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Finance GlossaryAbc Wave Theory
Abc Wave Theory
Definition of Abc Wave Theory
Abc Wave Theory or Elliot Wave Theory is used to determine the direction of the stock market by identifying recurring waves or patterns over the long term. The theory is named after Ralph Nelson Elliott.
5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.
5 Motive or Impulse Waves are formed if the movement is in the direction of the trend. 3 Corrective Waves are formed if the movement is against the direction of the trend.
Related Terms
Beta Coefficient
Beta coefficient is used to measure the volatility of stocks in relation to changes in the market. Basically, Beta helps investors understand the risks associated with a stock compared to the market.
The formula to calculate the Beta coefficient is:
Beta (β) = Covariance (Ri, Rm) / Variance (Rm)
Where:
The formula to calculate the Beta coefficient is:
Beta (β) = Covariance (Ri, Rm) / Variance (Rm)
Where:
- Ri = a stock's return
- Rm = overall market's return
- Covariance = ups & downs of stock returns versus ups & downs of market returns
- Variance = the difference between market returns and its average
Generally, Beta values are of four types:
- Beta < 1.0: stock less volatile than the market
- Beta = 1.0: stock just as volatile as the market
- Beta > 1.0: stock more volatile than the market
- Negative Beta: stock shares inverse relation with the market
Nifty 50
Nifty 50 is a key stock market index made of the 50 largest companies by market cap listed on the National Stock Exchange (NSE) in India. It serves as an indicator of overall market movement and helps investors understand how the broader Indian equity market is performing.
Average True Range Atr
The Average True Range (ATR) is a technical indicator used to measure market volatility, typically using the average of true ranges from 14 periods that can be daily, weekly, monthly, or even intraday values.
The formula for ATR is:
ATR = Previous ATR (n - 1) + True Rangen / n
n= number of periods
True Range = The greater/highest of these:
The formula for ATR is:
ATR = Previous ATR (n - 1) + True Rangen / n
n= number of periods
True Range = The greater/highest of these:
- High - low (Day 1)
- Absolute value of (Day 1’s high - Day 0’s close)
- Absolute value of (Day 1’s low - Day 0’s close)
Carrying Charge
Carrying charge or cost of carry is the money involved in the upkeep or general holding of an asset or financial instrument. Examples of carrying charges include maintenance costs, insurance, and others.
A carrying charge can increase the cost of owning an asset. At times, the cost of carry may exceed the potential returns, in which case an investor must evaluate whether the asset is worth keeping.
A carrying charge can increase the cost of owning an asset. At times, the cost of carry may exceed the potential returns, in which case an investor must evaluate whether the asset is worth keeping.
Zero-Coupon Bond
A zero-coupon bond is a debt instrument that does not pay periodic interest but is issued at a deep discount to its face value. Investors earn returns when the bond matures at full value, such as purchasing a ₹1,000 bond for ₹700 and receiving ₹1,000 at maturity.
Swap
A swap is a financial agreement between two parties. They exchange cash flows or liabilities, mostly to manage risk. Common examples of swaps include currency swaps or interest rate swaps. For instance, one party may swap a fixed interest payment for a floating one to hedge against changes in interest rates. A swap helps both parties involved manage exposure and optimize financing costs.
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