Overbought: A technical analysis term for a market in which more and stronger buying has occurred than justified by fundamentals.

Oversold: A technical analysis term for a market in which more and stronger selling has occurred than the fundamentals justify. Oversold happens when commodity prices have declined too steeply and quickly.

Pivot points: It is defined as the average of the high, low and settlement price, and is plotted as the green line across the chart. A resistance line is plotted above the pivot point and is defined as twice the pivot point minus the low price. The support line is plotted below the pivot point and is defined as twice the pivot point minus the high price. Pivot points are used primarily as support and resistance levels with the pivot point the best support resistance level.

Price patterns: These are formations that appear on commodity charts which have shown to have a certain degree of predictive value. Some of the most common patterns include: Head & Shoulders (bearish), Inverse Head & Shoulders (bullish), Double Top (bearish), Double Bottom (bullish), Triangles, Flags and Pennants (can be bullish or bearish depending on the prevailing trend).

Resistance: The price a stock can trade at, but not go higher than over a period of time. It is a level where a security's price stops rising and moves sideways or downward. It indicates an abundance of supply. Because of this, the stock may have difficulty rising above this level.

Stop loss order: An order placed to sell a security when it reaches a certain price. A stop loss order is designed to limit an investor's loss on a security position.

Stop and reverse: A stop that, when hit, is a signal to close the current position and open an opposite position. A trader holding a long position would sell that position and then go short on the same security.

Short covering: Purchasing securities to close an open short position. This is done by buying the same type and number of securities that were sold short. Most often, traders cover their shorts whenever they speculate that the securities will rise.

Support: It is the place on a chart where the buying of futures contracts is sufficient to halt a price decline. In other words, it is a price level at which declining prices stop falling and move sideways or upward. It is a price level where there is sufficient demand to stop the price from falling.

Volume spike: An unusually large volume, graphed on a bar chart as a spike. To locate volume spikes, you need to compare a single day's volume to average volume. If one day's volume is two to three times the average volume, it will appear as a spike. Unusually large volume often foreshadows a major change in price trend.

(Source: Jaypee Capital Services)

(This article was published in the Business Line print edition dated July 18, 2010)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.