Glossary Of Terms

This glossary is customized to to the way we trade at MarketGauge. Many of the terms are unique to MarketGauge. Some of the definitions of industry standard terms include additional information on how it relates to the way we trade.

This page is organized into these categories:

MarketGauge Abbreviations

Many of the items in this section are described in greater detail in other sections below.

Subs: When we use the term “sub”, we are referring to our subscribers. One such place that you will see this term used is on the MMM Premium Evening Watch, the daily newsletter that shows you our picks for the following day. Here, the Subs receive a more in-depth analysis of the market than non-subscribers.

LOD: The low of the current day

HOD: The high of the current day

PDL: The low of the prior day

PDH: The high of the prior day

DMA: Daily moving average

O.R.: The Opening Range

Pivots

Floor Trader Pivots (FTP)

The FTP is a calculated price point that is widely regarded as a significant level of support and/or resistance or a reference midpoint for calculating other support and resistance levels.

These calculated levels of support and resistance have an uncanny ability to identify market inflection points.

The calculation for a the FTP price point is as follows:

FTP = (Prior Day High + Prior Day Low + Prior Day Close) / 3

Additional Floor Trader Support & Resistance Levels

The Floor Trader Pivot (FTP) can be used as a mid-point to calculate multiple support levels below (S1, S2, S3) and resistance levels above (R1, R2, R3).

Support and resistance levels are calculated from the floor trader pivot point using the following formulas and will be located on the charts in this order:

Third Resistance (R3) = (R2) + (Prior Day High - Prior Day Low)

Second Resistance (R2) = FTP + (Prior Day High - Prior Day Low)

First Resistance (R1) = (2*FTP) - Prior Day Low

FTP = (Prior Day High + Prior Day Low + Prior Day Close) / 3

First Support (S1) = (2*FTP) - Prior Day High

Second Support (S2) = FTP - (Prior Day High - Prior Day Low)

Third Support (S3) = S2 - (Prior Day High - Prior Day Low)

For some traders it may help you understand these calculations if you notice that the increasing levels of support and resistance are simply found by adding or subtracting the prior day’s range (High - Low) to each prior level beginning with the FTP.

Positive Pivots- You will often hear us refer to a stock as having positive pivots. This is when the FTP for the current day is higher than the FTP of the prior day. Positive pivots contribute to a bullish bias for a stock.

Negative Pivots- You will often hear us refer to a stock as having negative pivots. This is when the FTP for the current day is below the FTP of the prior day. Negative pivots contribute to a bearish bias for a stock.

Market Phases

Market Phase: Market phases help to describe an instrument’s strength or weakness. Instruments move from one phase to another, based on how the moving averages are stacked and sloped and where the price is in relation to the moving averages.

There are 6 basic phases defined as follows:

Bullish Phase: When the 50 DMA is over the 200 DMA, and the price is over the 50 DMA.

Warning Phase: When the 50 DMA is over the 200 DMA, and the price is under the 50 DMA, and over the 200 DMA.

Distribution Phase: When the 50 DMA is over the 200 DMA, and the price is under the 200 DMA.

Bearish Phase: When the 50 DMA is under the 200 DMA and the price is under the 50 DMA. This is the reverse of a Bullish Phase.

Recovery Phase: When the 200 DMA is over the 50 DMA, and the price is over the 50 DMA and under the 200 DMA.

Accumulation Phase: When the 200 DMA is over the 50 DMA, and the price is above the 200 DMA and 50 DMA.

You’ll find more detail about phases in the tutorial found here:

http://www.marketgauge.com/resources/littlebigview-2/help/?tab=2

Opening Range

Opening Range: OR is the abbreviation for opening range. This is the price range between the highest high and the lowest low for the first 5 minutes or 30 minutes of the trading day, depending on which opening range is being considered. The OR is crucial for identifying many of our key setups such as, OR breakouts, OR breakdowns and OR reversals as well as defining certain risk levels for trades.

OR Breakdown: An OR (opening range) breakdown is when the stock’s price drops below the lowest price of the stock’s opening range.

OR Breakout: An OR (opening range) breakout is when the stock’s price exceeds the highest price from the stock’s opening range.

OR Reversal: An OR (opening range) reversal is when a stock’s price returns to the opening range, after breaking down or breaking out below or above it.

Technical Indicators

Average True Range (ATR): this is a measure of the average true range of a stock over a set number of days (commonly 10). It is used as a measure of volatility that is customized for each stock for that given period. This volatility measure can be used to determine ideal stops and targets levels. “True Range” for any given day is the largest of three possible calculations: the current high less the current low, the absolute value of the current high less the prior day close, or absolute value of the current low less the prior day close.

Simple Moving Average (SMA): A simple moving average is the average of a stock’s closing prices (minute, hour, day, week, month) over a certain period of time. Unlike an exponential moving average which gives more weight to the most recent days, the same weight is given to each day while calculating the average for a simple moving average. The shorter term SMA’s are faster to respond to market action than the longer term SMA’s. When you hear the term “moving average”, it usually refers to SMAs. For daily charts, MarketGauge primarily uses a 10 day, 50 day, and 200 day moving average.

Exponential Moving Average (EMA): An exponential moving average has more weight placed on the most recent day. This type of moving average reacts more quickly to recent price changes than the simple moving averages do. The 12 EMA and the 26 EMA are the most commonly used short-term EMAs. The 50 and 200 day EMAs are used to track longer term trends.

Fast Moving Average: The fast moving average is the shortest term moving average on a chart. Using a daily chart, the fast moving average is typically weighted over 10 days.

10/50/200 DMA: DMA is the abbreviation for Daily Moving Average. The 10 DMA is the Moving Average for the past 10 days, the 50 DMA is the Moving Average for the past 50 days and the 200 DMA is the Moving Average from the past 200 days. All of these moving averages chart the stock’s average value over different periods of time. They are used in a variety ways to show support and resistance and the overall trend of the market. For example, we use them to determine our Market Phase indicator which is a powerful way to define level of bullish or bearish sentiment in the market.

DMAs Stack and Slope: You will often hear the moving averages referred to as “stacked and sloped”. Stack and Slope can be negative or positive. When the DMAs are positively “stacked”, that means that the 10 is over the 50, which is over the 200. The shortest time duration is on top, while the longest time duration is on the bottom. When the DMAs are positively “sloped”, that means that all of the DMAs have an upward slope. We use the stack and slope to define different market phases and conditions.

Relative Strength Index (RSI): The Relative Strength Index is a technical momentum indicator that compares recent gains and recent losses. The RSI runs from a scale of 0-100. An RSI of zero represents the most oversold condition, while 100 represents the most overbought condition.

Oversold: The term “oversold” refers to a stock that is perceived to have fallen too far or too quickly with the presumption being that you have exhausted the supply of new sellers. A common way to define this is with the he RSI indicator. Oversold stocks have very low RSI readings (typically under 20 or 30). Often these stocks are oversold due to panic, and could represent a good buying opportunity (given favorable market conditions and support).

Overbought: The term “overbought” is the opposite of oversold and refers to a stock that has risen too far or too quickly with the presumption being that you have exhausted the supply of new buyers. A high RSI reading is a common indication of an overbought condition (typically over 70 or 80). When this happens, traders often expect the stock's rise to pause or reverse.

Volume: Volume is the number of shares traded in a security, or the entire market, in a given period of time. It is the amount of shares that trade hands between the buyers and the sellers. A stock with low volume is commonly referred to as “thin”. Thin stocks can be more volatile because they are more affected by moves in the market. Volume is often used as a confirming signal as a breakout in a stock on high volume is perceived to be stronger than a similar breakout on low volume.

Average Volume: Average volume is the average number of shares of a particular stock traded each day. An increased average volume can show a heightened amount of interest in a stock, just as a decreased average volume indicates a decrease in interest. Stocks with low volume are referred to as, “thin”. Thin stocks can be subject to more volatility.

VWAP: The term VWAP is the abbreviation for Volume Weighted Average Price. VWAP is the measure of the average price of a stock weighted by volume. It is most commonly calculated on intraday data with each day beginning a new calculation of its value. Day traders will often use this for support and resistance.

Distribution Day: A distribution day is when an instrument closes lower than the day before with higher volume than the prior day.

Accumulation Day: An accumulation day is when an instrument closes higher than the day before, with higher volume than the prior day.

Chart Points & Patterns

Low of Day (LOD): The low of day is the lowest price that a stock trades at during market hours (9:30 AM through 4:00 PM EST). In candlestick charts, it is the lowest point in the lower “wick” of a daily candle.

High of Day (HOD): The high of day is the highest price that a stock trades at during market hours (9:30 AM through 4:00 PM EST). In candlestick charts, it is the highest point in the upper “wick” of a daily candle.

Inside Day: An inside day is when the entire price range of a day falls within the price range of the previous day. If an inside day is at the end of a prolonged downtrend and is located near a level of support, it can be used to signal a bullish shift in trend. Conversely, an inside day found near the end of a prolonged uptrend may suggest that the rally is getting exhausted and could reverse.

Support: Support levels are price levels where, historically, a stock has had trouble falling below. They can be defined by the lower end of a significant trading range, the lowest prices of a stock over a certain period, or below a moving average (longer period averages tend to be stronger support than shorter periods). Support levels can be good areas to enter a trade with the expectation that it will not trade below those levels. For this reason, trade stops are often placed below these levels.

Resistance: Resistance is the opposite of support. Resistance levels are areas in a chart where the stock has historically had trouble rising above and can include the upper end of a significant trading range, the highest prices of a stock over a certain period, or above a moving average. The more times that the stock tries to break the resistance level and fails, the stronger that resistance level becomes. When the price fails a resistance level, traders often expect a price drop in the near term. Resistance levels can also become support levels once they have been cleared.

Retracement: A retracement is a temporary reversal in the direction of a stock’s price that also goes against the prevailing trend. A retracement is not a signifier of a reversal in trend. Examples of retracements are seen in the small dips in price during an overall uptrend. These are short term changes within a larger trend.

Reversal: A reversal is a decisive change in direction of a prevailing trend. An example is when a bullish market shifts to bearish. A bullish trend is an uptrend with higher highs and higher lows. A reversal occurs when this trend changes to a trend with lower highs and lower lows.

Golden Cross: A golden cross is when the 50 DMA crosses over the 200 DMA on a move upwards. This indicates a changed phase into a more bullish phase. This is often a good indicator that the stock’s price may move up. This is more powerful when the price of the stock is near the golden cross.

Death Cross: A death cross is when the 50 DMA crosses the 200 DMA on a downward move. This indicates a move into a more bearish phase and is often a good indicator that the price of the stock will go down. As with the golden cross, these signals are much stronger when the price of the stock is closer to the death cross.

Bull Flag / Pennant: A flag or pennant formation is a type of channel that is created by two trendlines. These trend lines begin relatively wide and converge on a area due to the stock volatility decreasing, creating a triangle flag shaped pattern.

Bear Flag: A bear flag is a pattern setup that resembles a triangular shaped flag, formed when two trendlines are drawn through major points in the chart. The upper and lower lines of the flag are pointed up and towards the apex of the flag, which is the converging point on the right side of the chart. Bear flags are also sometimes referred to as a “rising wedge”. This pattern is often is a signal that a bearish phase or price drop is to come. One of the most critical components of this pattern is that there needs to be a divergence in price and volume. That means the price is rising as volume is falling. Once the price (with low volume) reaches the apex of the flag, there will often be a precipitous drop in price.

Gap: A gap is jump in prices from the close of one bar to the open of another bar, either above or below. These can often occur overnight where the market opens considerably higher or lower than the prior day close or less frequently during market hours if a significant news event occurs. On candlestick charts, areas without overlapping candles are called gaps. Certain chart patterns and trade setups are based around larger gaps or those that leapfrog significant areas of support or resistance.

Trade Types

Day Trade: A day trade is a trade that is opened and closed out within the same trading day. Cash accounts under $25,000 are limited on the number and frequency of day trades. Day trades are also subject to lower margin requirements than trades held overnight.

Mini Swing Trade: A mini swing trade is a type of medium duration trade lasting anywhere from 1-3 days. The nature of the trade is to catch quick momentum both with or counter to the overall trend. Mini Swing trades have narrower ATR-based stops and targets than Swing trades.

Swing Trade: A swing trade is a trade designed to catch a larger moves and tends to be a longer duration (3+ days) compared to Mini Swing trades. The ATR-based stops and targets for Swing trades are considerably wider than those used for shorter duration trades.

Position Size: A position size is the dollar value that a trader invests into a particular trade. The trader’s portfolio value, risk tolerance and trading style are all factors that determine appropriate position size. We often employ fixed-risk stops, meaning we might enter a trade such that if our stop was hit we lose a consistent $500, but we will vary our position sizing to allow our stop to be narrower or wider depending on the trade setup.

Fade / Follow: When a trader “fades the market”, they are trading against the prevailing trends of the market. An example of a fade is when a trader buys a stock while the price is falling, with the hope of selling it higher. This is a risky strategy because the trader is going against the overall trend of an instrument. When a trader “follows” the market, they are trading with the direction of the prevailing trend.

Order Types

Market Order: An order to buy or sell a stock immediately at the best available current price. The buy price in this type of order can fluctuate because the price can move between the time the order is placed and when the order is filled.

Stop Order: An order to buy or sell a stock at the market when its price passes a certain point. This type of stop is designed to limit an investor’s losses. This is also known as a “stop-loss” order or a “stop-market” order. It is a wise idea to set stop orders on your existing positions if you plan on being unavailable to trade for an extended period of time.

Limit Order: An order placed with a broker to buy or sell a set number of shares at a specified price or better. Depending on whether the trader is going long or short, the limit order is called a “buy limit order” or a “sell limit order.” These orders are especially helpful on low volume or particularly volatile stocks because it ensures that the trader will get the stock at a specified price or the trade will not occur.

Stop Limit Order: An order placed with a broker that combines elements of a stop order and a limit order. This type of order will be executed when a stock reaches a certain price and is filled at a specified price (or better). When the stop price is reached, the order becomes a limit order.

Buy Stop Order: This is an order which is set at a price that is higher than a security’s current market price. The order is triggered when the price meets or goes through the buy stop price. This type of order is great for people who want to enter at a breakout of a range or price level.

Trailing Stop: A trailing stop is a stop set either automatically or manually to increase or trail up as a stock moves up but remain fixed and eventually triggered if the stock moves down. Typically this is used after a trade has moved sufficiently in your favor or you have already taken partial profits on a trade. The trail can be based on a percent decline, moving average, set level of ATRs, significant chart areas, or any other number of factors.

Bracketed Sell Order: This is a sell order on a short sale that is accompanied (or bracketed) by a buy stop order above the entry price, and a buy limit order below the entry. This type of order protects the trader on the up and down side of the trade by ensuring that they don’t lose more than an acceptable amount and that they lock in profits where they want to.

Bracketed Buy/Sell Order: This is a conditional order type that specifies a lower price and a higher price to either get in or get out at. Bracketed orders can be used to go long if a breakout occurs or short if a breakdown occurs. Once in a trade, bracketed orders (one cancels the other) can be used to automatically take profits or get stopped out at certain levels.

Chandelier Exit: A Chandelier Exit is a type of exit from a trade that uses a series of trailing stops that originate from the highest point of a trade. It is designed to keep traders in a trade while the stock is trending while exiting the trade if the trend breaks.