Glossary

Stops:

End of Day
A "mental" stop order instructing you to close out the trade if stock is trading through stop price near the end of the trading day (close of trading for stocks is usually 4:00 p.m. Eastern Time). Example: You short 100 shares of stock at $50 with the instructions to place an end-of-day stop at $52. If the stock is trading at or above $52 near the close of trading, you should then buy the 100 shares back to close the position.

On Close Hourly Basis (also called "60-minute bar")
A "mental" stop order similar to the end-of-day stop except that you look at the close on an hourly basis. Example: Short 100 shares of stock at $50 with the instructions to place a stop of $52 on close hourly basis. At the end of each hour from that point forward, if the stock were trading at $52 or above, you would close out the trade.

30-Minute Bar
Same as the 60-minute bar but viewed at 30-minute intervals.

Initial Stop
This is the stop price set at the initial trade. Example: Buy 100 shares at $50 with a stop of $47. In this example, $47 is the initial stop.

Trailing Stop
This is a fairly new innovation and available at only a few brokerage firms. A trailing stop "follows" your stop price if the stock moves in the desired direction. Example: You buy a stock and place a trailing stop at two points below closing price. If the stock closes at $100, your stop is $98. If the stock climbs to $105 the next day, your new stop is $103. Trailing stops can also be set on a percentage basis such as "3% below closing price" rather than a fixed dollar amount. If your brokerage firm does not accept trailing stops, you can still use trailing on a mental basis.

How to Place a Stop With Your Broker or Online
When placing stops with your broker or online, you need to specify whether you want a regular stop or a stop limit order.

Stop Order will execute if the stock trades at or through the stop price. Example: Buy 100 shares at $50 and place a stop at $48. If the stock trades at $48 or below, the order becomes a live "market" order, and the stock is sold at the prevailing price. The instructions you would give your broker, in this example, are "Sell 100 shares at a stop price of $48."

If you were short the shares you would say something like, "Buy 100 shares at a stop price of $52." If the stock trades at $52 or higher, the order will execute at prevailing prices.

Stop Limit orders use two prices. The first is a stop price (the price at which the order is activated) and the second is the stop limit (the price, or better, you must get in order for the trade to execute). Example: Buy 100 shares at $50 and place a stop at $48 with a stop limit at $47.50. If the stock trades at $48 or below (the stop price), the order becomes a live "limit" order of $47.50 and will only fill if the broker can get that price or higher. The instructions you would give your broker, in this example, are "Sell 100 shares at a stop price of $48 with a stop limit of $47.50."

For sell stop limits, the stop limit price may less than or equal to the stop price (but not greater).

If you are short the shares you may say something like, "Buy 100 shares at a stop price of $52 with a stop limit of $53. On a buy stop, the stop limit price must be greater than or equal to the stop price (but not less than).

Note: Neither stop orders nor stop limits are guaranteed to prevent losses.

Intra-day
This just means "within" the day. For example, we may say, "If the stock trades at $45 intra-day, we are expecting a reversal."

VXN
This is the symbol for the "volatility index" for the Nasdaq 100, which is mostly tech-based stocks. The VXN is calculated by taking the weighted average of four calls and four puts (each with two in-the-money and two out-of- the-money) with an average maturity of 30 days. It is calculated every 60 seconds. The idea is to provide traders with a sense of the volatility of tech stocks, and as such it is a great gauge of market sentiment.

Inverse Performance
Refers to any class of assets that rise in value as the underlying stock or index falls. Likewise, they also fall in value if the underlying should rise. For example there are S&P 500 "bear mutual funds" that go up in value as the S&P 500 index falls. Put options are also another inverse performing asset.

NAV
A term associated with mutual funds, which stands for Net Asset Value. It is essentially the closing price of the mutual fund and is found by taking all the assets held by the fund, subtracting out the liabilities and dividing by the number of shares outstanding. The NAVs are calculated daily by mutual funds, usually after the close of trading, and are required by the SEC (Securities Exchange Commission). Note: It is not required for closed-end funds.

Deterioration
A situation occurring when the technical trading indicators are breaking down and becoming bearish. The opposite is strengthening.

Strengthening
A situation occurring when the technical trading indicators are gaining strength and becoming bullish. The opposite is deteriorating.

Buy Confidence Index
A proprietary measure of sentiment developed by Phil Erlanger, which "normalizes" the VIX and places it on a relative scale. This index is used to gauge confidence in entering long positions. Maximum "buy confidence" would be a reading of 100%. Since this is a true contrary indicator, these maximum buy signals would coincide with extremes of pessimism and fear in the markets.

Sell Confidence Index
The exact inverse of "buy confidence" (see above). Example: If buy confidence is 20%, then sell confidence is 80%. Maximum sell confidence is 100%. Since this is a contrary indicator, a maximum sell signal would coincide with extremes of euphoria and bullishness in the markets.

DMA (Displaced Moving Average)
A type of moving average that is pushed forward or backward by a certain number of periods, with the intent of filtering out "noise" in price movement. This is a favorite tool of Phil Erlanger.

Erlanger Trading Rank (ETR)
A normalized, composite measure of equity options trading that is stock specific. The higher the ETR, the greater the "activity" of puts versus calls. The lower the ETR, the more the calls dominate the action. Therefore, the higher the ETR, the greater the negative expectations are on the part of options traders. The lower the ETR, the greater the positive expectations are on the part of options traders. At extremes, contrary opinion suggests looking for a contrary trend change.

Erlanger Power Rank
The Power Rank is one number that combines our Technical Rank and our Short Intensity Rank. We have found it helpful to use these components to categorize stocks into four possible types.

Type 1.) Short Squeeze: Strong Technical with Heavy Shorting (Buy)
Type 2.) Recognized Strength: Strong Technical with Light Shorting (Hold)
Type 3.) Shorts Are Right: Weak Technical with Heavy Shorting (Sell)
Type 4.) Long Squeeze: Weak Technical with Light Shorting (Short)

Erlanger Technical Rank
A proprietary, stock-specific measure of relative strength developed by Phil Erlanger. The technical rank uses non-linear pattern recognition to determine whether a stock is stronger or weaker than the S&P 500. A high tech ranking -- between 60 and 100 -- indicates a stock is stronger than the overall market. A weak tech ranking -- between 40 and 10 -- indicates a stock is weaker than the overall market. 100 is the strongest tech ranking; 10 is the weakest.

Squeeze Play
A trading strategy that focuses on buying stocks with a relatively high amount of short interest, where the stock is moving against the expectations of the crowd. The goal is to directly benefit from a "short squeeze" or a "long squeeze." A short squeeze is a sudden rise in the stock's price due to short covering. A long squeeze is a sudden drop in the stock's price due to a lack of appreciable short interest.

Put/Call Ratio
A contrarian indicator that gauges the activity in the options market. If the ratio of puts to calls is too high, then that indicates that bearish expectations have reached extremes, and a rally is likely to occur.

Call/Put Ratio

A contrarian indicator that gauges the activity in the options market. If the ratio of calls to puts is too high, then that indicates that bullish expectations have reached extremes, and a downside reversal is likely to occur.