Institutional, as opposed to individual investor, buying of a stock or the market in general.
Accumulation Day
I came up with this term to describe buying pressure, and began writing about it in the ‘Nineties bull market. For an index like the S&P 500 and Nasdaq Composite, it is a minimum gain of 0.3% with volume at least 3% more than that of the prior day. A major accumulation day has volume above the 50-day moving average of volume. A minor accumulation day has below-average volume.
Average dollar volume. This is perhaps the best measure of a stock’s liquidity and is calculated by taking average daily volume and multiplying it by price.
A sideways period of price movement of at least five weeks. Base patterns include a cup-with-handle, flat base, and double bottom, among others. Studies of big-winning stocks show that most began their big move by breaking out of a base.
Cheater entrance
In position trading, a setup that occurs as price forms the right side of a base, i.e. prior to a traditional base breakout.
Confirming volume
Volume that is at least 40% greater than the 50-day average of volume; most often used for volume on the day price breaks out of a base.
A pullback of about 8%-12% in a trend, most often over a period of several weeks.
A basing pattern that resembles a cup when viewed from the side. The majority of cwh patterns last from 12 to 26 weeks. The typical correction in price from peak to trough is from 15% to 33%. The handle area should ideally be between 1 and 2 weeks in length and should not be more than 10%-15% deep.
To factor a future expectation into a stock’s price. “The market is a discounting mechanism” means it prices future expectations into today’s price.
Institutional, as opposed to individual investor, selling of a stock or the market in general.
Distribution Day
A minimum loss of 0.3% in an index or stock on volume at least 3% more than that of the prior day. A major distribution day has volume above the 50-day moving average of volume. A minor distribution day has below-average volume.
Flat Base
A base in which a stock’s price moves sideways for a minimum of 5-6 weeks and corrects between 10%-15% from its high. A stock that forms a flat base subsequent to a strong prior uptrend has the best chance of continuing higher after breaking out of the base.
Follow-through day (FTD)
A concept invented by Bill O’Neil to confirm a new uptrend following a decline in a major stock index. Following a decline of at least 8% preferably, the first three days of rally are ignored. An FTD occurs when the index rises at least 1% on volume greater than the prior day’s volume. The best FTD’s occur on the 4th-7th days of rally. Occasionally, an FTD can occur on the 3rd day of rally if the first three days are all up a good amount.
Glamour stock
Short for growth-stock glamour, a stock showing 1) Wall Street earnings estimates of at least 20% in the current fiscal year and/or the next fiscal year, and 2) High relative price strength vs. the average stock (S&P 500). A liquid glamour is one with very large market capitalization that appeals to institutional investors pursuing a growth, as opposed to value, mandate. A speculative glamour is a non-liquid glamour.
Growth stock
A recession-resistant name that is growing earnings at least twice the S&P 500’s long-term average of 8% per annum.
The “How to Make Money in Stocks” book by Bill O’Neil. Considered by many to be the greatest book on active investing and position trading.
Junior position
A position size that is one-half the size of what a trader’s normal-sized position is. Useful to use as a starter position in a stock, which can be added to if the position moves in the desired direction.
An abbreviated basing, or consolidation, pattern. A genuine base normally has a duration of at least five or six weeks. A ledge may be as brief as a week or two.
Stands for maximum favorable excursion, which represents the farthest a winning trade traveled. If trade entry was 100 and price went as far as 120 before heading lower, MFE would be 20%.
Money management
The position sizing used during the life of a trade.
The narrowest range bar in the last seven bars, including this last bar.
O’Neil, William
The legendary founder of Investor’s Business Daily. Considered to have had a greater impact than anyone on the most successful position traders of the post-‘Seventies era. Creator of the CAN SLIM methodology. “Trading O’Neil” is sometimes used to describe the strategy of buying base breakouts in aggressive growth names.
Pivot Point
The point on a price chart at which price has the highest probability of moving higher; the point of least resistance. Often this corresponds to the high of a base. This is known as a pivot high. A pivot high consists of a price bar preceded by a bar with a lower high and followed by a bar with a lower high. A pivot low consists of a price bar preceded by a bar with a higher low and followed by a bar with a higher low.
Position trading
A form of speculation in which a winning position is held for several weeks to several months. Also known as intermediate-term speculation.
An abbreviation for “price action,” used often in currency trading circles to distinguish between a trader using just PA and one using indicators.
The initial risk on a position. E.g. if a long entry is at 100 and a sell stop is at 98, R = 2 points.
This is often used to set a profit target. In the above example, setting a target of 1R would mean exiting at 102.
Reward-to-risk ratio, used most often by short-term traders (intraday and swing).
An abbreviated correction in a trend, normally as little as 3% and as much as 5%.
Relative Strength
The concept of measuring the price performance of one security vs. another over a period of time, usually a stock vs. an index. A relative strength line can be plotted on a chart to easily show the investor the relationship between the two securities.
A price area on a chart that tends to act as a ceiling of resistance by making it more difficult for price to rise.
Sequential revenue growth
A means of measuring recent sales growth by comparing the recent quarter revenue with its preceding quarter, not the year-ago quarter. A figure of 10% is considered impressive, while 20% is exceptional. Particularly useful for analyzing younger companies without earnings.
A sideways period of price movement lasting for 3-4 weeks.
Signal bar
In trading pullbacks and reversals, this is the bar that signals a long or short entry is imminent, normally on the next bar if it takes out the high (for longs) or low (for shorts) of the signal bar.
Starter position
The first position taken in a stock, to be followed by an add-on position if the stock moves in the desired direction.
A price area on a chart that tends to act as a floor of support by making it more difficult for price to fall.
Swing trading
A form of trading whose goal in an uptrend is to capture as much of the swing between a low and a high as possible. Typically, a position is held for 1-5 bars or 10 at most, though some swings extend further.
Timeframe, whether daily or five-minute, etc.
Trend day
A trend day up is when price opens near the low of the session and closes near the high.
Trifecta stock
I came up with this term to describe issues with 99 RS rank, 99 Group RS rank, and A+ accumulation/distribution rating. These represent the strength in the market.