A technique used in technical analysis to identify changing trends. It is created by placing a large number of moving averages onto the same chart. When all the averages are moving in the same direction, the trend is said to be strong. Reversals are confirmed when the averages crossover and head in the opposite direction. The moving averages used in the diagram start with the 50-day moving average and increase by 10-day periods up to the final average of 200. (50, 60, 70, 80 ... 190, 200) Responsiveness to changing conditions is accounted for by changing the number of time periods used in the moving averages. The shorter the number of periods used to create the average, the more sensitive the ribbon is to slight price changes. For example, a series of 5, 15, 25, 35 and 45-day moving averages will be a better choice to find short-term reversals then 150, 160, 170, 180-day moving averages.
A tool used by technical analysts to track the price movements of a security or commodity. It plots average daily settlement prices over a defined period of time, anywhere from a few days to a couple years. Usually, when a stock price moves below its 50-100 day moving average, things are not in your favor. The opposite is true for stocks that protrude their moving average.
A bullish candlestick pattern that consists of three candles that have demonstrated the following characteristics:1. The first bar is a large red candlestick located within a defined downtrend.2. The second bar is a small-bodied candle (either red or white) that closes below the first red bar.3. The last bar is a large white candle that opens above the middle candle and closes near the center of the first bar's body.As shown by the chart, this pattern is used by traders as an early indication that the downtrend is about to reverse. A morning star pattern can be useful in determining trend changes, particularly when used in conjunction with other technical indicators. Many traders also use price oscillators such as the MACD and RSI to confirm the reversal.
Calculated by averaging the high, low, and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells you whether money flow was positive or negative for the current day. When a stock is purchased at a higher price (an uptick), this is considered positive money flow. When the next trade is at a lower price (a downtick), this is considered to be negative money flow. If more shares were bought throughout the day on the uptick than the downtick, net money flow is positive because more investors were willing to pay a premium for the stock. If money flow is negative when a stock's price is rising, this could spell trouble.
An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values. This strategy looks to capture gains by riding "hot" stocks and selling "cold" ones. To participate in momentum investing, a trader will take a long position in an asset, which has shown an upward trending price, or short sell a security that has been in a downtrend. The basic idea is that once a trend is established, it is more likely to continue in that direction than to move against the trend.
A theory suggesting that prices and returns eventually move back towards the mean or average. This mean or average can be the historical average of the price or return or another relevant average such as the growth in the economy or the average return of an industry. This theory has led to many investing strategies involving the purchase or sale of stocks or other securities whose recent performance has greatly differed from their historical averages. However, a change in returns could be a sign that the company no longer has the same prospects it once did, in which case it is less likely that mean reversion will occur. Percent returns and prices are not the only measures seen as mean reverting; interest rates or even the price-earnings ratio of a company can be subject to this phenomenon.
A little known technical indicator developed by John McGinley in 1990. The indicator attempts to solve a problem inherent in moving averages which use fixed time lengths (ie. a 10 or 21 period moving averages), a problem that causes those moving averages to be outrun in fast markets. The speed of the market is not consistent; it frequently speeds up and slows down. Traditional moving averages fail to account for this market characteristic. The McGinley Dynamic solves this problem by incorporating an automatic adjustment factor into its formula which speeds or slows the indicator in trending or trading markets.
The process of selling portions of total held shares while the price increases. To scale out (or scaling out) means to get out of a position (e.g., to sell) in increments as the price climbs. This strategy allows the investor to take profits while the price is increasing, rather than trying to time the peak price. If the actual value continues to increase, however, the investor could be selling a winner too early. Taobiz explains Scale Out Scaling out of a stock lets an investor reduce exposure to a position when momentum seems to be slowing. For example, if an investor holds 600 shares of a company and thinks the price will stop climbing or will drop somewhere around $41, he or she could scale out by selling 200 shares at $40, 200 shares at $40.50 and 200 shares at $40.75. The average selling price would therefore be $40.42, thus reducing the risk of missing out on profits if the price did drop.
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