Day Trading Terminology: Fundamental & Technical Analysis

Fundamental Analysis #

Fundamental Analysis is when a trader (or more often an investor), looks at the fundamental metrics of a company. This includes their Annual and Quarterly Earnings per share, Their Book Value (total value of company assets), the strength of their sector, and the potential for growth. This is a complex analysis based on many factors. In the end, a trader will have a long bias or a short bias on a stock.

Technical Analysis #

Technical Analysis, in contrast to fundamental analysis, does not focus on the fundamental metrics of a company, but instead, focuses solely on the price of the stock. Technical analysis requires a complex understanding of chart patterns and technical indicators. This is the type of trading most day traders will practice.

Line Charts #

Line charts are the most simple type of chart. These charts simply plot a line. This can give a good understanding of price action over long periods of time, but for shorter time periods it doesn’t provide necessary insight that traders require.

Bar Charts #

Like Line Charts, bar charts provide very little information that active trades will want. They show the open price and the close price for any given period, but that’s it. If the chart is a daily chart you will see that each bar represents a single day in time.

Candlestick Charts #

Candlestick charts are what most active day traders will use to help them establish a basis for taking a trade. A candle stick includes 4 pieces of information. The open price, the close price, the high of the period price, an the low of the period price. When these 4 pieces of information come together, candle sticks can take shapes that communicate market sentiment. For instance, a candle that opened at 10.00, had a high of 10.50, closed at 9.90, and had a low of 9.90, will appear very weak or bearish. The stock spiked up but was unable to hold those levels and sold off. A simple line chart or bar chart would have not been able to communicate the same meaning to us.

Doji Candle Sticks #

A doji candle stick has a long upper wick or lower wick. The wick refers to the high or low of day. The body of a doji is smaller than the candle win, meaning the open and close price were fairly close together. This candles are considered candles 0f indecision.

Hammer Candle #

A hammer candle occurs at the bottom of a long down trend and looks like a hammer. It has a long lower wick (like a doji), that forms the handle. The small body on the top is the hammer that swings down. This is considered a stock hammering out it’s base. That’s because the candle wick shows that even though the price dropped it surged back up quickly.

Inverted Hammer Candle #

An inverted hammer is an upside hammer that occurs at the top of a bullish run. Like the regular Hammer Formation, this candle shows the stock squeezed up but was unable to hold those high prices and sold off. Indicating a reversal may be in store.

Multiple Candle Stick Patterns #

When multiple candle sticks are lined up next to each other they can form patterns including Flat Top Breakouts, Bull Flags or Bear Flags.

Chart Time Frames #

Trades can choose to use a multitude of time frames. I personally use the 5min time frame and have found this one is the most commonly used among day traders. I also use the 1min time frame for quick entries, and the daily time frame to understand the overall history of a stock.

Gaps #

Gaps on a daily chart occur when a stock opens higher or lower, than it closed the previous day. This happens when there is news or some type of catalyst overnight.

Technical Indicators #

Technical indicators, or studies, help us interpret current price action. These lag slightly behind the price action, so Candle Stick Patterns will almost always be more valuable than technical indicators.

Moving Averages #

Moving averages are a technical indicator that tell us the average price of a stock over a period of time. They can be either Simple Moving Averages, or Exponential Moving Averages. An Exponential Moving Average weighs recent price action heavier than older price action. This means the moving average will move faster in response to recent moves.

Relative Strength Index #

Relative Strength Index (RSI), is an oscillating indicator that moves between 0 and 100. A stock with an RSI of 0 has been oversold and may be due for a bounce. A stock with an RSI of 100 is extremely overbought and may be due for a reversal. When combined with candle stick patterns this can be a helpful indicator.


Moving Average Convergence Divergence (MACD) indicator is another oscillating indicator. This measures the distance between moving averages. If the moving averages are moving apart a stock is moving quickly, if they are coming close together, a stock has changed directions and is returning to balance. If they are close together, the stock isn’t moving in much of any direction.

Bollinger Bands #

These are moving averages that are offset by a standard deviation. This means 95% of all price action will take place in between the top and bottom bands. Some traders look for stocks trading outside their Bollinger Bands as that indicates an extreme situation (5% status). The idea here is that these stocks are very extended and are due to reverse. In combination with RSI and candle stick patterns, this can help us find good stocks for reversal strategies.

Average True Range (ATR) #

The Average True Range is a trading term used to the measure the volatility of a stock or index and tells us the average price range a stock typically trades in.

Head and Shoulders #

The head and shoulder formation has three peaks where middle is highest and symbolizes the head while other peaks signify both right and left shoulders.

Cup and Handle #

The cup and handle strategy is a trading strategy that is based on a familiar pattern in technical analysis which looks like a cup and handle.

Flag & Pennant #

Pennant and flag pattern are chart formations that indicate a continuation in the trend for that time period especially if there is volume on the breakout.

Dead Cat Bounce #

In trading, dead cat bounce refers to a temporary recovery that happens after a long decline which is usually followed by a downtrend.

Death Cross #

Perhaps one of the scariest sounding terms on Wall Street is the “death cross” which is a name used when major moving averages cross paths.

Gravestone Doji #

The Gravestone Doji is formed when the opening and closing price trends for underlying assets are essentially equal, but also occur at the daily low end.

Fibonacci #

Fibonacci retracement is a technical analysis term referring to support or resistance areas that is used by both active and long-term traders.

Floor Pivots #

Floor trader pivots are one of the more popular pivot levels for active traders and are commonly used by floor traders in the trading pits.

Oscillators #

An oscillator is a technical indicator that is used to help determine overbought/sold conditions or to confirm the strength of a trend

Parabolic Indicator #

The parabolic indicator refers to a technical analysis strategy that utilizes trailing stop and reverse method in order to determine entry and exit points.


Volume Weighted Average Price, VWAP, is a trading tool calculated by taking the number of shares bought times the share price and dividing by total shares.

Simple Moving Average #

Simple Moving Average (SMA) is an average price calculation on the closing price of a security over a period of time and divided by the amount of periods.

Volume Profile #

The volume profile refers to an advanced charting study used to show trading activity where volume is displayed at prices instead of over a certain time.

Stochastic #

Stochastic Oscillator is a momentum indicator that helps to show the current location of a security closing price relative to its high/low range.

Alligator Indicator #

The Alligator Indicator was first introduced by Bill Williams in the 1990s with the idea that markets trend a small portion of the time while remaining in a sideways range for most of the time.

Unicorn #

A unicorn refers to a start-up company that has attained a $ 1 billion market value as valuated by either a private or public investment firm.

Triple Bottom #

The triple bottom pattern a bullish reversal pattern used to predict a bottom in a stock that has tested a support level three times.

Triple Top #

The triple top pattern can be described as a bearish reversal pattern used by traders and investors to predict a potential reversal in the current trend.

Simple Moving Average #

Simple Moving Average (SMA) is an average price calculation on the closing price of a security over a period of time and divided by the amount of periods.

Standard Deviation #

Standard deviation is a statistical measure that represents the rate of divergence from the mean in a data set and is used a lot in trading.

On Balance Volume #

On Balance Volume a momentum indicator that helps to measure the buying and selling pressure in a stock or any other financial security with volume.

Opening Range Breakout #

An opening range breakout is a fairly simple strategy that involves taking a position when a price breaks above or below the previous candle high or low.

Ichimoku Cloud #

The Ichimoku Cloud identifies support and resistance levels, gauges momentum, identifies the direction of trends and provides trading signals.

Keltner Channel #

The Keltner Channel is a technical indicator that shows a central line for a moving average and channel lines below and above.

Gap and Go #

Gap and Go strategy is a momentum based day trading strategy which involves a gapping stock that continues in that direction with strong volume at the open.

Channel Pattern #

Channel Pattern is described as a price movement which utilizes support and resistance to form a channel where prices will remain for long periods of time.

Average Directional Index (ADX) #

Average Directional Index is a technical indicator that is used to signify the strength of a trend and works best when a stock is trending.

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