contract. [Read More]
What is options 'open-interest'? Open interest is an important technical indicator, especially for the options market. Open interest is the total number of open derivatives contracts (i.e. – options or futures) that have NOT been settled. [Read More]
What are block trades?A block trade is a trade that involves a significantly large amount of securities, usually greater than 10000 shares or $200000 in bonds. Given the size of the trade, investors and traders go to great lengths to make sure these large orders do not cause dramatic swings in the price of the underlying security. [Read More]
What is average true range (ATR)?Average True Range (ATR) is an indicator used in technical analysis to measure volatility. Originally developed by J. Welles Wilder, Jr. for commodity market analysis, it has since been applied to many other types of securities. Unlike other indicators, ATR only uses a 14-day moving average as part of its formula. A security experiencing low volatility will have a low ATR value, and a security experiencing high volatility will have a high ATR value. [Read More]
What is net volume?Net volume is an indicator used in technical analysis to identify if the market is bearish or bullish. It is derived through the subtraction of a security’s downtick volume from its uptick volume, with a positive result indicating a bullish market and a negative result indicating a bearish one. [Read More]
What is a 200 DMA? The 200 DMA is the 200-day moving average for the security in question. Along with the 50-day moving average, it serves as a key technical indicator for analysts looking to identify potential changes in security prices. [Read More]
What is the 50 DMA? The 50 DMA is the 50-day moving average for the security in question. Along with the 200-day moving average, it serves as a key technical indicator for analysts looking to identify potential changes in security prices. [Read More]
What is the 100 DMA? The 100 DMA is the 100-day moving average for the security in question. [Read More]