Glossary

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D

Descending triangle: Generally a bearish continuation price pattern, a descending triangle is plotted by two converging trendlines in a sideways trading range where the lower line is flat or horizontal and the upper line is declining.

 

Detrended Price Oscillator: This is a tool that is used to smooth the trend in prices in order to more easily identify cycles and overbought/oversold situations.

 

Directional Movement Indicator (DMI): Developed by J. Welles Wilder, DMI consists of a positive directional index (+DI) and negative direction index (-DI). DMI suggests bullishness as long as +DI is above –DI. Conversely, when –DI is above +DI, DMI suggests bearishness.

 

Divergence: Divergence refers to the occasion where multiple market factors and/or technical indicators are not in agreement with one another. Divergence usually is an early indication of a potential trend reversal.

 

Donchian Channels: A trend following breakout system developed by Richard Donchian where it uses the highest high and the lowest low over the last period. A buy signal is given when the price closes above the Donchian Channel whereas a sell signal is given when the price close below the Donchian Channel.

 

Donchian Channels Width: Measures the width of the Donchian Channels.

 

Double bottom: A bullish trend reversal pattern formed by a decline in the price of the security followed by a rally before a second drop that would trough at the same level as the previous trough and finally it would begin to rally again and this time the price would raise above the middle peak and thereby completing the double bottom pattern.

 

Double top: A bearish trend reversal pattern formed by a rise in the price of the security followed by a decline before a second rally that would peak at the same level as the previous peak and finally only to decline again and this time the price would drop below the middle trough and thereby completing the double top pattern.

 

Dow Theory: Developed by Charles Dow, the Dow Theory is acknowledged as one of the oldest and most highly regarded technical theories. The Dow Theory suggests the market is in an upward trend when both the Dow Industrial and Dow Transportation Averages close above their prior rally peak. Conversely, the theory suggests the market is in a downtrend when both the Dow Industrial and Dow Transportation Averages close below their prior reaction low.

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