Understand investment products, market mechanics, indicators and research terminology. Each entry includes an explanation, example, cautions and related learning.
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Bollinger Bands are a volatility envelope drawn around a moving average: a middle band, typically a 20-period simple moving average, with an upper and a lower band set a chosen number of standard deviations away, usually two. They were developed by John Bollinger.
A candlestick is a chart symbol that summarizes one period's opening, highest, lowest and closing prices. Its rectangular body spans the open to the close, and thin lines called wicks extend to the period's high and low.
A moving average is the average price over the most recent N periods, recalculated as each new period arrives so that the line smooths short-term noise. The simple moving average (SMA) weights every period equally, while the exponential moving average (EMA) weights recent prices more heavily.
MACD is a trend and momentum indicator, created by Gerald Appel, that subtracts a longer exponential moving average from a shorter one and compares the result with its own smoothed signal line. Its default form uses 12-, 26- and 9-period settings.
The Relative Strength Index is a momentum oscillator, developed by Welles Wilder, that compares the size of recent gains with recent losses and scales the result between 0 and 100. Its default setting uses 14 periods.
Support is a price zone where declines have repeatedly slowed or reversed, and resistance is a zone where advances have repeatedly stalled. Both are drawn from past turning points and describe where trading activity previously changed direction.