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.
Short for average daily dollar volume. This is a 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.
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.
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.