Trading Terminology

SMA (Simple Moving Average) 


SMA = Sum of closing price of the security for a number of time periods
                                                number of time periods

Short-term averages are quick to respond to the changes in the price of the underlying, while long-term averages react slow.

EMA (Exponential Moving Average)

EMA = (P * a) + (Previous EMA * (1 - a)) 

Where, 
P = Current Price
a =     2   
       1 + N
N = Number of Time Periods

MACD (Moving Average Convergence Divergence)

MACD = (12-day EMA) - (26-day EMA) 

A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

RSI (Relative Strength Index) 

RSI = 100 - 100/(1 + RS*)

*Where RS = Average of N days' up closes / Average of N days' down closes.

Resistance (Resistance Level)

A chart point or range that caps an increase in the level of a stock or index over a period of time. An area of resistance or resistance level indicates that the stock or index is finding it difficult to break through it, and may head lower in the near term. The more times that the stock or index has tried unsuccessfully to break through the resistance level, the more formidable that area of resistance becomes.

Support (Support Level)

The price level which, historically, a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock. 

Often referred to as the "support level".

Resistance and support levels are widely used by experienced traders to formulate trading strategies. For example, if a stock is approaching a very strong resistance level, a trader may prefer to close the position rather than take the risk of a significant decline if the stock uptrend reverses. 

Bullish Trend


Investors who believe that a stock price will increase over time are said to be bullish. Investors who buy calls are bullish on the underlying stock. That is, they believe that the stock price will rise and have paid for the right to purchase the stock at a specific price known as the exercise price or strike price. An investor who has sold puts is also considered to be bullish on the stock. The seller of a put has an obligation to buy the stock and, therefore, believes that the stock price will rise.

Bearish Trend


Investors who believe that a stock price will decline are said to be bearish. The seller of a call has an obligation to sell the stock to the purchaser at a specified price and believes that the stock price will fall and is therefore bearish. The buyer of a put wants the price to drop so that they may sell the stock at a higher price to the seller of the put contract. They are also considered to be bearish on the stock.