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Finance GlossaryPrice Action
Price Action
Definition of Price Action
Price action is the movement of the price of a security plotted over time. Traders who study price action make trading decisions based on the analysis of raw price movements, which often includes patterns, swings, and support/resistance levels rather than relying on traditional technical indicators. Price action analysis is the skill of interpreting the sentiments and activities of the market by reading candlesticks, bar charts, and volume data.
Related Terms
Future Trading
Futures trading is the buying and selling of futures contracts on a recognized exchange or over the counter. Futures contracts are derivatives that oblige a trader to buy or sell the underlying security at a predetermined price and date.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Trading futures is possible for equity shares, commodities, currencies, as well as interest rates. Those who trade futures are generally classified as speculators or hedgers.
Speculators trade futures to make a profit. Hedgers delve into futures trading to manage risk, which simply means protecting themselves from unfavorable movements in the market.
Net Worth
Net Worth represents the overall financial value of an individual or company after subtracting total liabilities from total assets. It shows the true financial position at a given point in time and is commonly used to assess financial strength and stability.
Accumulation/Distribution Indicator (A/D)
An Accumulation/Distribution Indicator is used to figure out the trend of a stock based on the relationship between the price and volume. There are two parts to the name Accumulation Distribution Indicator:
- Accumulation: Denotes demand or the buying levels of a particular stock
- Distribution: Denotes the supply or the selling levels of a particular stock
Long story short, A/D tells you whether a stock is facing buying or selling pressure. A rising A/D depicts an upward trend while a falling A/D depicts a downward trend.
Non-Cyclical Stocks
Non-Cyclical Stocks are shares of companies whose performance is relatively stable regardless of economic ups and downs. These businesses provide essential goods or services, so demand remains steady even during slow economic periods, making such stocks less volatile than cyclical stocks.
Pair Trading
Pair Trading is a market-neutral trading strategy that involves taking opposite positions in two highly correlated securities. The aim is to make a profit from the temporary difference in the prices. A trader may purchase the relatively underperforming stock (the 'long' position) and short-sell the relatively outperforming stock (the 'short' position) in the pair. The expectation is that the prices will eventually return to their historical mean relationship (convergence).
Beta Stocks
Beta of stocks measures the risk that the shares carry compared to the broader market. Theoretically, the market is said to have a default Beta of 1. As a result, Beta stocks can be of four types:
- High Beta Stocks : typically having a Beta value of more than 1, these stocks are known to be high-risk, high-reward investments
- Low Beta Stocks : typically having a Beta value of less than 1, these stocks are known to be low-risk, low-reward investments
- Negative Beta Stocks : typically having a Beta value of less than zero, these stocks are known to have an inverse correlation with the market
- Same as the market : typically having a Beta that’s equal to 1, these stocks are known to share characteristics with the market
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