Vocabulary and terminology


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Essential Vocabulary and Terminology for futures trading.

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Vocabulary and terminology

  1. 1. You should not use or disclose to any other person the contents of this manual nor takecopies. Copyright E-mini Executors, Inc. 2012.E-mini Executors, Inc. provides education and training services only. The services andmaterials provided should not to be interpreted as investment advice, an endorsement ofany security, commodity, future, or personal investment advice, or an offer tobuy, sell, hold or trade futures, options or commodity interests or a recommendation tobuy, sell, hold or trade futures, options or commodity interests. E-miniExecutors, Inc. assumes no responsibility or liability for your trading or investmentresults. You assume the entire cost and risk of investing and are solely responsible forany and all gains and losses, financial, emotional, or otherwise, experienced, suffered, orincurred by you.
  2. 2. ApproachAdjustments made to execution derived from having market awareness.Average True Range (ATR)A study that takes the moving average of the true range over a specific period.Bar ChartA graphic record in which each day’s price action shows as a vertical bar, with the closingprice denoted by a short horizontal tick mark.BearOne who expects prices to decline. The opposite of a bull.Bear MarketA market in which prices are declining.BidThe price that market participants are willing to pay.
  3. 3. Bollinger BandsThe purpose of Bollinger Bands is to provide a relative definition of high and low. Bydefinition prices are high at the upper band and low at the lower band. This definition canaid in rigorous pattern recognition and is useful in comparing price action to the action ofindicators to arrive at systematic trading decisions. A Bollinger Band consists of twolines, one line displayed above and the other below the user-specified moving average.The distance between each line and the moving average line represents the number ofsquare root deviations of each price away from the moving average, multiplied by a user-specified constant. The following steps are used to calculate a Bollinger Band: Calculatea moving average based on the type, period, and price parameters. Calculate the squareroot deviation. Multiply the calculated square root deviation by the number specified viathe standard deviation parameter in the Bollinger Band setup window. Add thecalculated value to the moving average to produce the upper Bollinger Band line, andsubtract the calculated value from the moving average to produce the lower BollingerBand line. This is calculated automatically with most charting systems.
  4. 4. BreakA sharp, rapid price decline.BullOne who expects prices to rise.Bull MarketA market in which prices are rising.Candlestick ChartCandlestick charts represent an alternate way of displaying bar charts. The difference isthat the body of the candlestick which consists of open to close of bar is filled in by acolor that shows if the close was higher or lower than the open.CarA loose, quantitative term used to describe a contract, e.g., a “car of cattle”. Derivedfrom the fact that quantities of the product specified in a contract used to correspondclosely to the capacity of a railroad car. Quantity may also be referred to in terms of“lots”.
  5. 5. Cash MarketMarket in which participants buy and sell the actual products or financial instruments.Cash PriceThe current price of the actual physical commodity.CloseThe period at the end of the trading session that determines the closing price. Sometimesreferred to as the closing range.Closing RangeThe high and low prices, or bids and offers, recorded during the period designated as theofficial close.ContractUnit of trading for a financial or commodity future. Also, actual bilateral agreementbetween the parties (buyer and seller) of a futures transaction as defined by anexchange.
  6. 6. CoverTo buy or sell futures offsetting existing positions.Day TradingRefers to establishing and liquidation the same position or positions within one day’s trading, thusending the day with no established position in the market.ExtensionsAn extension is a peak in Bollinger Bands that occurs after a rapid price move.Fibonacci RetracementDerived from contributions medieval mathematician Leonardo Fibonacci made to the numberstheory, retracements measure price areas where a market move is likely to pause or reverse atrend. Many traders rely on Fibonacci numbers to compute these levels of support and resistance.The following retracement scales are the default ratios:0.000, 0.250, 0.382, 0.420, 0.500, 0.618, 0.750, 1.000, and 1.382.FuturesA term used to designate all contracts covering the purchase and sale of financial instruments orphysical commodities for future delivery on a commodity futures exchange.HalfThe term used when the last two digits of a price quotation are “50”.
  7. 7. HandleThe second or third digit from the right in a price quotation.HedgeThe purchase or sale of a futures contract as a temporary substitute for a cash market transactionto be made at a later date. Usually it involves opposite positions in the cash market and futuresmarket at the same time. Hedges are used to minimize the risk of loss due to adverse pricemovements.High Volume BarThe highest volume traded at a particular price during a single session or day.HouseClearing member firm.Limit OrderAn order entered in the market that specifies a price; the order can be executed only if the marketreaches or betters that price.Limit PriceThe maximum allowable daily price move up or down from the previous day’s settlement price.
  8. 8. Line ChartConnects successive values on a chart. The setting in the price parameter determines which valuesare connected. The most common is from open to close of a specific time frame.LiquidationAny transactions that offsets or closes out a long or short futures position.Liquid MarketOne in which there is considerable trading volume and orders may be executed with a minimum ofprice disturbance.LongOne who has established a market position by buying a futures contract.LotThe term used to describe a designated number of contracts.MACDThe MACD is a specific type of OSCILLATOR study. It measures the difference between twoexponential moving averages of different lengths, in addition, a trailing moving average of theMACD is plotted (MACDA), this is commonly referred to as the “trigger” line. The two movingaverages have different sensitivities to market action, thereby providing an indication of a changein the market environment, such as the emergence of a new trend or a trend reversal.
  9. 9. Market AwarenessIs the ability to see beyond an entry price of a strategy signal. Seeing what is happening in themarket you are trading and other correlating markets.Market OrderAn order to buy or sell futures at the best price available immediately after order is entered.Market ProfileMarket Profiles display price distributions over a period of time. Market Profile distributions areconstructed of TPOs (Time Price Opportunities). Each TPO letter identifies a time when the markettraded at the price indicated on the vertical axis. TPO letter values change depending on whetherthe chart is 30-min, daily, or monthly. When a contract opens during a particular TPO, the firstthirty minutes of trading for that contract are plotted using the letter of the TPO that was inprogress at the opening. Subsequent trades are plotted using the letter of the TPO in progress atthe beginning of the corresponding 30-minute interval.
  10. 10. Market Profile Value Areas (MPVA)This study calculates the Market Profile’s value area and Point of Control (POC). The value areabegins calculating at the POC. The system expands the value area one price at a time in eitherdirection until the value area represents 70% of the TPOs, choosing the direction on each iterationon the basis of the number of TPOs the two prices adjacent to the current value area have. It isexpanded in the direction of the price having more TPOs. The high boundary of the value area isrepresented by a green line, and the low boundary of the value area is represented by a red line.You can change these colors. The POC is calculated as the price that has the maximum TPO duringthe specified time period. If several prices have the same max TPO, then the price that is closest tothe middle price range is the POC price. The POC is blue by default. Traders may want to analyzethe value area’s width to determine trade facilitation. Traders may also want to compare theprevious day’s value area to the current day. A higher value area may indicate that the market isbuying.
  11. 11. MITMarket if touched. A price order that automatically becomes a market order if the price is reached.Moving Average (MA)The Moving Average (MA) study plots the average price over a user-specified period. Five methodsof calculating the Moving Average are available: Simple, Smoothed, Centered, Weighted, andExponential.Moving Average CrossThe Moving Average Cross study plots three moving averages of different lengths or types. Eachaverage has a different sensitivity to market action. Taken together, the behavior of the averagesprovides an indication of a change in the market environment, such as the emergence of a newtrend.OfferIndicates a willingness to sell a futures contract at a given price.Open InterestThe number of open (not liquidated) contracts. This refers to either open longs or open shorts, nottheir combined total.
  12. 12. OpeningThe period of the trading session during which all transactions are considered made or firsttransactions were completed.Opening RangeThe range of prices at which the first bids and offers were made or first transactions werecompleted.OverboughtA technical opinion regarding a market in which the price has risen too high in relation to theunderlying fundamental factors.OversoldA technical opinion regarding a market in which the price has declined too far in relation to theunderlying fundamental factors.Point of Control (POC)The price in which the most time was spent.
  13. 13. PositionAn interest in the market, either long or short.QuarterTerm used when the last two digits of a quote are “25”.RallyA term used to describe a sharp increase in price.RangeThe high and low prices.ResistanceA price above the market that has a reason or reasons to hold.RotationEqual range above and below a particular price.To Trade for small gains. Scalping normally involves establishing and liquidation a positionquickly, usually within the same day, hour or even just a few minutes.
  14. 14. ScratchWhen you buy and sell at the exact same price.ShortOne, who has established a market position by selling a futures contract and, in contracts withphysical delivery, may have to make a delivery of the commodity if he doesn’t offset his position bybuying the futures contract.SpeculatorA market participant, including the general public and traders, who uses their own capital in thehopes of profiting from price movements.Stop OrderA resting order that becomes a market order when prices reach that level. A “buy” stop is placedabove the current market, “sell” stop is placed below the current market. Stop orders may be usedto open or close out a position.
  15. 15. SupportA price below the market that has some reason or reasons to hold.Technical AnalysisThe study of the market action itself; of the behavior of price, volume and open interest.TickThe minimum amount by which a commodity price can change. One tick may be equal to one ormore points.Trading VolumeThe number of futures contracts that changed hands during a certain period, usually a day.TrendThe tendency of prices to move in one direction more readily than another. The general direction amarket is moving.Trend ChannelPlots two parallel lines and an optional third line related to the initial lines. Giving you a visual ofthe current trend in the market.
  16. 16. VolatilityThe degree of price activity.VolumeThe total number of transactions in a futures contract made during a specified period of time.Volume ProfileVolume profiles are horizontal bar graphs that appear on the right of the chart showing the day’svolume distribution.