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Glossary - A

 

ABC

Terminology for a three-wave countertrend price movement use in Elliott wave analysis. 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.

Abandoned Baby Pattern

A 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. It is considered to be a top reversal signal.

 Accumulation

A characteristic of a market bottom where smart money is said to be buying from uninformed hands. Accumulation takes place against a negative news background. Accumulation also applies to the basing process in chart patterns or formations. It is the first of three phases in a major trend, the other two being markup and distribution.  

Adaptive Filter

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

Advance-Decline Line (A/D Line)

Is the cumulative running total of the plurality of advancing over declining issues for a given period, usually a day. It is used as a proxy for the broad market or the price of the average share. When the market, as measured by the DJIA or S&P Composite makes a new high and this is not confirmed by the A/D Line this is known as a negative divergence. Negative divergences are interpreted as a bearish sign.  Positive divergences develop at market bottoms when the A/D line fails to confirm a new low in the averages. These are regarded as bullish signs. Generally speaking the longer the divergences the more important the signal. Some A/D lines, such as the AMEX, OTC and that in Japan appear to have a permanent downward bias and should only be used for very short-term analysis over a period of a few weeks.

Adverse Excursion

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

Advisory Services

Privately circulated publications that comment upon the future course of financial markets, and for which a subscription is usually required.  

AKA

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

Alpha

Is a measure of stock performance independent of the market. The alpha value for an investment portfolio is the amount that is earned above that a given point of reference; a stock with a positive alpha is outperforming the market based on its own merits, as opposed to a stock with a negative alpha, which is under performing the market based on its own merits.

American Depository Receipts (ADRs)

Certificates that are issued by a bank of U.S. 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.

Andrews Pitchfork

Andrews' Pitchfork consists of three parallel lines.  The first begins at the left-most point selected and is drawn so it passes directly between the right-most points.  This line is the handle of the pitchfork.  The second and third trendlines are then drawn beginning at the right-most points and are drawn parallel to the first line.  These lines are the pitchfork's tines. Interpretation is based on the same principles as any other trendline.

Arbitrage

The simultaneous purchase and sale of two different, but closely related, securities to take advantage of a disparity in their prices.

Arms Index

Also known as the Trading Index (TRIN): It is an oscillator of market breadth indicator which also uses volume in its construction. It moves inversely with the market, which means that a low number i.e. between 30-50 is bullish and a high one, in excess of 150 is bearish. The index is often smoothed with a simple moving average.  

Astrophysical Cycle

Any earthly cycle, such as a market cycle,  which can be 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 security.

Average Directional Movement Index (ADX)

An indicator that measures the intensity of a trend.

Average Option

An option that's pay-off depends on the average value of an underlier over a specified period.

Average True Range

A moving average taken of the true range.

 

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