CMT Glossary PDF

Last Updated: 05/20/2019 Terms Definitions The Accumulation average is the average of all the data Accumulation Average available for a security. In relation to Double Tops & Bottoms. An Adam is a sharp Adam...

Last Updated: 05/20/2019 Terms Definitions The Accumulation average is the average of all the data Accumulation Average available for a security. In relation to Double Tops & Bottoms. An Adam is a sharp Adam pointed top or bottom. The percentage amount that a security’s, or portfolio’s, Alpha returns exceeds the returns of a Benchmark (Index). Amplitude The height of a cycle from its horizontal midpoint (the x-axis) Ascending Triangle Triangle with horizontal resistance line and rising support line. Auctions See Fed Auctions Like Correlation except looking back in the same datafile instead of comparing to a different file. Used to identify cycles Autocorrelation within the dataset. Used in many Wells Wilder tools. Instead of recalculating an indicator for the lookback period, the previous indicator value Average Off Method is adjusted for the new data point. Average True Range The average of the last X True Ranges where X is usually 14. An Envelope that uses volatility to determine the envelope size. Can use ATR or Standard Deviations. Most common is Bands Bollinger Bands which uses Standard Deviation. A chart where the first price (Open), the highest price, the lowest price and the last price (Close) of the period are charted as a vertical line with dashes for the first and last Bar Chart prices. One-hundredth of a percent. Ie 1% is 100 basis points. Yields Basis Points are often quoted in basis points. Bearish Confirmation When price and indicator values are both falling. When price is rising but an indicator is falling in value. Bearish Divergence Indicator is signalling weakness before it is evident in price. Standard deviation of price relative to a market proxy (eg S&P 500). In Regression analysis, it is the slope of the Regression Beta line. Bills See Treasury Bills Body The box part of a candle in a candlestick chart A band around a central Moving Average that is based on Bollinger Bands Standard Deviations around the average. Refers to any oscillator that has strict limits on its upper and Bounded Oscillator lower values. Eg RSI can only range from 0 to 100. Breadth See Market Breadth A Gap that occurs at the start of a new trend. Usually indicates that a pattern is complete, or support/resistance has been Breakaway Gap broken.  When price passes through price levels/zones, or trend lines, Breakout that previously were zones of support and resistance. Bullish Confirmation When price and indicator values are both rising. When price is falling but an indicator is rising in value. Bullish Divergence Indicator is signalling strength before it is evident in price. Business Cycle An 8.6 year cycle identified by Princeton Economic XXXX Call options are contracts which give the call buyer the right to BUY the underlying asset (stock) at a specific stock price. If the call buyer does not exercise his right to buy the stock before the predetermined time, the option contract will expire and the opportunity to exercise the right to buy will cease to Call Option exist. A security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified Callable date. A Simple Moving Average that is offset by half the period of Centered Moving Average the moving average. Before a Wedge pattern starts, there is one peak (or trough) that ends the initial thrust of the move. That peak (or trough) Climax (Wedge) is called the "Climax" A pattern where price has a high probability of exiting the pattern opposite the entry, with trend in the same direction as Continuation Pattern the trend at the entry. Convertible bonds provide investors with the option to swap Convertible debt for equity. A series of waves that moves counter to the primary trend. Corrective Wave (Elliott Analysis) Labelled ABC. Process of using regression on two data sets to see if their moves are in sync. Ranges in value from -1 (negatively Correlation correlated) to 0 (uncorrelated) to 1 (correlated) Coupon Payments The interest payments made by the bond seller. Risk associated with a government or company not being able Credit Risk to meet their debt obligations. Risk that changes in the currency will reduce/increase demand Currency Risk for the securities. A recurring process (price pattern) that oscillates around a Cycle midpoint. Dead Cat Bounce A short, unsustained rally that follows a drastic fall in prices. A 10 year cycle where years of the decade move in similar Decennial Cycle ways. Descending Triangle Triangle with horizontal support line and falling resistance line. An Elliott Motive wave which is contracting. It breaks the rule Diagonal Wave that Wave 4 cannot enter the territory of Wave 1.  A pattern that consists of a Broadening pattern followed by a Diamond Top Symmetric Triangle. One of the most profitable patterns. When price is rising (or falling) and an indicator derived from that price is falling (or rising). The two plots are said to be Divergence diverging. A Trading Strategy that examines the highest high and lowest low over the past four weeks. Buys on a break of the high and Donchian Breakout Method sells on the break of the low. Prices are trending lower. Identified by Lower Peaks and Downtrend Lower Troughs on the chart. When a traditional Moving Average drops the oldest value, signals can be generated because of the values removed, Drop-Off effect rather than the ones added. Risk that the economy contracts which cuts government Economic Risk revenue and company earnings A moving average that has been translated up and down by a fixed percentage. Most often used as a filter to mitigate whipsaw in crossover strategies. Also called Moving Average Envelopes Bands. In relation to Double Tops & Bottoms. An Eve is a rounded top Eve or bottom. Exhaustion Gap Occurs at the end of a move. Usually filled within a few days. A variation of an Elliott Flat corrective pattern where wave B retraces beyond the start of wave A. Wave C ends beyond the Expanded Flat end of wave A. The date that an option and the right to exercise it will cease to exist. Typically, the expiration date falls on the third Friday Expiration Date (Option) of each month for monthly options. A moving average that applies weights to the current price and the previous EMA value. This helps avoid the drop-off effect Exponential Moving Average that other averages are subject to. An impulse wave that is longer than the other two impulse Extension (Elliott. Also Extended waves) waves in the five wave structure. Face Value The redeemable value of the security at maturity. Fading (the price movement) A trading strategy that sells rallies and buys declines. When price exits a pattern in the expected direction but fails to move at least 10%, from the breakout of the pattern, Failure (Patterns) before it reverses direction and reenters the pattern. The primary market where the Fed raises funds from large Fed Auctions banks by selling bills, notes and bonds.  The percentage of deposits that banks must keep in reserves. The rate is mandated by the central bank and is used to increase/reduce money supply which affects economic Federal Funds Rate expansion. Also used by banks to borrow from each other. A short term counter-trend pattern that follows a sharp steep Flag move. The upper and lower bounds of the pattern are parallel. A corrective Elliott pattern made up of three waves. Sub- Flat waves take a 3-3-5 pattern. Floating-rate debt that pays interest the varies along with Floating Libor or another market rate. The number of cycles that repeat in a given amount of time. Is Frequency the inverse of Wavelength. Used in indexes. Is a simple moving average of the percentage Geometric Moving Average changes. Government Notes A Bond which matures in 2 to 10 years. Government debt with maturity over 10 years. Pays interest Government Bonds and is redeemable at maturity. Solid commodities such as gold and silver. Traditionally Hard Assets considered as an inflationary hedge. A complex bearish reversal pattern made up of three peaks Head and Shoulders where the 2nd peak is higher than the 1st and 3rd. These bonds are below the ratings thresholds set by the High Yield bonds ratings companies. When the prices move in the direction of the primary trend. Usually a forceful, rapid move. The term is most commonly Impulse Move used in Elliott Analysis. An Elliott Motive wave that has sub-waves that adhere to the Impulse Wave standard 5 wave structure. The call option is considered in-the-money (ITM) if the current price for the stock is higher than the strike (exercise) price of the option. The put option is in-the-money (ITM) if the current price of the stock is below the strike (exercise) price of the In the Money (Option) option A manually drawn line that passes through the middle of the prices on the chart. It is designed to represent the general Internal Trend Line trend of the market without trying to capture a break in trend. Intraday Trend A Trend measures in Minutes or Hours Intrinsic value is the amount that the option is in-the-money Intrinsic Value (Option) (ITM). A complex bullish reversal pattern made up of three troughs Inverted Head and Shoulders. where the 2nd trough is lower than the 1st and 3rd.  When yields on near term bond maturities are higher than the yields on longer-term maturities. Often preceeds an economic Inverted Yields slowdown and recessions. These bonds exceed the rating thresholds set by the ratings Investment grade bonds agencies. A lone bar at the end of a trend that has a gap before and after Island Reversal it. These bonds are below the ratings thresholds set by the Junk Bonds ratings companies. Kondratieff Wave A 54-year economic cycle. The tendency for a cycle peak to the left of the expected Left Translation centre of the cycle. An order established with a broker that will automatically Limit Order execute when price reaches requested level. A simple chart where the closing price for each period is plotted on a XY chart where X is time and Y is price. The Line Chart periods are joined to form a line. Risk that the asset will not be able to be sold for the desired Liquidity Risk price. See Slippage A purchase of a security. Profits are made when the security’s Long Buy / Long Trade price rises. An indicator that measures both positive and negative sentiment in the market. Usually represented as an oscillator Market Breadth or the values can be accumulated into an index. An order to buy or sell at whatever price the market is Market Order currently trading at. Risk that prices will move so that the investment reduces in Market Risk value. The tendency for prices to return to their average when they Mean Reversion move too far away from it. How much the price has changed over a defined period of Momentum time. Money Market Where companies raise short-term cash. A series of 5 waves that follow the primary trend. (Elliott Motive Wave Analysis) A trend line that joins the two troughs between the three peaks of a Head and Shoulders pattern. Or the two peaks between the three troughs of an Inverted Head and Shoulders NeckLine pattern. The return from an investment before considering inflation, Nominal Return taxes and investment fees. The process by which unbounded indicator values are converted into a bounded range. Typically it returns a percentage of the indicator value to the maximum indicator Normalization value in the lookback period. In futures and options markets, it is the total number of Open Interest contracts that need to be traded before the expiry date.  When the Open of a Day is outside the range of the previous Opening Gap day. An option is simply a contract between buyer and seller which Option derives its value from an underlying asset. The buyer (owner or holder) of the contract pays a premium (payment) and holds the right to either buy or sell the asset (stock) at a predetermined price and within a predetermined time frame. It is important to note that the owner of an option contract has a right to buy and not an obligation. Option Option Buyer buyers are considered LONG the option The seller (writer) of the contract receives a premium (payment) in exchange for assuming an obligation to fulfill the requirements of the contract to buy or sell the underlying asset (stock) at a predetermined price for a predetermined time. It is important to note here that sellers of options have received a payment and have obligations to potentially fulfill the terms of the contracts. Option sellers are Option Seller considered SHORT the option. Option Writer See Option Seller The call option is out-of-the-money (OTM) if the stock is below the strike (exercise) price of the option. The put option is out- of-the-money (OTM) if the stock is above the strike (exercise) Out of the Money (Options) price of the option. Paper Assets See Soft Assets. A short term counter-trend pattern that follows a sharp steep Pennant move. The upper and lower bounds of the pattern converge. The number of time units necessary to complete one cycle Period (Cycles) (wavelength). A measurement of the starting point or offset of the cycle Phase relative to a benchmark cycle. Phase Angle Locates the current position within the cycle. A chart made up of X’s and O’s that ignores time. X’s are used when prices are rising and O’s for when prices are falling. It is Point and Figure Chart used to show price swings. Central Bank policy adjuments change the amount of funds available to the economy. Affects the prices of securities in Policy Risk that market. When legislation in enacted that prevents companies from Political Risk reaching their goals. Premium (Option) The price that an option buyer pays for the option. Presidential Cycle A 4-year cycle that is observed in the markets. Where governments and corporations offer securities to raise funds. Not always accessible to the public. Securities are Primary Market "Created" in the primary market. Primary Trend A Trend measured in Months or Years  When price breaks downward out of a pattern, a Pullback is Pullback when the price retraces to the breakout levels. Purchasing Power The study of purchasing the same item in different currencies. The seller of a call option may be obligated to fulfill the terms of the contract and SELL the underlying asset (stock) at a specific price in exchange for the premium they have received. The owner of the call option literally has the right to “CALL” Put Option the stock from the seller of the call option at a specified price. Rate Spread The gap between two securities with the same maturity. Creating a ratio from the prices of two securities and then Ratio Analysis comparing that ratio against other ratios. Real Body The box part of a candle in a candlestick chart An 18.6 year cycle in the property market that impacts equity Real Estate Cycle and bond markets. The return from an investment after it has been adjusted for Real Returns inflation, taxes and investment fees. Like the Accumulation Average, the Reset Accumulation Average averages all the data but the start point is reset. Reset Reset Accumulation Average events may be earnings reports etc. A level where rising prices stop climbing. It is the point where the number (or aggression) of sellers is balancing the number Resistance (or aggression) of buyers. A shorter counter-trend move against the direction of the Retracement larger trend. Reversal A change in the direction of Trend A pattern where price has a high probability of exiting the pattern on the same side as the entry, with trend in the Reversal Pattern opposite direction as the trend at the entry. The tendency for a cycle peak to the right of the expected Right Translation centre of the cycle. Occurs in the middle of a trend. Can be used like a flag for Runaway or Measuring Gap projecting targets. A variation of an Elliott Flat corrective pattern where wave B retraces beyond the start of wave A. Wave C fails to extend Running Flat beyond the end of Wave A. Yearly cycles that affect commodities and equities affected by Seasonality supply and demand. Where investors trade already existing (pre-issued) securities Secondary Market with each other. Eg Stock exchange Secondary or Intermediate Trend A Trend measures in Weeks or Months a term used for any period longer than the business cycle. Eg Secular Secular Trend. A secured financial product is one that has some form of asset Secured guarantee in case of default. Also see unsecured. Sentiment See Market Breadth  The line extending above and beneath the Body of a candle. Shadow Sometimes called a Whisker. A transaction that allows the trader to profit from a falling Short Selling / Short Trade security. When price fails to retrace all the way to the expected bounds of the pattern. If they occur late in a Rectangle, it is highly Shortfall (Patterns) probable that the breakout will be in the opposite direction. Short-Term Trend A Trend measured in Days Prices are bound within a range. Sometimes called a Trading Range. Prices move up and down but on average are staying in Sideways Trend the same price range. Simple Moving Average A simple average of the past X number of bars. The difference between the quote price and the execution price. When a market is not liquid, a market order can be filled at a price lower (or higher if buying) than desired. This is a Slippage function of Liquidity Risk. To remove volatility from a data list, a short term moving average is applied. The moving average acts to smooth out the Smoothing data. Financial assets, called paper assets, which primarily include Soft Assets stocks and bonds. An unusually long bar. Usually the result of an intra-day gap Spike or Large Bar being presented in a daily bar. A value that indicates how far individual values deviate from Standard Deviation the group’s average. A limit order to Sell (or Buy) when the price reaches a set Stop value. A combination of a Call option and a Put Option at the same Straddle (Option) strike price that are purchased together. Strap (Option) An option combination of two calls and one put. The predetermined price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Sometimes strike price is called the exercise price. Stock options have multiple strike prices listed for trading to allow buyers and sellers to choose which price levels in the stock they can buy Strike Price (Option) or sell an option. Strip (Option) An option combination of two puts and one call. Separate Trading of Registered Interest and Principal Securities. Separates the payments and the principal to give STRIPS investors more options and increase liquidity. A level where declining prices stop falling. It is the point where the number (or aggression) of buyers is balancing the number Support (or aggression) of sellers.  A chart that posts a new vertical line for each change in trend. There are a number of different styles of Swing Chart, the difference is based on the rules of how to define a change in Swing Chart trend. Symmetric Triangle Triangle with falling resistance line and rising support line. T-Bills See Treasury Bills When price breaks upward out of a pattern, a Throwback is Throwback when the price retraces to the breakout level. Tick Volume The count of price changes in a given time period. Time value or extra extrinsic value is the difference between the total premium of the option and the intrinsic value (if any) Time Value (Option) of the option. Treasury Inflation Protected Securities. The principal in TIPS is TIPS adjusted for inflation. When the volume for all futures contracts for a market are Total Volume added together. A stop that follows the market. It can get closer to the market but never move away. It is used to lock in profits when the Trailing Stop market turns. A form of Pattern Failure where price not only re-enters the pattern, but it also breaks through the other side of the Trap (Patterns) pattern. Government debt with maturity less than (or equal to) 1 year. Treasury Bills Pays no interest. A manually drawn line. In up-trends, it is drawn by connecting Trend Line troughs. In a downtrend, by connecting peaks. Chart Patterns where the boundaries of the pattern are Triangles getting closer as time goes on. A corrective Elliott pattern made up of five waves. Sub-waves Triangles take a 3-3-3-3-3 pattern. Triangular Moving Average Refers to creating moving averages of moving averages. A weighted moving average where the middle value has the Triangular Weighted Moving Average greatest weight. The greater of the bars High to Low, Previous Close to High, True Range Previous Close to Low. An Elliott wave 5 that fails to extend beyond the end of wave Truncation 3. Refers to any oscillator that does not have an upper and lower limit. These often look like they are bounded. Eg MACD (the moving average of the difference of two moving averages) appears like a bounded oscillator even though there is no limit Unbounded Oscillator to its extremes. A financial product that is not backed (guaranteed) by any assets in the event of a default. Companies pay a higher yield when their money market products are unsecured. Also see Unsecured Secured.  Prices are trending higher. Identified by Higher Peaks and Uptrend Higher Troughs on the chart. Wavelength See Period A triangle pattern where both the upper and lower trend lines are heading in the same direction (either up for rising wedge, Wedge or down for falling wedge). A moving average where the most recent price, in the past X number of bars, is multiplied by X. The next previous bar by X- Weighted Moving Average 1 etc. When trading rules signal consecutive buy and sell signals Whipsaw within a short space of time. The line extending above and beneath the Body of a candle. Whisker More commonly called a Shadow. A MA that multiplies previous value by (Periods - 1) and adds Wilder Moving Average that to current price before dividing by Periods. Link yields from increasing maturities. Should be upward sloping. Can be inverted when near term maturities are higher Yield Curve than longer-term maturities. See Inverted Yields. Zero-Coupon Bonds Do not pay interest payments. More like a Bill. A corrective Elliott pattern made up of three waves. Sub- Zig-Zag waves take a 5-3-5 pattern.