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Glossary - D, E, F
 

 

Daily Trading Limit

The maximum price range set by the exchange cash day for a contract.  

Data Preprocessing

Altering data to some extent to be more accurately analyzed; smoothing, reducing unwanted data, removing trend.  Processing data is mathematically transforming the data from one form into another with the goal of amplifying pertinent information for traders.

Day Traders

Speculators who take positions in futures or options contracts and liquidate them prior to the close of the same trading day.  

Deep-in-the-Money

An option with the strike price of the option well below or above the current price of the underlying instrument.

Delta

The amount by which the price of an option changes for every dollar move in the underlying instrument.

Deliverable Grades

The standard grades of commodities or instruments listed in the rules of the exchanges that must be met when delivering cash commodities against futures contracts. Grades are often accompanied by a schedule of discounts and premiums allowable for delivery of commodities of lesser or greater quality than the standard called for by the exchange. Also referred to as contract grades.

Demand Index

An oscillator that reflects buying and selling power of markets or individual securities from mathematical calculations of volume and price ratios.

Derivatives

Financial contracts whose value is determined by price movements in the underlying instrument.

Diffusion Index

An indicator that measures the percentage of individual series that are positive compared with a basket or list of securities. An example might be the percentage of 80 or so stock industry groups that have a positive rate-of change for a given time span. Alternatively this calculation could measure the percentage with a positive moving average relationship. It is generally interpreted in a contrarian way i.e. when all or close to all the series are positive things cannot get much better and the market in question is said to be overbought or overextended on the upside and vice versa.

Distribution

Develops after a price rise where so-called smart money is expecting a decline and sells to uninformed or unknowledgeable buyers who are not.

Divergence

When two or more price series and/or indicators fail to show confirming trends. Negative divergences occur at market peaks, while positive divergences develop at market bottoms. The significance of a divergence is a direct function o its size; i.e., over time, the question is whether there is a series of divergences between the indicators and the number of indicators that are diverging.

Doji

A Japanese candlestick in which the open and close are the same (or almost the same). Different varieties of doji lines (such as a gravestone or long-legged doji) depend on where the opening and close are in relation to the entire range. Doji lines are important candlesticks in their own right and are also components of patterns containing one or more candlestick.

Double Bottom

A price reversal price pattern following a prolonged decline. It consists of two lows that develop around the same level. The second should be accompanied by considerably less volume than the first. The pattern is completed when the price rallies above the high separating the two lows. This breakout should be accompanied by relatively heavy volume.

Double Top

A price reversal pattern following a prolonged rally. It consists of two peaks that develop at approximately the same level. The second peak is usually accompanied by less volume than the first. The pattern is said to be completed when the price breaks below the low separating the two bottoms.  

Dynamic Data Exchange

Ability to automatically update an application from within another application.

 

E

Electronic Communications Network 

Independent executions systems set up by brokerage firms, matching new retail limit orders with compatible orders already in the system.

Elliott Wave Theory

A pattern-recognition technique developed by Ralph Nelson Elliott in 1939. It holds that the stock market follows a rhythm or pattern of five waves up and three waves down, forming a complete cycle of eight waves. The three waves down are referred to as a "correction" of the preceding five waves up.

EMA

See Exponential Moving Average

Engulfing Pattern

In candlestick terminology, a multiple candlestick line pattern; a major reversal signal with two opposing-color real bodies making up the pattern. (Also referred to as tsutsumi.)

Envelope

Lines surrounding an index or indicator that is, trading bands.

Equilibrium Line

A line that is frequently plotted on oscillators to reflect neutral momentum.

Equilibrium Price

The market price at which the quantity supplied of a commodity equals the quantity demanded.

Equivolume Chart

Originally created by Richard W. Arms. It is a chart in which the vertical axis is the high-low range for a specific period (usually a day) The horizontal axis represents volume. The purpose of this technique is to highlight the relationship between price and volume. Thick bars indicate heavy volume and vice versa.

Evening Star Pattern

A Japanese candlestick pattern, which is the bearish counterpart of the morning, star pattern; a top reversal, it should be acted on if it arises after an uptrend.

Exponential Moving Average

An exponential (or exponentially weighted) moving average is calculated by applying a percentage of the current periodís closing price to the previous periodís moving average value. The resulting average is front loaded i.e. places greater weight on more recent data.

 

F

Fade 

Selling a rising price or buying a falling price.  For example, a trader fading an up opening would be short.

Failure Swings

An interpretive technique used with Welles Wilderís the RSI.

Failure

Develops in Elliott wave theory when the fifth wave of a five-wave pattern of movement fails to move above the end of the third, or in which the fifth wave does not contain five sub-waves.  

Fast Market

A declaration that market conditions in the futures pit are so disorderly temporarily, that floor brokers are not held responsible for the execution of orders.

Fibonacci Ratio

The ratio between any two successive numbers in the Fibonacci sequence, known as phi (f). The ratio of any number to the next higher number is approximately 0.618 (known as the Golden Mean or Golden Ratio), and to the lower number approximately 1.618 (the inverse of the Golden Mean), after the first four numbers of the series. The three important ratios the series provides are 0.618, 1.0 and 1.618.

Fibonacci Sequence

The sequence of numbers (0, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233...), discovered by the Italian mathematician Leonardo de Pisa in the 13th century, where the first two terms of the sequence are 0 and 1 and each successive number in the sequence is the sum of the previous two numbers. The sequence is used by technicians, especially those applying Elliott Wave techniques, to project the timing and magnitude of expected moves.

Flags

Short-term consolidation formations that develop during rallies. These patterns are constructed by drawing two approximately parallel trendlines connecting the peaks and troughs.  Flags are said to fly at half-mast because they often develop half way up a price move.  

Front Running

The practice of trading ahead of large orders to take advantage of favorable price movement.  Brokers are prohibited from this practice.  

Fundamental Analysis

The analytical method by which only the sales, earnings and the value of a given tradable's assets may be considered.

Futures Contract

A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor. 

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