32 terms
Technical Analysis — 32 terms defined
Every technical analysis term in the StockTools glossary, in plain language with a worked example — and connected to the free calculator that puts it to work.
Average True Range (ATR)Average true range measures how much a security typically moves per bar, averaged over 14 periods by default. Each bar's true range is the largest of three values: high minus low, the absolute gap between the high and the prior close, and the absolute gap between the low and the prior close, so overnight gaps count toward the reading.Technical AnalysisBear FlagA bear flag is the downside continuation pattern: a steep decline (the pole) followed by a weak upward drift (the flag), resolved by a breakdown that extends the decline. The feeble bounce is the point; sellers are so much in control that the relief rally cannot even retrace much of the drop.Technical AnalysisBear TrapA bear trap is the mirror of a bull trap: a breakdown below support that quickly reverses back above the level, trapping traders who shorted the break and stopping out longs at the exact low. The reclaimed level then flips into a springboard, because trapped shorts covering are forced buyers.Technical AnalysisBollinger BandsBollinger Bands are a volatility envelope consisting of a 20-period simple moving average plus an upper and lower band set 2 standard deviations above and below it. Because the bands are built from standard deviation, they widen automatically when price swings expand and contract when the market goes quiet.Technical AnalysisBull FlagA bull flag is a continuation pattern: a sharp advance (the pole) followed by a tight, downward-drifting consolidation (the flag), with the expectation that a breakout from the flag resumes the advance. The pattern is only valid after a genuine pole; a mild uptick followed by chop is just chop.Technical AnalysisBull TrapA bull trap is a breakout above resistance that fails almost immediately, reversing back below the level and stranding the buyers who chased the break. The failed move often accelerates the reversal: trapped longs selling their stopped-out positions become the fuel for the drop.Technical AnalysisCandlestick ChartA candlestick chart displays four prices per time period: the open, high, low, and close, drawn as a rectangular body with thin wicks above and below. The body spans open to close; the wicks mark the session's extremes. A close above the open prints a green (or white) candle, a close below the open prints red (or black).Technical AnalysisCorrelationCorrelation measures how closely two assets move in relation to each other, expressed as a number from -1 to +1. A correlation of +1 means they move in perfect lockstep, -1 means they move in perfect opposite directions, and 0 means their movements are unrelated.Technical AnalysisCup and HandleThe cup and handle is a bullish continuation pattern: a rounded, U-shaped base (the cup) that returns to the prior high, followed by a smaller, shallow pullback (the handle) before a breakout above the rim. The rounded shape matters — it reflects gradual accumulation rather than the sharp V of a panic reversal.Technical AnalysisDeath CrossA death cross occurs when the 50-day moving average crosses below the 200-day moving average, marking the point where intermediate-term weakness has dragged below the long-term trend. It is the bearish counterpart to the golden cross.Technical AnalysisDivergenceDivergence is a disagreement between price and an indicator: price makes a new high or low, but the oscillator tracking it does not. Bearish divergence is a higher price high with a lower indicator high; bullish divergence is a lower price low with a higher indicator low.Technical AnalysisDojiA doji is a candlestick whose open and close land at nearly the same price, leaving a body so thin it looks like a cross or plus sign. The wicks can be long or short; the defining feature is the near-zero body.Technical AnalysisDouble BottomA double bottom is a reversal pattern in which price makes two lows at roughly the same level, separated by a bounce, then breaks above the high between them: the W shape. The second low proves that the sellers who broke the first low could not find follow-through at the same price, and the break of the interim high confirms buyers have taken over.Technical AnalysisDouble TopA double top is a reversal pattern in which price hits roughly the same high twice, separated by a pullback, and then breaks below the low between the peaks. The two failures at one level show that supply reliably appears there; the break of the interim low shows demand has stopped defending the range.Technical AnalysisEngulfing CandleAn engulfing candle has a body that completely covers the prior candle's body: a bullish engulfing closes above the previous open after opening below the previous close, and a bearish engulfing does the reverse. The wicks do not need to be engulfed, only the open-to-close body.Technical AnalysisExponential Moving Average (EMA)An exponential moving average weights recent prices more heavily than older ones, using a smoothing multiplier of 2 / (N + 1) applied to each new close. The formula is: today's EMA = prior EMA + multiplier x (today's close - prior EMA). Old data never fully drops out; its influence just decays toward zero.Technical AnalysisFibonacci RetracementFibonacci retracement is a charting tool that divides a completed price move into standard fractions, 23.6%, 38.2%, 50%, 61.8%, and 78.6%, to project where a pullback might stall. The trader anchors the tool to the swing low and swing high, and the levels print as horizontal lines inside that range.Technical AnalysisGolden CrossA golden cross occurs when the 50-day moving average crosses above the 200-day moving average, signaling that intermediate-term price strength has overtaken the long-term trend. It is the standard chart definition of a shift from a bearish or neutral regime to a bullish one.Technical AnalysisHammerA hammer is a candlestick with a small body near the top of its range and a lower wick at least twice the body's height, printed after a decline. The shape shows sellers pushing price sharply lower intraday and buyers reclaiming almost all of it by the close.Technical AnalysisHead and ShouldersA head and shoulders is a topping pattern made of three peaks: a left shoulder, a higher head, and a right shoulder that fails to reach the head's high, all connected underneath by a support line called the neckline. The pattern completes only when price closes below the neckline; before that it is just three bumps.Technical AnalysisMACDMACD (moving average convergence divergence) is a momentum indicator built from three EMAs: the MACD line is the 12-period EMA minus the 26-period EMA, the signal line is a 9-period EMA of the MACD line, and the histogram plots the gap between the two. Standard notation is 12/26/9.Technical AnalysisMoving AverageA moving average is the average closing price of a security over the last N periods, recalculated as each new period completes so the value rolls forward with the chart. It smooths bar-to-bar noise into a single line that shows the direction and rough slope of the trend.Technical AnalysisOverboughtOverbought describes a market that has risen far enough, fast enough that momentum oscillators reach the top of their scales: RSI above 70 or the stochastic oscillator above 80 are the standard definitions. The label means the recent pace of buying is statistically stretched, not that the price is wrong or a decline is due.Technical AnalysisOversoldOversold describes a market that has fallen hard enough that momentum oscillators hit the bottom of their scales: RSI below 30 or a stochastic reading below 20 by convention. It measures the speed of the recent selling, not whether the price has reached good value.Technical AnalysisResistanceResistance is a price area where a rising stock has repeatedly stalled because sellers unload enough supply to cap the advance. It is the ceiling that mirrors support's floor.Technical AnalysisRSI (Relative Strength Index)RSI is a momentum oscillator that measures the speed of recent price changes on a 0-100 scale, calculated over 14 periods by default. The formula is RSI = 100 - 100 / (1 + RS), where RS is the average gain divided by the average loss over the lookback window. Readings above 70 are conventionally labeled overbought and readings below 30 oversold.Technical AnalysisSimple Moving Average (SMA)A simple moving average is the arithmetic mean of the last N closing prices: add the closes, divide by N, and roll the window forward one bar at a time. Every close in the window counts equally, so a 50-day SMA gives the close from 49 days ago the same weight as yesterday's.Technical AnalysisStandard DeviationStandard deviation measures how much an investment's returns vary around their average, and it is the most common statistical stand-in for volatility in finance. A higher standard deviation means returns swing more widely from period to period; a lower one means returns cluster more tightly around the average.Technical AnalysisStochastic OscillatorThe stochastic oscillator locates the current close within the recent high-low range, on a 0-100 scale. The main line, %K, is (close - lowest low) / (highest high - lowest low) x 100 over 14 periods; %D is a 3-period moving average of %K that serves as the signal line. Readings above 80 are labeled overbought and below 20 oversold.Technical AnalysisSupportSupport is a price area where a falling stock has repeatedly stopped dropping because buyers step in with enough size to absorb the selling. It shows up on a chart as a floor the price bounces off two, three, or more times.Technical AnalysisTechnical AnalysisTechnical analysis studies historical price and volume patterns to forecast future price movement, on the premise that patterns in how a stock has traded tend to repeat because they reflect recurring crowd psychology: fear, greed, and herd behavior. It uses tools like chart patterns, moving averages, and momentum indicators rather than a company's financial statements.Technical AnalysisTrend LineA trend line is a straight line drawn across successive swing lows in an uptrend or successive swing highs in a downtrend, marking the slope of the move. Two touches define the line; a third touch that holds is what gives it standing.Technical Analysis