Technical Analysis from A to Z: Covers Every Trading Tool-- from the Absolute Breadth Index to the Zig Zag (Steven B. Achelis, 1995)

• Wise lessons
• Don't compound your losses by averaging down (i.e., don't keep buying additional shares at lower prices). It is tempting to think that a loss "doesn't count" until the position is closed--but it does!
• Anytime you own a security, ask yourself if you would buy it today. If you wouldn't buy it, you should consider selling it.
• Don't get distracted by others' investment prowess. Most investors only discuss their successes, threatening your focus and confidence.
• Wise investments aren't made with Ouija boards, they are made using logical approaches that minimize risks and maximize opportunities.
• Master the basics. Most investors spend their time looking for easy money (which is not an easy search) instead of learning the key factors to security prices--supply and demand.
• Indicators
• Absolute Breath Index (ABI)
  The ABI shows how much activity, volatility, and change is taking place on the New York Stock Exchange while ignoring the direction prices are headed.
• Accumulation Swing Index (ASI)
  The Accumulation/Distribution is a momentum indicator that associates changes in price and volume. The indicator is based on the premise that the more volume that accompanies a price move, the more significant the price move.
• Accumulation Swing Index
  It provides a numerical value that quantifies price swings. It defines short-term swing points. It cuts through the maze of high, low, and close prices and indicates the real strength and direction of the market.
• Advance/Decline Line
  The Advance/Decline Line ("A/D Line") is undoubtedly the most widely used measure of market breadth. It is a cumulative total of the Advancing-Declining Issues indicator. When compared to the movement of a market index (e.g., Dow Jones Industrials, S&P 500, etc) the A/D Line has proven to be an effective gauge of the stock market's strength.
• Advance/Decline Ratio
  The Advance/Decline Ratio ("A/D Ratio") shows the ratio of advancing issues to declining issues. It is calculated by dividing the number of advancing issues by the number of declining issues.
• Advancing-Declining Issues
  The Advancing-Declining Issues is a market momentum indicator which shows the difference between stocks listed on the New York Stock Exchange that advanced in price minus those that declined. As of this writing, about 2,500 issues trade each day on the NYSE.
• Advancing, Declining, Unchanged Volume
  Advancing, declining, and unchanged volume are all market momentum indicators. They reflect movement on the New York Stock exchange in millions of shares.
• Andrew's Pitchfork
  Andrews' Pitchfork is a line study consisting of three parallel trendlines based on three points you select. This tool was developed by Dr. Alan Andrews.
  
• Arms Index
  The Arms Index is a market indicator that shows the relationship between the number of stocks that increase or decrease in price (advancing/declining issues) and the volume associated with stocks that increase or decrease in price (advancing/declining volume). It is calculated by dividing the Advance/Decline Ratio by the Upside/Downside Ratio.
• Average True Range (ATR)
  The Average True Range ("ATR") is a measure of volatility. It was introduced by Welles Wilder in his book, New Concepts in Technical Trading Systems, and has since been used as a component of many indicators and trading systems.
• Bollinger Bands
  Bollinger Bands are similar to moving average envelopes. The difference between Bollinger Bands and envelopes is envelopes are plotted at a fixed percentage above and below a moving average, whereas Bollinger Bands are plotted at standard deviation levels above and below a moving average. Since standard deviation is a measure of volatility, the bands are self-adjusting: widening during volatile markets and contracting during calmer periods. Bollinger Bands were created
• Breadth Thrust
  The Breadth Thrust indicator is a market momentum indicator. It was developed by Dr. Martin Zweig. The Breadth Thrust is calculated by dividing a 10-day exponential moving average of the number of advancing issues, by the number of advancing plus declining issues.
• Bull/Bear Ratio
  Each week a poll of investment advisors is taken and published by Investor's Intelligence of New Rochelle, New York. Investment advisors are tracked as to whether they are bullish, bearish, or neutral on the stock market. The Bull/Bear Ratio shows the relationship between the bullish and bearish advisors.
  
• Candlesticks
  Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don't involve any calculations.
  
• Canslim
  CANSLIM is an acronym for a stock market investment method developed by William O'Neil. O'Neil is the founder and chairman of Investor's Business Daily, a national business newspaper. He also heads an investment research organization, William O'Neil & Company, Inc.
• Chaikin Oscillator
  The Chaikin Oscillator is a moving average oscillator based on the Accumulation/Distribution indicator.
• Commodity Channel Index (CCI)
  The Commodity Channel Index ("CCI") measures the variation of a security's price from its statistical mean. High values show that prices are unusually high compared to average prices whereas low values indicate that prices are unusually low. Contrary to its name, the CCI can be used effectively on any type of security, not just commodities.
• Commoditiy Selection Index (CSI)
  The name of the index reflects its primary purpose. That is, to help select commodities suitable for short-term trading.
• Correlation Analysis
  Correlation analysis measures the relationship between two items, for example, a security's price and an indicator. The resulting value (called the "correlation coefficient") shows if changes in one item (e.g., an indicator) will result in changes in the other item (e.g., the security's price).
• Cumulative Volume Index
  The Cumulative Volume Index ("CVI") is a market momentum indicator that shows whether money is flowing into or out of the stock market. It is calculated by subtracting the volume of declining stocks from the volume of advancing stocks, and then adding this value to a running total. See Advancing, declining, and unchanged volume.
• Cycles
  Cycles allow us to accurately predict events in nature: bird migrations, the tides, planetary movements, etc. You can also use cycle analysis to predict changes in financial markets, although not always with the accuracy found in nature.
• Demand Index
  The Demand Index combines price and volume in such a way that it is often a leading indicator of price change.
• Detrended Price Oscillator
  The Detrended Price Oscillator ("DPO") attempts to eliminate the trend in prices. Detrended prices allow you to more easily identify cycles and overbought/oversold levels.
• Directional Movement
  The Directional Movement System helps determine if a security is "trending."
• Dow Theory
  In 1897, Charles Dow developed two broad market averages. The "Industrial Average" included 12 blue-chip stocks and the "Rail Average" was comprised of 20 railroad enterprises. These are now known as the Dow Jones Industrial Average and the Dow Jones Transportation Average.
• Ease of Movement
  The Ease of Movement indicator shows the relationship between volume and price change. As with Equivolume charting, this indicator shows how much volume is required to move prices.
• Efficient Market Theory
  The Efficient Market Theory says that security prices correctly and almost immediately reflect all information and expectations.
• Elliott Wave Theory
  Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves.
• Envelopes (Trading Bands)
  An envelope is comprised of two moving averages. One moving average is shifted upward and the second moving average is shifted downward.
  
• Equivolume
  Equivolume displays prices in a manner that emphasizes the relationship between price and volume.
• Fibonacci Numbers
  These numbers possess an intriguing number of interrelationships, such as the fact that any given number is approximately 1.618 times the preceding number and any given number is approximately 0.618 times the following number.
• Four Percent Model
  The Four Percent Model is a stock market timing tool based on the percent change of the weekly close of the (geometric) Value Line Composite Index. It is a trend following tool designed to keep you in the market during major up moves and out (or short) during major down moves.
• Fourier Transform
  Fourier Transforms were originally developed as an engineering tool to study repetitious phenomena such as the vibration of a stringed musical instrument or an airplane wing during flight. It is used in technical analysis to detect cyclical patterns within prices.
• Fundamental Analysis
  Fundamental analysis is the study of economic, industry, and company conditions in an effort to determine the value of a company's stock. Fundamental analysis typically focuses on key statistics in a company's financial statements to determine if the stock price is correctly valued.
• Gann Angles
  Central to Gann's techniques was geometric angles in conjunction with time and price. Gann believed that specific geometric patterns and angles had unique characteristics that could be used to predict price action.
• Herrick Payoff Index
  The Herrick Payoff Index is designed to show the amount of money flowing into or out of a futures contract. The Index uses open interest during its calculations, therefore, the security being analyzed must contain open interest.
• Interest Rates
  Interest rates play a key role in the general business cycle and the financial markets. When interest rates change, or interest rate expectations change, the effects are farreaching. When rates rise, consumers spend less which causes retail sales to slow, which leads to reduced corporate profits, a declining stock market, and higher unemployment.
• Kagi
  Kagi charts are believed to have been created around the time that the Japanese stock market began trading in the 1870s. Kagi charts display a series of connecting vertical lines where the thickness and direction of the lines are dependent on the price action. The charts ignore the passage of time.
• Large Block Ratio
  This market sentiment indicator shows the relationship between large block trades, which are trades of more than 10,000 shares, and the total volume on the New York Stock Exchange. The comparison of large block trades to total volume shows how active the large institutional traders are.
• Moving Average Convergence/Divergence (MACD)
  The MACD ("Moving Average Convergence/Divergence") is a trend following momentum indicator that shows the relationship between two moving averages of prices. The MACD was developed by Gerald Appel, publisher of Systems and Forecasts.
• Mass Index
  The Mass Index was designed to identify trend reversals by measuring the narrowing and widening of the range between the high and low prices. As this range widens, the Mass Index increases; as the range narrows the Mass Index decreases.
• McClellan Oscillator
  The McClellan Oscillator is a market breadth indicator that is based on the smoothed difference between the number of advancing and declining issues on the New York Stock Exchange.
• McClellan Summation Index
  The McClellan Summation Index is a market breath indicator based on the McClellan Oscillator.
• Median Price
  The Median Price indicator is simply the midpoint of each day's price. The Typical Price and Weighted Close are similar indicators.
• Member Short Ratio (MSR)
  The Member Short Ratio ("MSR") is a market sentiment indicator that measures the short selling activity of members of the New York Stock Exchange. "Members" trade on the floor of the exchange either for their own account or for their clients. Stocks are sold short in anticipation of the price falling.
• Momentum
  The Momentum indicator measures the amount that a security's price has changed over a given time span
• Money Flow Index (MFI)
  The Money Flow Index ("MFI") is a momentum indicator that measures the strength of money flowing in and out of a security. It is related to the Relative Strength Index, but where the RSI only incorporates prices, the Money Flow Index accounts for volume.
• Moving Average
  A Moving Average is an indicator that shows the average value of a security's price over a period of time. When calculating a moving average, a mathematical analysis of the security's average value over a predetermined time period is made. As the security's price changes, its average price moves up or down.
• Negative Volume Index (NVI)
  The Negative Volume Index ("NVI") focuses on days where the volume decreases from the previous day. The premise being that the "smart money" takes positions on days when volume decreases.
• New Highs-New Lows
  The New Highs-New Lows indicator ("NH-NL") displays the daily difference between the number of stocks reaching new 52-week highs and the number of stocks reaching new 52-week lows.
• New Highs/Lows Ratio
  The New Highs/Lows Ratio ("NH/NL Ratio") displays the daily ratio between the number of stocks reaching new 52-week highs and the number of stocks reaching new 52-week lows.
• Odd Lots Balance Index (OLBI)
  The Odd Lot Balance Index ("OLBI") is a market sentiment indicator that shows the ratio of odd lot sales to purchases (an "odd lot" is a stock transaction of less than 100 shares). The assumption is that the "odd lotters," the market's smallest traders, don't know what they are doing.
• Odd Lot Purchases/Sales
  Both of these indicators, Odd Lot Purchases and Odd Lot Sales, display what their names imply: the number of shares (in thousands) purchased or sold in odd lots. An "odd lot" is a stock transaction of less than 100 shares.
• Odd Lot Short Ratio (OLSR)
  The Odd Lot Short Ratio ("OLSR") is a market sentiment indicator that displays the daily ratio of odd lot short sales compared to odd lot buy/sell transactions.
• Open Interest
  Open Interest is the number of open contracts of a given future or option contract. An open contract can be a long or short contract that has not been exercised, closed out, or allowed to expire. Open interest is really more of a data field than an indicator.
• Open-10 Trin
  The Open-10 TRIN is a smoothed variation of the Arms Index. It is a market breadth indicator that uses advancing/declining volume and advancing/declining issues to measure the strength of the market.
• Option Analysis
  The Black-Scholes model helps determine the fair market value of an option based on the security's price and volatility, time until expiration, and the current market interest rate.
• Overbrought/Oversold
  The Overbought/Oversold ("OB/OS") indicator is a market breadth indicator based on the smoothed difference between advancing and declining issues.
• Parabolic SAR
  The Parabolic Time/Price System, developed by Welles Wilder, is used to set trailing price stops and is usually referred to as the "SAR" (stop-and-reversal).
• Patterns
  A basic principle of technical analysis is that security prices move in trends. We also know that trends do not last forever. They eventually change direction and when they do, they rarely do so on a dime. Instead, prices typically decelerate, pause, and then reverse. These phases occur as investors form new expectations and by doing so, shift the security's supply/demand lines.
• Percent Retracement
  A characteristic of a healthy bull market is that it makes higher-highs and higher-lows. This indicates a continual upward shift in expectations and the supply/demand lines. The amount that prices retreat following a higher-high can be measured using a technique referred to as "percent retracement." This measures the percentage that prices "retraced" from the high to the low.
• Performance
  The Performance indicator displays a security's price performance as a percentage. This is sometimes called a "normalized" chart.
• Point & Figure
  Point & Figure ("P&F") charts differ from traditional price charts in that they completely disregard the passage of time and only display changes in prices. Rather than having price on the y-axis and time on the x-axis, P&F charts display price changes on both axes. This is similar toKagi, Renko, and Three Line Break charts.
• Positive Volume Index (PVI)
  The Positive Volume Index ("PVI") focuses on days where the volume increased from the previous day. The premise being that the "crowd" takes positions on days when volume increases.
• Price and Volume Trend
  The Price and Volume Trend ("PVT") is similar to On Balance Volume ("OBV,") in that it is a cumulative total of volume that is adjusted depending on changes in closing prices. But where OBV adds all volume on days when prices close higher and subtracts all volume on days when prices close lower, the PVT adds/subtracts only a portion of the daily volume. The amount of volume added to the PVT is determined by the amount that prices rose or fell relative to the previous day's close.
• Price Oscillator
  The Price Oscillator displays the difference between two moving averages of a securitys price. The difference between the moving averages can be expressed in either points or percentages.
• Price Rate-of-Change
  The Price Rate-of-Change ("ROC") indicator displays the difference between the current price and the price x-time periods ago. The difference can be displayed in either points or as a percentage. The Momentum indicator displays the same information, but expresses it as a ratio.
• Public Short Ratio (PSR)
  The Public Short Ratio ("PSR") shows the relationship between the number of public short sales and the total number of short sales. (The Public Short Ratio is sometimes referred to as the non-member short ratio.)
• Puts/Calls Ratio
  Developed by Martin Zweig, the Puts/Calls Ratio ("P/C Ratio") is a market sentiment indicator that shows the relationship between the number of Puts to Calls traded on the Chicago Board Options Exchange (CBOE).
• Quadrant Lines
  Quadrant Lines are a series of horizontal lines that divide the highest and lowest values (usually prices) into four equal sections.
• Relative Strength, Comparative
  Comparative Relative Strength compares two securities to show how the securities are performing relative to each other. Be careful not to confuse Comparative Relative Strength with the Relative Strength Index.
• Relative Strength Index
  The name "Relative Strength Index" is slightly misleading as the RSI does not compare the relative strength of two securities, but rather the internal strength of a single security. A more appropriate name might be "Internal Strength Index." Relative strength charts that compare two market indices, which are often referred to as Comparative Relative Strength.
• Renko
  The Renko charting method is thought to have acquired its name from "renga" which is the Japanese word for bricks. Renko charts are similar to Three Line Break charts except that in a Renko chart, a line (or "brick" as they're called) is drawn in the direction of the prior move only if prices move by a minimum amount (i.e., the box size). The bricks are always equal in size. For example, in a 5-unit Renko chart, a 20-point rally is displayed as four, 5-unit tall Renko bricks.
• Speed Resistance Lines (SRL)
  Speed Resistance Lines ("SRL"), sometimes called 1/3-2/3 lines, are a series of trendlines that divide a price move into three equal sections. They are similar in construction and interpretation to Fibonacci Fan Lines.
• Spreads
  Spreads show the difference in price between two securities. Spreads are normally calculated using options.
• Standard Deviation
  Standard Deviation is a statistical measure of volatility. Standard Deviation is typically used as a component of other indicators, rather than as a stand-alone indicator. For example, Bollinger Bands are calculated by adding a security's Standard Deviation to a moving average.
• STIX
  STIX is a short-term trading oscillator that was published in The Polymetric Report. It compares the amount of volume flowing into advancing and declining stocks.
• Stochastic Oscillator
  The Stochastic Oscillator compares where a security's price closed relative to its price range over a given time period.
• Swing Index
  Swing Index seeks to isolate the "real" price of a security by comparing the relationships between the current prices (i.e., open, high, low, and close) and the previous period's prices.
• Three Line Break
  Three Line Break charts display a series of vertical boxes ("lines") that are based on changes in prices.
• Tirone Levels
  Tirone Levels can be drawn using either the Midpoint 1/3-2/3 method or the Mean method. Both methods are intended to help you identify potential support and resistance levels based on the range of prices over a given time period. The interpretation of Tirone Levels is similar to Quadrant Lines.
• Total Short Ratio (TSR)
  The Total Short Ratio ("TSR") shows the percentage of short sales to the total volume on the New York Stock Exchange.
• Trade Volume Index (TVI)
  The Trade Volume Index ("TVI") shows whether a security is being accumulated (purchased) or distributed (sold).
• Trendlines
  One of the basic tenets put forth by Charles Dow in the Dow Theory is that security prices do trend. Trends are often measured and identified by "trendlines." A trendline is a sloping line that is drawn between two or more prominent points on a chart. Rising trends are defined by a trendline that is drawn between two or more troughs (low points) to identify price support. Falling trend-s are defined by trendlines that are drawn between two or more peaks (high points) to identify price resistance.
• TRIX
  TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of the security's closing price. It is designed to keep you in trends equal to or shorter than the number of periods you specify.
• Ultimate Oscillator
  Oscillators typically compare a security's smoothed price with its price x-periods ago. Larry Williams noted that the value of this type of oscillator can vary greatly depending on the number of time periods used during the calculation. Thus, he developed the Ultimate Oscillator that uses weighted sums of three oscillators, each of which uses a different time period.
• Upside/Downside Ratio
  The Upside/Downside Ratio shows the relationship between up (advancing) and down (declining) volume on the New York Stock Exchange. Click here for more information on Advancing, declining, and unchanged volume.
• Upside-Downside Volume
  The Upside-Downside Volume indicator shows the difference between up (advancing) and down (declining) volume on the New York Stock Exchange.
• Vertical Horizontal Filter
  The Vertical Horizontal Filter ("VHF") determines whether prices are in a trending phase or a congestion phase.
• Volatility, Chaikin's
  Chaikin's Volatility indicator compares the spread between a security's high and low prices. It quantifies volatility as a widening of the range between the high and the low price.
• Volume
  Volume is simply the number of shares (or contracts) traded during a specified time frame (e.g., hour, day, week, month, etc). The analysis of volume is a basic yet very important element of technical analysis. Volume provides clues as to the intensity of a given price move.
• Volume Oscillator
  The Volume Oscillator displays the difference between two moving averages of a security's volume. The difference between the moving averages can be expressed in either points or percentages.
• Volume Rate-of-Change
  The Volume Rate-of-Change ("ROC") is calculated identically to the Price ROC, except it displays the ROC of the security's volume, rather than of its closing price.
• Weighted Close
  The Weighted Close indicator is simply an average of each day's price. It gets its name from the fact that extra weight is given to the closing price. The Median Price and Typical Price are similar indicators.
• William's Accumulation/Distribution
  Accumulation is a term used to describe a market controlled by buyers; whereas distribution is defined by a market controlled by sellers.
• William's % R
  Williams %R (pronounced "percent R") is a momentum indicator that measures overbought/oversold levels.
• Zig Zag
  The Zig Zag indicator filters out changes in an underlying plot (e.g., a security's price or another indicator) that are less than a specified amount. The Zig Zag indicator only shows significant changes.