Stock Market Terms and Glossary

Channel Line

A straight line drawn parallel to the basic trendline. In an uptrend, the channel line slants up to the right and is drawn above rally peaks; in a downtrend, the channel line is drawn below price troughs and slants down to the right. Prices often meet resistance at rising channel lines and support at falling channel lines.

Commodities

Raw materials such as gold, pork bellies, or orange juice. Traders in commodities buy and sell contracts (also called futures) for such materials.

Commodity Channel Index (CCI)

Developed by Donald Lambert, the CCI is an indicator designed to identify cyclical turns in commodities. It may also be applied to stocks or bonds.

Confirmation

A subsequent signal that validates a position stance. Traders and investors sometimes look for more than one signal or require validation before acting. For example: confirmation of a trend change may entail an advance past the previous reaction high. For an indicator such as MACD, confirmation of a divergence may be a subsequent moving average crossover.

Contingent Deferred Sales Charge (CDSC)

A form of commission that is a back-end load on mutual funds that decline over time. For instance, if you sell mutual fund shares that have a CDSC after one year, you may owe a 4% charge, but if you hold for three years, the charge may decline to 2%.

Continuation Pattern

A type of chart pattern that occurs in the middle of an existing trend. The previous trend resumes when the pattern is complete. Examples include the Rectangle and Pennant continuation patterns.

Correction

After an advance, a decline that does not penetrate the low from which the advance began is known as a correction. Also referred to as a retracement, a correction usually retraces 1/3 to 2/3 of the previous advance.

CRB Index

An unweighted geometric average of some important commodities. It averages prices across 17 commodities and across time. The index tracks energy, grains, industrials, livestock, precious metals, and agriculturals.

A point on a graph where two lines intersect. Depending on which lines they are, a crossover may indicate a buy or sell signal. For example, the price line crossing above a moving average line may generate a buy signal. Oscillators such as MACD and Chaikin Money Flow experience centerline crossovers.

Cup with Handle

A bullish chart pattern that marks a consolidation period followed by a breakout. The "cup" part of the pattern resembles a rounding bottom, and is followed by a "handle" that acts as a final consolidation before a breakout.

Cyclical Stocks

Shares of companies that are highly sensitive to economic performance. Cyclical stocks tend to perform well when the economy is growing and suffer when the economy contracts. Chemical (Dupont), transportation (FDX Corp), auto (General Motors), paper (International Paper) and steel (Nucor) represent a few cyclical industries. 

Dark Cloud Cover

Dark Cloud Cover Example A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high then closes below the midpoint of the body of the first day. 

Day Trading

A style of trading where all positions are cleared before the end of the trading day. Contrast this with position trading, where stocks or securities may be held for longer periods.

Declining

A market stage of a stock that is characterized by a downtrend with subsequently lower highs and lower lows.Descending Triangle: A sideways price pattern between two converging trendlines in which the upper trendline is descending while the lower line is flat. This is generally a bearish pattern.

Directional Movement Indicator (DMI)

An indicator that plots a positive +DI line measuring buying pressure and a negative -DI line measuring selling pressure. The DMI pattern is bullish as long as the +DI line is above the -DI line. The Average Directional Index line is derived from this system and is based on the spread between the +DI and -DI lines.

Distribution

The systematic selling of a security without significantly affecting the price. After an advance, a stock may start forming a top and trade sideways for an extended period. While this top forms, a security's shares may experience distribution as well-informed traders or investors seek to unload positions. A quiet distribution period is usually subtle and not enough to put downward pressure on the price. More aggressive distribution will likely put downward pressure on prices.

Divergence

A situation that occurs when two lines on a chart move in opposite directions vertically. People often look for divergences by comparing a stock's direction to the direction of its RSI, its MACD or its Stochastic Oscillator. There are two kinds of divergences: positive and negative. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.

Dow Theory

One of the oldest and most highly regarded technical theories. A Dow Theory buy signal is given when the Dow Industrial and Dow Transportation averages close above a prior rally peak. A sell signal is given when both averages close below a prior reaction low.

Down Trendline

A straight line drawn down and to the right above successive rally peaks. The longer the down trendline has been in effect and the more times it has been tested, the more significant it becomes. A violation of the down trendline usually signals a reversal of the downtrend.

Downside Tasuki Gap

Downside Tasuki Gap Example A continuation pattern with a long black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

Dragonfly Doji

A Doji line where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.