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There is nothing new or cryptic on this page. All these terms are standard terms used in the world of technical analysis. This page is here for those that are new to technical analysis or for those that would like a bit of a refresher. This list is far from comprehensive; it contains those items which I have found to work the best and most consistently for me.
For those that are new to technical analysis, it might be helpful for you to have this page open or printed out while reading the newsletters and looking at the charts.
I would highly recommend that you read How to Make the Stock Market Make Money for You by Ted Warren.
Lastly, for more variations on technical analysis, both chart formations and indicators, you might want to do some research on the internet. To get you started here are a couple of links:
http://stockcharts.com/school/doku.php?id=chart_school -- Stockcharts.com chart school contains a little of everything
http://www.incrediblecharts.com/technical/indicators.htm -- Anything and everything you would ever want to know about indicators
http://chart-patterns.netfirms.com/ -- More chart patterns and examples.
Terms - these are terms you will see most often in the newsletters. Click on the term to see an example.
Trendline - a line that connects a series of higher lows or a series of lower highs. When a trendline is broken expect the price to move in the opposite direction for an unknown amount of time and price.
Support - a horizontal trendline because the series of lows are all at about the same price. When a support is broken expect the price to move down for an unknown amount of time and price.
Resistance - a horizontal trendline because the series of lows are all at about the same price. When a resistance is broken expect the price to move up for an unknown amount of time and price.
Quiet period - a period typically months or years long when the volatility and trading volume of a stock are relatively low historically.
Consolidation - a period of "rest" after a "large" move when a stock's price stays at about the same level for a period of a few weeks up to 1-3 years.
Breakout price - the price that gives the signal that a chart formation has been broken, and the stock is expected to start its up move. This is the price at which a technical analyst would buy the stock.
Fakeout - A price move above resistance or a formation and makes it look like the stock will move up followed by a decline back below resistance or back into the formation for several more months.
Shakeout - A price move below support or a formation and makes it look like the support or formation failed but eventually the price goes up and confirms the formation. The shakeout may last anywhere from a few weeks to several months. This kind of move is often seen in triangles.
Long - you have bought the stock with the hope of its price going up.
Short - you have sold the stock with the hope of its price going down.
Buy stop - a pre-arranged order that becomes a market order if the stock trades at or above the buy stop price. These types of orders are helpful in the sense that you don't have to watch the market every day.
EX: On Mon. you call your broker and give the following order, "Buy 100 shares of XYZ on a stop of 6.55 GTC" GTC stands for "good till canceled". It means the order will be active until you cancel it or after a specified amount of time (check with your broker about time limits on GTC's as it may vary from broker to broker). Let's say on Weds. XYZ is trading at or above 6.55; your order then becomes a market order and will fill at the market price at that time.
Sell stop - a pre-arranged order that becomes a market order if the stock trades at or below the sell stop price. These types of orders are helpful in the sense that you don't have to watch the market every day. Some people call them "protective sell stop" or "stop loss" orders because they close out a long position if the price starts moving in the down direction. They can be used to protect capital in case a stock does not move up as expected and/or to close out a long position with a profit. The important thing is that it is a pre-arranged order that gets activated by price action of the stock not by a human making an on-the-spot decision. Thus, they remove emotion from the decision process as to when to get out of a long position.
EX: You own XYZ at 6.57 because of the buy stop order described above. It has gone up to 13.04 over the past two years and has established an up trendline. You decide that you want to protect some of your profit and decide that if the price breaks the trendline which is at about 12.7 right now, you want to sell all of your shares. Thus, you would call your broker and give the following order, "Sell 100 shares XYZ on a stop of 12.65 GTC." As with the buy stop, if XYZ trades at or below 12.65, your order will activate and sell 100 shares of XYZ at the market price at that time.
Stop-On-Close - A sell stop that only works in the closing minutes of the market. If stop price is hit in the middle of market hours, the order will not be activated. Works for both buy stops and sell stops.
Buy Limit - a pre-arranged order that attempts to buy the stock at a price lower then the current market price. You might want to try this type of order if you missed the initial breakout.
Chart Formations - These are not the only ones, just the ones that you will see most often in the newsletters. Click on the name to see an example. Note: the examples are often short term whereas I look for these formations to form in the span of years, but the concepts are the same.
Flat-topped triangle - sometimes called Ascending Triangle
Flat-bottomed triangle - sometimes called Descending Triangle
Channel - If the channel is very narrow, I call it a flatline formation
Double bottom - if the second bottom is not as low as the first bottom then it is called a 1-2-3 bottom.
Double top - if the second top is not as high as the first top then it is called a 1-2-3 top.
Flag and Pennant - these are two formations often seen during a consolidation period.
Descending wedge - Variation of a flag if seen during a consolidation period. Variation of a triangle if seen during the accumulation phase.
Divergence - most commonly used with the MACD indicator. The key is that if the MACD is making a trend that is in the opposite direction of the price during the same time period, a reversal may be near.
