Technical Terminology

Question 1

RSI

Answer 1

Relative Strength Index. Indicator to measure the momentum of a stock price to determine whether it’s being overbought or oversold

Question 2

Positive/Bullish Divergence

Answer 2

The price is reaching bigger lows but the RSI’s lows fail to follow suit, showing smaller lows in its chart, indicating that bears are losing momentum, opening up the possibility for bulls to start gaining a foothold

Question 3

Negative/Bearish Divergence

Answer 3

The price is reaching bigger highs but the RSI’s chart is showing smaller highs, indicating that bulls are losing momentum

Question 4

DOM

Answer 4

Depth of Market. Indicates the level of interest in a stock by showing current outstanding buy/sell limit orders. Note that this doesn’t tell you the whole picture, not everyone has put down their intended price at that given point in time, many just have a number in their head that they decide, and is subject to adjust based on the current movement

Question 5

Bart

Answer 5

Not an acronym, a simple price pattern (initially coined from the crypto market). When a price undergoes a huge sudden surge upward, stays relatively flat for a bit a time, then just as quickly plummets back down, effectively wiping out all of the gains experienced on the way out. Term was named after the shape of Bart Simpson’s head

Question 6

/ES, /NQ, /RTY

Answer 6

Symbols for index Futures Trading. /ES is S&P 500, /NQ is nadsaq, /RTY is Russell 2000 (stock market index representing 2000 smaller cap companies)

Question 7

Short Interest

Answer 7

Percentage of outstanding shares that have been sold short but not yet closed out or covered. Expresses market sentiment.
If there is a very large short interest, could be one sign that the stock is oversold.
If there is a sudden jump in short interest, this is one dangerous bearish indicator.
If there is a sudden drop in short interest, could be a significant bullish indicator

Question 8

Short Squeeze

Answer 8

When a significant amount of people rush to cover their shorts by buying back their shares to cut their losses. This herd effect causes a huge surge in stock prices.
Typically after the short squeeze runs its course, the stock price will drop down to more generally accepted levels.

Question 9

What are the Greeks and their purpose?

Answer 9

Greeks are risk measures. Consist of 4 aspects:

• Delta: Measures how much the option premium changes with the underlying asset’s stock price
• Gamma: Measures rate of delta changing over time (think of gamma as acceleration of delta)
• Theta: Represents the erosion of an option’s value or price over time
• Vega: Based on implied volatility and its impact of the option price. More volatility means higher likelihood of underlying asset randomly hitting the strike price. Therefore more IV means higher option price

Question 10

Period

Answer 10

A unit of time. Can vary from seconds, minutes, hours, to days, etc. Many technical indicators are based on calculating based off certain number of periods. E.g. MACD subtracts 26 period EMA from 12 period EMA. Or RSI usually calculated over 14 time periods

Question 11

EMA

Answer 11

Exponential Moving Average.  Also referred to as the exponentially weighted moving average.  Places more weight/significance on recent data points in any given period.  Traders sometimes use many different length EMAs to make decisions, e.g. 10-day, 50-day, 200-day
Responds more (magnitude wise) to price changes than SMA

Question 12

SMA

Answer 12

Standard Moving Average. Unlike EMA, places equal weight on all data points within a given period.

Question 13

MACD

Answer 13

Moving Average Convergence Divergence. Subtracts the 26 period EMA from the 12 period EMA (typically period used is a day), can be positive or negative. The MACD line is plotted against a ‘signal line’ (9 day EMA) as a reference. Traders interpret MACD crossing over signal line as a buy signal, and MACD crossing under signal line as a sell or short signal.
Additionally, the speed of crossovers btwn MACD and signal can also indicate if a stock is being overbought or oversold

Question 14

In general, what is the difference between price movements occurring during high and low trading volume days?

Answer 14

The higher the volume, the more the trend/price change’s lasting power is. Fundamentally due to the market being a voting machine. More volume means more voting meaning a bigger consensus on where the price/trend should be at that moment. If a sudden low volume change happens, the people who miss it will then have their say as they jump in (seen as a discount, or overvalued) and correct the price accordingly.
Note there is always the thundering herd exception, but that is more likely to happen with a large volume and shooting down/up, which actually supports this original answer