The overall sentiment or feeling that the market is experiencing at any particular time. Greed, fear, expectations and circumstances are all factors that contribute to the group's overall investing mentality or sentiment. While conventional financial theory describes situations in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can't be predicted by simply looking at the fundamentals.Technical analysts use trends, patterns and other indicators to assess the market's current psychological state in order to predict whether the market is heading in an upward or downward direction.
A series of technical indicators used by traders to predict the direction of the major financial indexes. Most market indicators are created by analyzing the number of companies that have reached new highs relative to the number that created new lows, also known as market breadth. Some of the most common market indicators are: Advance/Decline Index, Absolute Breadth Index, Arms Index and McClellan Oscillator. A general outlook on the market's direction is useful for traders looking for strength in individual equities because they ensure that the broader market forces are working in their favor.
A technique used in technical analysis that attempts to gauge the direction of the overall market by analyzing the number of companies advancing relative to the number declining. Positive market breadth occurs when more companies are moving higher than are moving lower, and it is used to suggest that the bulls are in control of the momentum. Conversely, a disproportional number of declining securities is used to confirm bearish momentum. A large number of advancing issues is a sign of bullish market sentiment and is used to confirm a broad market uptrend. Traders will specifically look at the number of companies that have created a 52-week high relative to the number that created a 52-week low because this data can provide longer term information about whether the bullish or bearish trend will continue.
A type of candlestick formation where the opening and closing prices are nearly equal despite a lot of price movement throughout the trading day. This candlestick is often used to signal indecision about the future direction of the underlying asset. Long-legged doji candles are deemed to be the most significant when they occur during a strong uptrend or downtrend. The long-legged doji suggests that the forces of supply and demand are nearing equilibrium and that a shift in the direction of the trend may be coming.
A type of scale used on a chart that is plotted in such a way that two equivalent percent changes are represented by the same vertical distance on the scale, regardless of what the price of the asset is when the change occurs. The distance between the numbers on the scale decreases as the price of the underlying asset increases. This is the case because a $1 increase in price becomes less influential as the price heads higher since it now corresponds to less of a percentage change than it did when the price of the asset was at a lower level. Also referred to as a "log scale". Logarithmic price scales are generally accepted as the default setting for most charting services, and they're used by the majority of technical traders. Common percent changes are represented by an equal spacing between the numbers in the scale. For example, the distance between $10 and $20 is equal to the distance between $20 and $40 because both scenarios represent a 100% increase in price. Contrast this to "linear price scale".
A market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. It is primarily used for short and intermediate term trading. To calculate subtract a 39 day EMA (of advancing issues - declining issues) from a 19 day EMA (of advancing issues - declining issues). Simplified, it looks as follows: (19 Day EMA of Advances - Declines) - (39 Day EMA of Advances - Declines) Usually, a small number of stocks making large gains characterizes a weakening bull market. This gives the perception that the overall market is healthy, but in reality it isn't, as rising prices are being driven by a small number of stocks. Conversely, when a bear market is still declining, but a smaller amount of stocks are declining, an end to the bear market may be near.
Realizing the gains of a position, such as buying a stock, by exiting at a profit. By locking in, that portion of the investment is no longer exposed to risks. All profits are unrealized until the position is closed. Also known as “realization.” When investing it is important to protect your capital and your profits, this can be done by locking in your profits. For example, if you bought 100 shares of ABC Company for $12 and the price went up to $36 two days later all potential profits are unrealized because the position isn’t partially or fully closed. You can lock in the profits by selling 50 shares because 50 x $36 = $1,800. If the stock drops to $1, you will have still made a profit.
The movement of a security's price to the extent that it confirms or refutes the trader's original prediction. A movement of material amount that refutes the trader's original prediction should trigger a stop-loss trade. It can also signify an amount worth mentioning, as in financial statements or conference calls. If it is not a material amount, then it is considered too insignificant to mention. The exact number that is considered a material amount is different for every trade. Traders that set this number wrong in their systems risk being stopped out early or taking too much risk. It is often thought that this amount can be more important to a profitable trading system than actually predicting the price movement correctly.
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