A GLOSSARY OF TECHNICAL ANALYSIS, TERMS AND ITS MEANINGS
Each day’s declining issues are subtracted from that day’s advancing issues. The difference is added to (subtracted from if negative) a running sum. Failure of this line to confirm a new high is a sign of weakness. Failure of this line to confirm a new low is a sign of strength.
When a stock’s or commodity’s upward or downward trend has stalled, the sideways movement in price which follows forms a pattern. Some of these patterns may have predictive value. Examples of these patterns are head and shoulders, triangles, pennants, flags, wedges and broadening formations.
A charting method originally developed in Japan. The high and low are described as shadows and plotted as a single line. The price range between the open and close is plotted as a rectangle on the single line. If the close is above the open, the body of the rectangle is white. If the close of the day is below the open, the body of the rectangle is black.
DOUBLE BOTTOM/DOUBLE TOP
These are reversal patterns. It is a decline or advance twice to the same level (plus or minus 3 per cent). It indicates support or resistance at that level.
ELLIOTT WAVE THEORY
Originally published by Ralph Nelson Elliott in 1939, it is a pattern recognition theory. It holds that the stock markets follow a pattern of five waves up and three waves down to form a complete cycle. Many technicians believe that this pattern can hold true for as short a time period as one day. However, it is generally used to measure long periods of time in the markets.
Constructed by connecting a series of descending peaks or ascending troughs. The more times a trend line has been touched increase the significance of a break in the trend line. It can act as either support or resistance.
These are just the basic characteristics of the Volumes; these must be read in conjunction with other commonly used indicators before drawing up any conclusion.
In the science of Technical Analysis, Volume plays a role which is as important as any other basic indicator. An increase in the volume in conjunction with Stock price moves adds strength and momentum in the direction of the move. It reflects the markets? Confidence that the uptrend will continue in force, or its pessimism that the downtrend will. For the market, declining volumes as the market rises is supposed to warn the end of a BULL MARKET. Likewise, sharp increase in volumes resulting in Selling Climax, signals the end of a BEAR MARKET.
An increase in abnormal volume can alert investors to coming price movements, Up or Down, before it becomes obvious to the overall market. Historically, the majority of BULL MARKETS have originated with at least two days within two-month period where upside volume is at least nine times greater than the downside volume. Investors who track volume and spot the two-day Exceptional Upside Indicator can out-maneuver other investors and earn excess returns by positioning themselves for the coming Bull Market.
BASIC VOLUME THEORY INCLUDES THE FOLLOWING MAXIMS
Increasing Volume with an advance is Bullish
Decreasing Volume with a decline is Bullish
Increasing Volume with a decline is Bearish
Decreasing Volume with an advance is Bearish
A Market Top is imminent when heavy volumes occurs with little or No Gain in the averages.
Heavy Volumes accompanied by an accelerating drop in prices confirms Selling Climax? and impending price reversal after the panic selling subsides.
Low volume periods after upward price reversals reflect a Consolidation Phase before resumption of the Upward Movement.