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.
DeepintheMoney
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
rateof 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 socalled 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
longlegged 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
patternrecognition 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 opposingcolor 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 highlow 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 period’s closing price to the
previous period’s 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 Wilder’s the RSI.
Failure
Develops
in Elliott wave theory when the fifth wave of a fivewave pattern of
movement fails to move above the end of the third, or in which the fifth
wave does not contain five subwaves.
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
Shortterm
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 halfmast 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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