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Candlestick Charting Glossary
“A good beginning is the most important of things.” (Japanese proverb)

You may also be interested in:
Candlestick Patterns at a Glance


This is just a cursory description of the candlestick signals, some of which are rare.  And some are more important than others, which is beyond the scope of this basic glossary.  Knowing which are most important, and how to correctly recognize and use these candlestick signals, are why the most successful traders and investors enjoy the benefits of our educational resources and candlestick recognition software.

For a customized educational or software package designed around your trading or investing needs contact paul@candlecharts.com.

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abandoned baby: A very rare Japanese candlestick top or bottom reversal signal. It is comprised of a doji star that gaps away (including shadows) from the prior and following sessions' candlesticks. This is the same as a Western island top or bottom in which the island session is also a doji.

Abandoned Baby
abandoned baby

advance block: In candlestick charting a variation of the three white soldiers in which the last two soldiers (i.e., white real bodies) display weaken­ing upside drive. This weakness could be in the form of tall upper shadows or progressively smaller real bodies. It signi­fies a diminution of buying force or an increase in selling pressure.

Advance Block
Advance Block

bearish belt-hold: On candlestick there are bullish and bearish belt-holds. A bullish belt-hold is a tall white candlestick that opens on, or near, its low and closes well above the opening price. It is also called a white opening shaven bottom. A bearish belt-hold is a long black candlestick that opens on, or near, its high and closes well off its open. Also referred to as a black opening shaven head.

Belt-Hold Lines
Belt-Hold Lines

bearish engulfing pattern: A bullish engulfing candlestick pattern is comprised of a large white real body that engulfs a small black real body in a downtrend. A bearish engulfing candlestick pattern occurs when selling pressure overwhelms buying force as reflected by a long black real body engulfing a small white real body in an uptrend

Engulfing Pattern
Engulfing Pattern

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belt-hold line: On candlestick there are bullish and bearish belt-holds. A bullish belt-hold is a tall white candlestick that opens on, or near, its low and closes well above the opening price. It is also called a white opening shaven bottom. A bearish belt-hold is a long black candlestick that opens on, or near, its high and closes well off its open. Also referred to as a black opening shaven head.

Belt-Hold Lines
Belt-Hold Lines

box range: The Japanese candlestick charting expression for a market in a horizontal trading range.

bullish belt-hold: On candlestick there are bullish and bearish belt-holds. A bullish belt-hold is a tall white candlestick that opens on, or near, its low and closes well above the opening price. It is also called a white opening shaven bottom. A bearish belt-hold is a long black candlestick that opens on, or near, its high and closes well off its open. Also referred to as a black opening shaven head.

bullish engulfing pattern: A bullish engulfing candlestick pattern is comprised of a large white real body that engulfs a small black real body in a downtrend. A bearish engulfing candlestick pattern occurs when selling pressure overwhelms buying force as reflected by a long black real body engulfing a small white real body in an uptrend.

candles: is a shortened term for a Japanese candlestick.

candlestick charts: A method of charting derived by the Japanese in which the open and close range are represented by rectangle called the real body (black for a close under the open, white for a close over the open).  The lines above and below the real body are called shadows. The top of the upper shadow is the session high and the bottom of the lower shadow is the session low. Traditional Japanese candlestick charts whose individual lines look like candles, hence their name. Candlestick charts are also called "candle charts."

Candlestick Charting
Candlestick Charting

candlestick signals: Candlestick reversals or turning points using Japanese candlestick methods.

candlestick pattern: Candlestick turning point such as a hammer or engulfing patterns.

counterattack lines: Following a black (white) candlestick in a downtrend (uptrend), the market gaps sharply lower (higher) on the opening and then closes unchanged from the prior session's close. A pattern that reflects a stalemate between the bulls and bears and thus lessens the force in place before the emergence of the counterattack line.

Counterattack Lines
Counterattack Lines

dark-cloud cover: A bearish reversal signal. In an uptrend a long white candlestick is followed by a black candlestick that opens above the prior white candlestick's high (or close) and then closes well into the white candlestick's real body—preferably more than halfway. The bullish counterpart of the dark-cloud cover candlestick pattern is the piercing pattern.

Dark-Cloud Cover
Dark-Cloud Cover

dead cross: A bearish signal given when a short-term moving average on a Japanese candlestick chart crosses under a longer-term moving average. Its bullish counterpart is the golden cross.

deliberation pattern: See stalled pattern.

doji: A session in which the open and close on a Japanese candlestick are the same (or almost the same). There are different varieties of doji lines (see gravestone, dragonfly, and long-legged doji) depending on where the opening and closing are in relation to the entire range. Doji lines are among the most important individual candlestick patterns. They are also components of candlestick patterns. Northern doji are doji that appear during a rally. Southern doji are doji during declines.

Doji
Doji

downside gap tasuki: A downward (or down­side) gapping tasuki is when the market gaps down with a black candlestick followed by a white candlestick. The two candlesticks of the tasuki should be about the same size. The upward (or upside) gapping tasuki is made of a rising window formed by a white candlestick and then a black candlestick. The black candle opens within the white real body and closes under the white candlestick's real body. The close on the black candlestick day is the fight point. Both types of tasu­ki are rare on Japanese candlestick charts.

dragonfly doji: A doji with a long lower shadow and where the open, high, and close are at the session's high. See the illustration under Doji. The opposite version of this candlestick pattern is the gravestone doji.

dumpling tops: A candlestick charting pattern that is similar to the Western rounding top. A window to the downside is needed to confirm this as a top. Its bullish opposite is the frypan bottom.

Dumpling Tops
Doji Star

engulfing patterns: A bullish engulfing candlestick pattern is comprised of a large white real body that engulfs a small black real body in a downtrend. A bearish engulfing candlestick pattern occurs when selling pressure overwhelms buying force as reflected by a long black real body engulfing a small white real body in an uptrend.

Engulfing Patterns
Engulfing Patterns

evening star: A top reversal pattern formed by three candle lines on a Japanese candlestick chart. The first is a tall white real body, the second is a small real body (white or black) that gaps above the first real body to form a star, and the third is a black candlestick that closes well into the first session's white real body. If the middle portion of this candlestick pattern is a doji instead of a spinning top, it is an evening doji star. The opposite of the evening star candlestick pattern is the morning star pattern.

falling three methods: There are two types on Japanese candlestick charts. The first is the falling three methods, which is a bearish continuation pattern. It is ideally comprised of five lines. A long black real body is followed by three small, usually white, real bodies that hold within the first session's high–low range. Then a black candlestick closes at a new low for the move. The rising three methods is a bullish continuation pattern. A tall white candlestick precedes three small, usually black, real bodies that hold within the white candlestick's range. The fifth line of this pattern is a strong white candlestick that closes at a new high for the move.

falling window: The same as a Western gap. Windows are continua­tion candlestick patterns. When the market opens a window to the upside, it is a rising window. It is a bullish candlestick pattern and the ris­ing window should be support. If a window opens in a sell ­off, it is a falling window. This is a bearish signal. The falling window is resistance.

frypan bottom: This Japanese candlestick pattern is similar to a Western rounding bottom. A win­dow to the upside confirms this pattern. It is the counterpart of the dumpling top.

Frypan Bottom
Frypan Bottom

gaps: When there is no price action between two consecutive sessions.  For example, a rising gap on a daily chart is when today's low is above yesterday's high. A falling gap is when today's high is below yesterday's low.  They are three main gaps, exhaustion, midway, and breakaway.  An exhausting gap is a gap that occurs at the end of an important trend.  A midway gap, also known as measuring gap, occurs in the middle of the move.  A breakaway gap is when the market gaps over a significant resistance area or under a major support area.

gapping plays: There are two kinds of gapping plays: 1. High-price gapping play—After a sharp advance, the market consolidates via a series of small real bodies near the recent highs. If prices gap above this consolidation area, it becomes a high-price gapping play. 2. Low-price gapping play.  After a sharp price decline, the market consolidates via a series of small real bodies near the recent lows. If prices gap under this con­solidation, it is a sell signal in candlestick trading.

Gapping Plays
Gapping Plays

golden cross: A bullish signal in which a shorter-term moving average crosses above a longer-term moving average. It is the opposite of the dead cross in candlestick charting.

gravestone doji: A doji in which the opening and closing are at the low of the session. It is a Japanese candlestick reversal signal at tops. See the illustration under Doji. The opposite of this doji is the dragonfly doji.

hammer: An important bottoming candlestick charting pattern. The hammer and the hanging man are both the same lines that are generally called umbrella lines; that is, a small real body (white or black) at the top of the session's range and a very long lower shadow with little or no upper shadow. When this line appears during a downtrend, it becomes a bullish hammer. For a classic hammer, the lower shadow should be at least twice the height of the real body when candlestick trading.

Hammer
Hammer

hanging man: A top candlestick reversal pattern that requires confirmation. The hanging man and the hammer are both the same type of candlestick pattern (i.e., a small real body [white or black], with little or no upper shadow, at the top of the session's range and a very long lower shadow). But when this line appears dur­ing an uptrend, it becomes a bearish hanging man. It signals the market has become vulnerable, but there should be bear­ish confirmation the next session with an open, and better is a close, under the hanging man's real body. In principle, the hanging man's lower shadow should be two or three times the height of the real body.

Hanging Man
Hanging Man

harami: A two-candlestick charting pattern in which a small real body holds within the prior session's unusually large real body. The harami implies the immediately preceding trend is con­cluded, and the bulls and bears are now in a state of truce. The color of the second real body can be white or black. Most often the second real body is the opposite color of the first real body.

harami cross: A harami with a doji on the second session instead of a small real body. An important top (bottom) candlestick charting reversal signal especially after a tall white (black) candlestick line. It is also called a petrifying pattern on candlestick charts.

Harami Cross
Harami Cross

high-price gapping play: There are two kinds of gapping plays: 1. High-price gapping play—After a sharp advance, the market consolidates via a series of small real bodies near the recent highs. If prices gap above this consolidation area, it becomes a high-price gapping play. 2. Low-price gapping play.  After a sharp price decline, the market consolidates via a series of small real bodies near the recent lows. If prices gap under this con­solidation, it is a sell signal in candlestick trading.

high-wave candle: A candlestick with very long upper and lower shadows and a small real body on a Japanese candlestick chart. It shows that the market is losing its direction bias that it had before this candle appeared. If the real body is a doji instead of a small real body, it is a long-legged doji.

High-Wave Candle
High-Wave Candle

in-neck line: A small white candlestick in a downtrend on a candlestick chart whose close is slightly above the previous black candlestick's low of the session. After this white candlestick's low is broken, the downtrend should continue. Compare to on-neck line, thrusting line, and piercing pattern.

In-Neck Line
In-Neck Line

inverted hammer: Following a downtrend, this is a Japanese candlestick line that has a long upper shadow and a small real body at the lower end of the session. There should be no, or very little, lower shadow. It has the same shape as the bearish shooting star, but when this line occurs in a downtrend, it is a bullish bottom reversal signal with confirmation the next session when candlestick trading (i.e., a candlestick with a higher open and especially a higher close compared to the inverted hammer's close).

Inverted Hammer
Inverted Hammer

inverted three Buddha pattern: A candlestick charting three Buddha top is the same as the Western head and shoulders top. In Japanese candlestick terms, the three Buddha top is a three mountain top in which the central moun­tain is the tallest. An inverted three Buddha is the same as the Western inverted head and shoulders. In Japanese charting terminology, it is a three river bottom in which the middle river is the longest.

long-legged doji: A doji with very long shadows on a candlestick chart. If the opening and closing of a long-legged doji session are in the middle of the session's range, the line is called a rickshaw man.

low-price gapping play:There are two kinds of gapping plays: 1. High-price gapping play—After a sharp advance, the market consolidates via a series of small real bodies near the recent highs. If prices gap above this consolidation area, it becomes a high-price gapping play. 2. Low-price gapping play.  After a sharp price decline, the market consolidates via a series of small real bodies near the recent lows. If prices gap under this con­solidation, it is a sell signal in candlestick trading.

lower shadow: The difference between the session low and the open on a white candle or the close on a black candle.

morning attack: The Japanese candlestick trading expression for a large buy or sell order on the opening that is designed to significantly move the market

morning star: A bottom reversal pattern formed by three candlesticks. The first is a long black real body, the second is a small real body (white or black) that gaps lower to form a star, and the third is a white candlestick that closes well into the first session's black real body. Its opposite is the evening star candlestick pattern.

Morning Star
Morning Star

night attack: The Japanese candlestick trading expression for a large order placed at the close to try to affect the market.

Nison candlesticks: There are a lot of so-called teachers out there who have good intentions when it comes to explaining candles. But the truth is they haven't done the work, or done the years of research, it takes to become The Expert at candles.Remember Nison Candlestick patterns were refined by generations of use.  These are the accurate time tested patterns.

northern doji: A session in which the open and close on a Japanese candlestick are the same (or almost the same). There are different varieties of doji lines (see gravestone, dragonfly, and long-legged doji) depending on where the opening and closing are in relation to the entire range. Doji lines are among the most important individual candlestick patterns. They are also components of candlestick patterns. Northern doji are doji that appear during a rally. Southern doji are doji during declines.

on-neck line: A black candlestick in a downtrend is followed by a small white candlestick whose close is near the low of the session of the black candlestick. It is a bearish continuation candlestick pattern. The market should continue to move lower after the white candlestick's low is broken. Compare to an in-neck line, a thrusting line, and a piercing pattern on candlestick charts.

On-Neck Line
On-Neck Line



petrifying pattern: The candlestick trading nickname for the harami cross.

piercing pattern: A Japanese candlestick bottom reversal signal. In a downtrend, a long black candlestick is followed by a gap lower open during the next session. This session finishes as a strong white candlestick that closes more than halfway into the prior black candlestick's real body. Compare to the on-neck line, the in-neck line, and the thrusting line.

Piercing Pattern
Piercing Pattern

raindrop: A small real body (white or black) that gaps away from the large real body preceding it. A star in a downtrend has the Japanese candlestick charting nickname raindrop.

real body: The rectangular part of the candlestick line. It is defined by the closing and opening prices of the session on a Japanese candlestick chart. When the close is higher than the open, the real body is white (or empty). A black (or filled-in) real body is when the close is lower than the opening.

rickshaw man: The Japanese candlestick charting nickname for the long-legged doji.

rising three methods: There are two types on Japanese candlestick charts. The first is the falling three methods, which is a bearish continuation pattern. It is ideally comprised of five lines. A long black real body is followed by three small, usually white, real bodies that hold within the first session's high–low range. Then a black candlestick closes at a new low for the move. The rising three methods is a bullish continuation pattern. A tall white candlestick precedes three small, usually black, real bodies that hold within the white candlestick's range. The fifth line of this pattern is a strong white candlestick that closes at a new high for the move.

rising window: The same as a Western gap. Windows are continuation candlestick patterns. When the market opens a window to the upside, it is a rising window. It is a bullish candlestick pattern and the ris­ing window should be support. If a window opens in a sell ­off, it is a falling window. This is a bearish signal. The falling window is resistance.

separating lines: When, in an uptrend (downtrend), the market opens at the same opening as the previous session's opposite color candlestick and then closes higher (lower). The prior trend should resume after this line on candlestick charts.

Separating Lines
Separating Lines

shadows: The thin lines above and below the real body of the candlestick line on Japanese candlestick charts. They represent the extremes of the session.  The lower shadow is the line under the real body. The bottom of the lower shadow is the low of the session. The upper shadow is the line on top of the real body. The top of the upper shadow is the high of the session.

shaven head: A candlestick with no upper shadow on a Japanese candlestick chart.

shooting star: A bearish candlestick pattern with a long upper shadow, lit­tle or no lower shadow, and a small real body near the lows of the session that arises after an uptrend.

Shooting Star
Shooting Star

side-by-side white lines: Two consecutive white candlesticks that have the same open and whose real bodies are about the same size. In an uptrend, if these side-by-side white lines gap higher, it is a bullish continuation candlestick pattern. In a downtrend, on Japanese candlestick charts these side-by-side white lines are still considered bearish (in spite of their white candles since they come after a falling gap).

Side-by-Side White Lines
Side-by-Side White Lines

southern doji: A session in which the open and close on a Japanese candlestick are the same (or almost the same). There are different varieties of doji lines (see gravestone, dragonfly, and long-legged doji) depending on where the opening and closing are in relation to the entire range. Doji lines are among the most important individual candlestick patterns. They are also components of candlestick patterns. Northern doji are doji that appear during a rally. Southern doji are doji during declines.

spinning tops: The Japanese candlestick charting nickname for candle lines with small real bodies.

star: A small real body (white or black) that gaps away from the large real body preceding it. A star in a downtrend has the Japanese candlestick charting nickname raindrop.

Star
Star

tasuki gaps: The upward (or upside or bullish) gapping tasuki is made of a rising window formed by a white candlestick and then a black candlestick. The black candle opens within the white real body and closes under the white candlestick's real body. The close on the black candlestick day is the fight point. A downward (or down­side or bearish) gapping tasuki is when the market gaps down with a black candlestick followed by a white candlestick. The two candlesticks of the tasuki should be about the same size. Both types of tasu­ki are rare on Japanese candlestick charts.

Tasuki Gaps
Tasuki Gaps

three Buddha patterns: A candlestick charting three Buddha top is the same as the Western head and shoulders top. In Japanese candlestick terms, the three Buddha top is a three mountain top in which the central moun­tain is the tallest. An inverted three Buddha is the same as the Western inverted head and shoulders. In Japanese charting terminology, it is a three river bottom in which the middle river is the longest.

Three Buddha
Three Buddha

three crows: Three relatively long consecutive black candles that close near or on their lows. It is a top candlestick reversal pattern at a high-price level or after an extended rally.

Three Crows
Three Crows

three methods: There are two types on Japanese candlestick charts. The first is the falling three methods, which is a bearish continuation pattern. It is ideally comprised of five lines. A long black real body is followed by three small, usually white, real bodies that hold within the first session's high–low range. Then a black candlestick closes at a new low for the move. The rising three methods is a bullish continuation pattern. A tall white candlestick precedes three small, usually black, real bodies that hold within the white candlestick's range. The fifth line of this pattern is a strong white candlestick that closes at a new high for the move.

Three Methods
Three Methods

three mountain top: A longer-term topping pattern in which prices stall at, or near, the same highs on a candlestick chart.

Three Mountain Top
Three Mountain Top

three river bottom: When the market hits a bottom area three times on a Japanese candlestick chart.

Three River Bottom
Three River Bottom

three white or three advancing soldiers: This is a candlestick charting pattern is a group of three white candlesticks with consecutively higher closes (with each closing near the highs of the session). These three white candles presage more strength if they appear after a period of stable prices or at a low price area.

Three Soldiers
Three Soldiers

thrusting line: A white candlestick that closes in the prior black real body, but still under the middle of the prior ses­sion's real body. The thrusting line is stronger than an in-neck line, but not as strong as a piercing candlestick pattern. In a downtrend, the thrusting line is viewed as bearish (unless two of these patterns appear within a few days of each other). As part of a rising market, it is considered bullish on a Japanese candlestick chart.

Thrusting Line
Thrusting Line

towers: There is a tower top and a tower bottom. The tower top, a top candlestick reversal pattern formation, is comprised of one or more tall white candles followed by congestion and then one or more long black candlesticks. It is a pattern that looks like it has towers on both sides of the congestion hand. The opposite candlestick reversal pattern is  tower bottom pattern. One or more long black candles are fol­lowed by lateral action. Then the market explodes to the upside via one or more long white candlesticks.

Towers
Towers

tri-star: Three doji that have the same formation as a morning or evening star pattern. An extraordinarily rare candlestick charting pattern.

tweezers top and bottom: When the same highs or lows are test­ed on back-to-back sessions. They are minor reversal signals that take on extra importance if the two candlesticks that comprise the tweezers pattern also form another candlestick indicator. For example, on a candlestick chart if both sessions of a harami cross have the same high, it could have more significance since there would be a tweezers top and a bearish harami cross made by the same two candlestick lines.

Tweezers
Tweezers

umbrella lines: The candlestick charting generic name for the hammer and hanging man lines. The umbrella line looks like an umbrella since it is a candle with a long lower shadow and a small real body at, or near, the top of the trading range.

upper shadow: The difference between the session high and the close on a white candle or the open on a black candle.

upside gap tasuki: The upward (or upside) gapping tasuki is made of a rising window formed by a white candlestick and then a black candlestick. The black candle opens within the white real body and closes under the white candlestick's real body. The close on the black candlestick day is the fight point. A downward (or down­side) gapping tasuki is when the market gaps down with a black candlestick followed by a white candlestick. The two candlesticks of the tasuki should be about the same size. Both types of tasu­ki are rare on Japanese candlestick charts.

upside gap two crows: A three-candlestick pattern. The first line is a long white candlestick that is followed by a black real body that gaps over the white candle's real body. The third session is another black real body that opens above the sec­ond session's open and closes under the second session's close. It is very rare Japanese charting pattern.

Upside Gap Two Crows
Upside Gap Two Crows

window: The same as a Western gap. Windows are continua­tion candlestick patterns. When the market opens a window to the upside, it is a rising window. It is a bullish candlestick pattern and the ris­ing window should be support. If a window opens in a sell ­off, it is a falling window. This is a bearish signal. The falling window is resistance.

Window
Window

Western Technical Indicator Glossary
Steve Nison's Candlecharts.com

Mr. Nison is not only the acknowledged master of the previously secret Japanese candlestick techniques, but is also an expert on Western technical analysis with over 35 years real world experience. As such at candlecharts.com reveal the best methods to combine Nison Candlesticks (candlestick training the right way) with western indicators for your one- two punch for trading success.

a/d line: A popular indicator that measures the breath of the stock market advance or decline where the number of advancing issues is compared to the number of the declining issues.  The A/D line is usually compared to popular index such as the Dow Jones.  The market and the A/D line should trend in the same direction.

active investing: An investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions.

arms index: Also called the TRIN index, this indicator is a ratio of the average volume of declining stocks divided by the average volume of advancing stocks.  Reading below 1.0 indicates more volume in rising stocks.  A reading above 1.0 indicates more volume in declining stocks. A 10 day average of the arms index over 1.20 is oversold and under .70 is overbought.

ascending triangle: A sideways price pattern where the resistance line is horizontal while the support line is ascending. A break over the resistance area is viewed as bullish.

bar chart: A graphic representation of price activity. The high and low of the session define the top and bottom of a  vertical line. The close for the period is marked with a short horizontal bar attached to the right of the vertical line. The open is marked with a short horizontal bar attached to the left of the vertical line. Price is in on the vertical scale, time is on the horizontal scale.

bears: A trader or investor who thinks a specific market will move lower.

blow-offs (also called selling or buying climaxes): A top or bottom reversal. Blow-offs occur after an extended move. Prices sharply and quickly thrust strongly in the direction of the preceding trend and then suddenly turns in the opposite direction—usually on high volume.

Bollinger bands: A popular indicator that plots two bands above the below a 20 period moving average.  The bands are usually two standard deviations above and below this 20 period moving average.  The top and bottom bands define potential support and resistance areas.

breakaway gap: When prices gap away from a significant technical area (i.e., a trendline or a congestion zone).

breakout: Overcoming a resistance or support level.

bulls: A trader or investor will thinks a market will move higher.

change of polarity: When old support converts to new resistance, or when old resistance converts to new support.

commodity markets: are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

confirmation: When more than one indicator substantiates the action of another.

congestion zone:  Also called a box range. A period of lateral price action within a relatively narrow price band.

consolidation: The same as a congestion zone . Consolidation, however, has the implication that the prior trend should resume.

continuation patterns: A pattern whose implications are for a continuation of the prior trend. A flag, for instance, is a continuation pattern.

crack and snap: When prices break under the support of a horizontal congestion band and then springs back above the "broken support" area. This is bullish and there is a measured price target to the upper end of the congestion band.

crossover: When the faster indicator crosses above (bullish crossover) or below (bearish crossover) the slower indicator.  For example, if a 5 day moving average crosses under a 13 day moving average it is a bearish crossover. Or if the faster %K line in stochastics crosses above the slower %D, that is a bullish crossover.

day trading: A stock trader who holds positions for a very short time (from minutes to hours) and makes numerous trades each day. Most trades are entered and closed out within the same day.

descending triangle: The opposite of an ascending triangle.  This is when the upper resistance line is descending while the lower support line remains horizontal. A close under this pattern is viewed as bearish.

divergence: When the price and an indicator (such as an oscillator like RSI) move in opposite directions. For instance, if prices reach new highs and stochastics do not, this is a negative divergence and is viewed as bearish.  If prices establish new lows and stochastics do not this is a positive divergence and is viewed as bullish.

double bottom: Price action that resembles the letter W in which price decline stops at, or near, the same lows. The bullish pattern is completed when the intervening high is closed above.

double top: Price action that resembles a M in which price rallies twice stop at, or near, the same highs. The bearish pattern is completed when the intervening low is closed below.

down gap: When prices gap lower.

dow theory: One of the oldest technical theories.  Its main components include the averages discount everything, the market is comprised of the trend, primary trend has three phases and the averages must confirm one another.

down trend: A market that is trending lower as shown by a series of lower highs and/or lower lows.

Elliott wave: An approach to market analysis that's based on wave patterns and the Fibonacci number sequence.  The classic Elliott wave patterns has 5 waves up called impulse waves and 3 down waves called corrective waves.

exponential moving average: A moving average that is exponentially weighted. Example: for a 9 period EMA, today’s close is weighted 20% and yesterday’s ma is weighted by the other 80%.

falling off the roof: When prices break above a resistance line from a lateral trading zone and these new highs fail to hold.  Instead prices pull back under the "broken" resistance line. The target is for a retest of the lower end of the recent trading zone.

falling support line: A support line obtained by connecting a series of lower lows.

Fibonacci numbers: A series of numbers derived by adding the previous number to the current number. The numbers begin 1,1,2,3,5,8,13,31….Popular Fibonacci ratios used by technicians include (rounding off) 38%, 50% and 62%.

flags and pennants: Continuation patterns in which the market has a sharp advance or decline and then there is a correction that looks like a rectangle or a triangle.  A close outside of this rectangle or triangle confirms a continuation of the prior move.

forex market: The market in which participants are able to buy, sell, exchange and speculate on currencies. The forex markets is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

futures market: A futures exchange, derivatives exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.

gaps: When there is no price action between two consecutive sessions.  For example, a rising gap on a daily chart is when today's low is above yesterday's high. A falling gap is when today's high is below yesterday's low.  They are three main gaps, exhaustion, midway, and breakaway.  An exhausting gap is a gap that occurs at the end of an important trend.  A midway gap, also known as measuring gap, occurs in the middle of the move.  A breakaway gap is when the market gaps over a significant resistance area or under a major support area.

head and shoulders: A reversal pattern resembling a head (with the highest peak) and two shoulders (lower peaks). If the price penetrates the line that connects the low points of the head (called the neckline), the pattern is completed. When this pattern appears upside down it is called an inverse head and shoulders.

inside session: When the entire session's high-low range is within the prior session's range.

island tops and bottoms: A formation at the extremes of the market when prices gap in the direction of the prior trend. Prices then stay there for one or more sessions, and then gaps in the opposite direction. Prices are thus surrounded by gaps which leaves them isolated like an island.

investment: The action or process of investing money for profit or material result.

market risk: is the risk that the value of a market will go against your trading position.

measured moves: A price target based on using measurements based on prior price action.

moving average: A trend following indicator that is usually used in trending markets.  It shows the average value of securities price over a period of time, for example a simple five-day moving average adds the last five days closing prices and divides the total by 5. There are simple, weighted and exponential moving averages.

moving average convergence-divergence (MACD) oscillator: A combination of three exponentially smoothed moving averages.

neckline: A line connecting the lows of the head in a head and shoulders formation or highs of an inverse head and shoulders. A move under the neckline of a head and shoulders top is bearish, a move above the neckline of an inverse head and shoulders neckline is bullish.

negative divergence: When the price and an indicator (such as an oscillator like RSI) move in opposite directions. For instance, if prices reach new highs and stochastics do not, this is a negative divergence and is viewed as bearish.  If prices establish new lows and stochastics do not this is a positive divergence and is viewed as bullish.

option trading: In finance, an option is a derivative financial instrument that establishes a contract between two parties concerning the buying or selling of an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in some specific transaction on the asset, while the seller incurs the obligation to fulfill the transaction if so requested by the buyer.

oscillator: A momentum line that fluctuates around a zero value line (or between 0 and 100). Oscillators can help measure overbought/oversold levels, show negative and positive divergence and they can be used to measure a price move's velocity. Oscillators include RSI, Stochastics, MACD, etc.

outside reversal session: Also called a key reversal.  In an uptrend, this is when prices make a new high for the move and then closes that session under the prior session’s close.  In a downtrend, an outside reversal session is when the market makes a new low for the move and then closes  that session above the prior session’s close.

overbought: When the market moves up too far, too fast. At this point the market is vulnerable to a downward correction.

oversold: When the market declines too quickly. The market becomes susceptible to a bounce.

point and figure charting: A method of charting that disregards passage of time and displays only changes in prices.  A column of Xs denotes a rising market and a column of Os reflect the falling market.

positive divergence: When the price and an indicator (such as an oscillator like RSI) move in opposite directions. For instance, if prices reach new highs and stochastics do not, this is a negative divergence and is viewed as bearish.  If prices establish new lows and stochastics do not this is a positive divergence and is viewed as bullish.

price oscillator: Also called the moving average oscillator.  This oscillator subtracts longer-tern moving average from the shorter-term moving average.

rally: An upward movement of prices.

reaction: A price movement opposite to the prevailing trend.

relative strength index (RSI): An oscillator plotted on a scale between 0 and 100. This is an index thatcompares the relative strength of price advances to price declines over a specified period.

resistance level: A level where sellers are expected to enter.

retracement: A price reaction from the prior move in percentage terms. The more common retracement levels are 38.2%, 50% and 61.8%.

reversal session: A session when a new high is made for the move and the market then closes under the prior session's close.

reversal indicator: This is a misleading term. More appropriate, and more accurate, would be the term "trend change indicator".  It means the prior trend should change. It does not mean prices are going to reverse. Prices might reverse after a trend reversal pattern, but they may not. For example the trend could change from upwards to sideways. As long as the trend changes after a trend reversal pattern appears, that trend reversal worked. Thus if a trend reversal appears during an up trend, and the market then trades sideways the trend reversal pattern was successful.

rising resistance line: A resistance line made by connecting higher highs.

rising support line: A support line connecting higher lows.

selling climax: When price push sharply and suddenly lower on heavy volume after an extended decline. If the market reverses from this sharp selloff it is viewed as a selling climax.

selloff: A downward movement of prices.

stochastics: An oscillator that measures the relative position of the closing price as compared to its range over a chosen period. It is comprised of the faster moving %K line and the slower moving %D line.

stock market: The market in which shares are issued and traded either through exchanges or over-the-counter markets, also known as the equity market.

swing target: Using the height of a rally or decline to obtain a price target.

swing trading: A style of trading that attempts to capture gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum.

support level: An area where buyers are expected to enter.

technical analysis: Looking at the history of prices to gauge the markets health and obtain favorable trade opportunities.

trading range: When prices are locked between horizontal support and horizontal resistance levels. Also called a congestion zone or box range.

trend: The market’s prevalent price direction. There are short term, intermediate term and long term trends.

trend reversals: Also called reversal indicators. This is a misleading term. More appropriate, and more accurate, would be the term "trend change indicator".  It means the prior trend should change. It does not mean prices are going to reverse. Prices might reverse after a trend reversal pattern, but they may not. For example the trend could change from upwards to sideways. As long as the trend changes after a trend reversal pattern appears, that trend reversal worked. Thus if a trend reversal appears during an up trend, and the market then trades sideways the trend reversal pattern was successful.

trend line: A line on a chart that connects a series of higher highs, or lower lows. At least two points are needed to draw a trend line. The more often it is tested, and the greater the volume on the tests, the more important the trend line.

turning points: A time at which a decisive change in a situation or chart occurs.

up gap: A gap that pushes prices higher.

up trend: A market that is trending higher.

V bottom or top: Also called a spike. When prices suddenly reverse direction forming a price pattern that looks like the letter V for a bottom or an inverted V for atop.

volume: The total of all contracts or shares traded for a given period.

weighted moving average: A moving average in which each of the previous prices is assigned a weighting factor. Usually the most recent data is the more heavily weighted and thus considered more important. 

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