Relative Strength
Relative strength is a calculation of the price trend of a stock or a financial instrument in comparison to another instrument, stock, or industry. It shall be determined by taking the price of one commodity and dividing it by another.
Relative strength is a strategy used for determining value stocks and is used in momentum investing as well. It involves investing in stocks that have done well, in relation to their index or benchmark. For example, a relative strength investor might pick technology companies that have outperformed the Nasdaq Composite Index or large-cap stocks that are lagging against the S&P 500 index.
Relative Strength Index (RSI)
Short-term and technical traders monitor relative strengths. In the technical analysis, the Relative Strength Index ( RSI) is a momentum indicator that calculates the magnitude of recent price shifts to determine over-purchased or oversold conditions in the price of a stock or other commodity.
The RSI is shown as an oscillator (a line graph that travels between two extremes) and can be read from 0 to 100. The RSI reading of 30 or lesser highlights an oversold or undervalued situation.
Swing Trading
Swing trading is a form of trading that tries to focus on making small gains in medium to short-term trends over a particular period of time. These gains despite being smaller can provide a significant amount of returns annually as they are made consistently over time.
Swing traders use technical and fundamental analysis to look for trading positions and opportunities. You should also analyse the price trends and patterns.
Scalping
Scalpers rapidly enter and leave the stock markets, usually within seconds, using higher leverage rates to position larger-sized trades in hopes of generating greater profits from relatively minor price shifts.
In the sense of market supply-demand theory, a scalper often refers to a person who buys large amounts of in-demand goods at regular price, such as new appliances or event tickets, hoping that the goods will sell out.
McGinley Dynamic Indicator
The McGinley Dynamic indicator is a kind of moving average which was designed in order to track the market in a better way in comparison to the current moving average indicators. It is a technical indicator which enhances the movement of average lines by adjusting for shifts within the market speed. The inventor of the eponymous indicator is John R. McGinley, a market technician.
The McGinley Dynamic indicator takes into consideration market speed shifts (hence, 'dynamic') to display a smoother, more flexible, moving average line.
Position Sizing
Position sizing points to the total number of units held by a trader in certain security. A trader’s risk-taking abilities and account size have to be necessarily considered by a financial planner or advisor when deciding on the position sizing.
Position sizing is referred to as the size of the position held by a trader with respect to a particular security or portfolio. It is also referred to as the amount of money being traded in a given asset.
Beta Risk
The beta risk is the likelihood that a statistical test will consider a false null hypothesis. This is also referred to as a type II error or consumer risk. The term ""risk"" in this context refers to chance or a likelihood of making an incorrect decision.
The principal determinant of beta exposure is the sample size used for the study. The larger the sample tested, the lower the beta-risk becomes. Beta risk, when an alternative hypothesis is correct, can be defined as the risk found in incorrectly accepting the null hypothesis.
Short Selling
Short selling is a trading practice speculating on the fall in the price of a stock or other securities. It's an innovative technique that only seasoned traders can take on.
Traders may use short selling as leverage, and investors or fund managers can use it as a hedge against the downside risk of a long position in the same or similar protection.
Hard Stop
A hard stop is a concept than an actual type of order. A hard halt presumes a price level which will trigger an order to sell the underlying security if it is reached. Hard stops are typically done as a stop-order on an open market place. The rule is likely to be good until whichever comes first cancelled or filled.
The order turns into a market order when the specified price point is exchanged, and the next available market price is taken as exchange. The idea behind the hard stop is clearly that the law is stubborn and must be enforced. This sort of an order does not protect against gapping prices but has the advantage of getting out when trading resumes at the first possible price after it has gapped below the first stop price level.
Exit Strategy
An exit strategy can be defined as a contingency plan to liquidate or dispose of a financial asset once the predetermined event/circumstance for the asset has been met by a trader.
Traders set the point for the performance of the assets at which they will have to sell the asset. Meaning, the trader will already have set a point at which they will sell the asset for gain and a point at which they will sell for a loss. This exit strategy can limit the risk involved and enhance the trading capabilities of the trader.
Bid-Ask Spread
A bid-ask spread refers to an amount by which the bid price for an asset on the market exceeds the bid price. The bid-ask spread is the difference between a buyer's will to pay the highest price for an item, and the lowest price a seller is willing to accept. A person who wants to sell will receive the price of the bid while one who wants to buy will pay the price of the offer.
Forward Spread
A forward spread is the price difference taken at a given interval between the spot value of a security and the forward price of the same security. The formula is demand forward minus spot price. If the spot rate exceeds the forward rate, then the difference is the spot price less the forward price. Forwards points are another name for the forward distribution.
For forward spreads, the calculation is the price at the spot market for one asset relative to the market of a forward that will be deliverable at a future date. The forward spread can be based on any period, like one month, six months, a year, etc. The forward spread between spot and one month ahead is likely to be different from the spread between spot and six months ahead.
Bollinger Bands
- Bollinger Bands are a technical analysis tool developed in the 1980s by John Bollinger for trading stocks. The bands comprise a volatility indicator that estimates the relative high or low of a security’s price concerning previous trades.
- Volatility is measured employing standard deviation, which can change with an increase or decrease in volatility. The bands increase when there is a price rise and narrow when there is a price decrease.
- Bollinger Bands can be implemented to the trading of various securities because of their dynamic increase.
Stochastic
Stochastic, as a stochastic oscillator indicator is often simply called, is a momentum indicator that shows the price sensitivity of a security to time over which the price sensitive was measured. It shows overbought and oversold levels by analyzing the price history of a security with its closing price on a day.
Like many other technical analysis tools, stochastic indicator is not a singular depictor and is often strongly associated with relative strength index (RSI). It does not calculate the price; it calculates the speed at which the price is moving that shows the interpretation to investors whether it might be a good time to sell or buy the stock.
Moving Average
Moving average is a tool used by investors and traders in technical analysis, to evaluate the movement of the asset’s prices and trend direction of the securities. In a way the moving average is a tool that helps the investors and traders to keep in pace with the trends of the market.
It is called a moving average because the prices of assets vary every now and then and this average is calculated every time there is a change in the prices. Thus, it is continuously moving. A moving average is nothing but an indicator that tells the analysts about the price trends in the market. The two basic uses of moving average are to determine the trend direction and determine the levels of support and resistance.
Simple Moving Average or SMA
Simple Moving average or SMA is calculated by adding the recent data points in a particular set and dividing it by number of time periods. SMA is used as an indicator of when to enter or exit a market. Analysts also use SMA as an indicator to buy or sell securities. Simple moving average or SMA is a backward looking tool because it relies on the data which is based on past prices for a specific period of time.
Exponential Moving Average or EMA
Exponential Moving Average or EMA is another type of moving average which focuses more on recent prices as opposed to Simple moving average or SMA that focuses on past prices. So, EMA is more responsive to recent prices. Simple Moving Averages or SMA and Exponential Moving Averages or EMA are both technical indicators used for the same purpose but the key difference between the two is the sensitivity. "
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence or MACD is one of the most popular financial tools which was created in the 1970’s by Gerald Appel. Moving average convergence divergence or MACD indicates the difference between two moving averages between two time periods of a security’s price. This helps to understand the momentum and strength of the security.
Moving Average Convergence Divergence or MACD is calculated by taking two moving averages of different time intervals and a momentum oscillator line is obtained by subtracting the one with long time period from the one with short time period.
Volume Weighted Average Price (VWAP)
Volume Weighted Average Price (VWAP) provides an insight for the daily trader to understand the average price that the security had traded during the day by taking both volume and the price into account. It is an important trading benchmark that is plotted day wise, starting from the opening price and ending at the close price intraday.
Volume Weighted Average price is the total average price with respect to the volume of the security and it is calculated using the following formula: VWAP = (Cumulative (Price * Volume)) / (Cumulative Volume)
Price Action
Price action refers to the movement of the security’s price which is plotted over a particular time period. This is an important factor or strategy as most traders solely depend on this for making important trading decisions. Price action is also important for analysts as it forms the basis of technical analysis of the stocks or commodities involved.
Traders use different chart patterns like the candlestick chart patterns to understand the price action more easily as these patterns indicate the upward and downward movement of the security’s prices more specifically and clearly which makes it simple for the traders to understand. Candlestick patterns like harami cross, engulfing pattern and three white soldiers are most commonly used for this purpose."
Fibonacci Retracement
Fibonacci ratios are applicable in stock charts. ‘The retracement level forecast’ is a technique that can identify up to which level retracement can happen and the Fibonacci ratios help the trader identify the extent to which this is possible. Fibonacci retracement refers to a technical analysis for determining support and resistance levels in stocks.
- Fibonacci retracements are movements in the chart that go against the trend. To use the Fibonacci retracements, it is essential to identify the 100% move first. After this, the Fibonacci retracement tool must be used to connect the peaks and the troughs.
- Fibonacci retracement levels such as 61.8%, 38.2%, and 23.6% act as a potential level up to which a stock can correct and shows the points at which a trader can enter the market. These inflection points are where traders expect some action.
- Unlike moving averages, Fibonacci retracement levels are static and do not change.
Put-call Ratio Analysis
The put call ratio is a financial ratio that can be used as an indicator of the relative trading volume of put options to call options. A put is a derivative instrument that gives the holder of security the right but not an obligation to sell the bond or share known as an underlying asset or security. Similarly, a call is an instrument or financial contract that gives the holder the right but not an obligation to buy the underlying asset.
The put call ratio helps the traders to understand whether a recent rise or fall in the market is excessive and decide if the time has come to take a contrarian call. This is why the put-call ratio is also known as a contrarian indicator.
Open Interest Analysis
Open interest is the total number of outstanding contracts that are not settled for an asset and held by the market participants at the end of the day. Open interest measures the total level of activity in the futures market and provides a clearer picture of the options trading activities and if the money flow in the market is increasing or decreasing.
Open interest indicates the liquidity of the market and is very important for options traders, as it helps them to understand the liquidity of options in the market.
