Glossary of Trading Terms

05 Jun 2017

Trading is an extremely hard practice that takes years to perfect. No matter how good or bad you are at it, trading tools are indispensable for any trader, crypto or otherwise. As so, and in order for you to better understand the website content and terms, we have created a Glossary of Trading Terms. Actually, we didn't create it, rather a user did! We want to thank x for taking the time and effort to put this glossary together for his/her fellow Cryptonians.

Glossary of Trading Terms

Volume From\To

“Volume From” and “To” are the volumes of the respective currency pair.

For example, for the BTC-USD pair  “Volume From” is the number of Bitcoins traded for US dollars while “Volume To” is the number of dollars traded (for the period) for Bitcoins.

SMA 5/13/20/30/50/200

Simple Moving Average (SMA) is an indicator that equally averages a series of prices over some specific period of time, say 5 days (week), 13 days (half a month), 50 days (quarter) or 200 days (year). It can be applied to any time varying data but is mostly applied to prices. SMA, as any technical indicator that uses averaging, suffers from a serious drawback as it lags the current price. The lag of SMA is half its length. Namely, SMA(20) is lagging the current price by 10 periods of time, i.e. 10 days.

EMA 5/12/26/50

Exponential Moving Average (EMA) is another form of an averaging indicator that uses exponential (decaying) weighting for each price of a series of prices such that the most recent price has the highest weight (most important) and the first price (lesser importance). For example, A 10-days EMA applies a 18.2% weighting to the most recent price, in contrast to SMA(10) that applies an equal weight of 10% to all prices. EMA somewhat improves on SMA in terms of having a shorter lag. Still, it suffers the same drawback.

BB 5/13/20

Bollinger Bands (BB) were drawn from statistical analysis. These are, usually, two lines that are two standard deviations apart (above and below) from the price line. Prices are assumed to spend 95% of the time within BB. They are calculated by computing the mean price and its standard deviation over a specific period of time, say a week (5), a month (20) etc. As all technical indicators, BB also lag the current price. Investors use BB to identify up/down price breaks or to detect price reversal (either can occur when the current price breaks above or below BB)

RSI 14 (21)

Relative Strength Index is a momentum indicator for price movement. Its values are bounded such that it oscillates between 0 and 100. When RSI is above 70 an asset is considered overbought. The asset is considered oversold when it is below 30. This indicator can serve to identify price trend as well as buy/sell signal. 14 (21) refers to the period over which the average gain/loss is computed, most commonly 14 days.

Note: Any indicator whose movement is bounded to some range is referred to as “oscillator”.

Volatility

Volatility is the standard deviation of prices. It is usually backward computed over some specific time period, 14 days for example. (Volatility here refers to the historical volatility of prices and is different than implied volatility that is derived from option prices)

ADL

Accumulation distribution line uses volume to validate price trend or signal of price movement on low volume that could result in price reversal. Volume is considered to be accumulated when the day's close is higher than the previous day's closing price and distributed when the day's close is lower than the previous day's closing price. Therefore, on accumulation day, the day's volume is added to the previous day's Accumulation Distribution Line. On a distribution day, the day's volume is subtracted from the previous day's Accumulation Distribution Line. ADL is to detect divergences between price movement and volume movement. The conventional interpretation of ADL is that increasing or decreasing prices should be confirmed by increased volume. Increasing or decreasing prices that are not confirmed may serve to warn of future trouble when volume is decreasing. The starting point of ADL is arbitrary.

MACD 12,26,9

The Moving Average Divergence Convergence (MACD) indicator is comprised of a 12-day Exponential Moving Average (EMA) of closing prices minus a 26-day EMA. Then, a 9-day EMA (termed “Signal”) of the MACD is plotted with the indicator itself to signal for turns. The Histogram below is the difference between MACD and its 9-day EMA. The histogram is positive when the MACD is above its Signal and negative when it is below the signal. Values other than 12, 26 and 9 can be used.  MACD convergence occurs when the moving averages close on each other. Divergence occurs when the moving averages move apart.

Positive MACD values indicate of increasing upside momentum. Negative MACD values indicate that downside momentum is increasing.

Stochastic Oscillator Slow/Fast/Full

A stochastic oscillator is a momentum indicator that indicates the position of the closing price relative to the high-low range over some time period. For example, assume that the asset highest and lowest price over the past 14 days were

14-days high = 42

14-days low = 20

Last closing price = 38

Then the last closing price position in this period range of 42-20 = 22 is 18/22.

Therefore the stochastic oscillator = 18/22 = 0.82.

This is also referred to as the fast stochastic oscillator. Investors usually apply a moving average of the indicator which is referred to as “SLOW” a period of 3 is most common.

The term “stochastic” has nothing to do with random or stochastic process. They additionally apply a second moving average , quite often also of 3 periods, to smoothen the slow stochastic oscillator that is referred to as “FULL”. This process results in three lines that are used to identify position entry/exit.

Aroon 10/25

The Arron oscillator indicates the percentage difference between price-up days and price-down days over a specific period, say 10 days or 25 days. The closing price is usually used for calculation. For example, for 25-days period it is calculated as follows:

Aroon Oscillator = Aroon-Up  -  Aroon-Down

Where:

Aroon Up = 100 x (25 - Days Since 25-day High)/25 (percentage of price-up days)

Aroon Down = 100 x (25 - Days Since 25-day Low)/25 (percentage of price-down days)

On Balance Volume

On-balance volume is a volume-based momentum indicator that uses volume-flow to predict asset’s price moves. This indicator asserts that volume movement and price movement are linked. It is a rolling volume-accumulator over some period of time, say 10 days for example.  On-balance volume  sums the total daily volume (where each day’s volume is assigned either positive or negative sign) of the 10 days period.

If today's closing price is higher than the previous day’s closing price then volume is assigned positive and vice versa.

If today's closing price equals yesterday's closing price then the OBV is left unchanged.

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