Glossary
Here are some common terms that you will find throughout this website. They are listed here as a handy reference.
A/D – Advance/Decline - Advancing Declining Issues Another market momentum indicator using the advancing issues and the declining issues. It uses the difference between the two and is usually smoothed to give a good overbought oversold indictor. The calculation is to merely subtract the declining issues from the advancing ones.
Advance Decline Ratio - This is the ratio of advancing issues over declining issues. The ratio remains constant, only changes as the number of issues on the exchange change. It is best to use a moving average of this ration to smooth out the indicator so it can be used as an overbought and oversold indication.
EMA – and MA - Moving Average A moving average (MA) is an average of data for a certain number of time periods. It "moves" because for each calculation, we use the latest x number of time periods' data. By definition, a moving average lags the market. An exponentially smoothed moving average (EMA) gives greater weight to the more recent data, in an attempt to reduce the lag.
ER – Efficiency Rating - In Tango5 this is NC Alpha values. Nc Alpha is described above.
NC Alpha – Is a Volatility-Adjusted Performance Measure - Many mutual fund managers achieve above-market returns by the simple expedient of increasing the portfolio’s volatility. This is a poor way to achieve higher returns. There is no value-added to this approach when considering long or intermediate term holding periods since statistically, the amplified downside risk will eventually compensate for the amplified upside opportunity. The penalty for being on the wrong side of the market is proportionately enormous.
A better fund selection strategy is to pick fund managers that achieve above-market returns with less than proportional increase in portfolio volatility. A volatility-adjusted ranking system penalizes portfolio returns of funds with higher than market volatility.
The Sharpe Ratio is a very conservative measure of excess returns (over the cost of money) vs. absolute volatility.
In 1998, Werner Gansz developed a more aggressive volatility-adjusted performance measure called NCAlpha, which reduces the achieved daily returns of the fund by the returns of the relevant market index, amplified by the relative volatility of the fund to the market index. If a fund’s daily returns are twice as high as the index and its daily volatility is twice has high as the index, its volatility-adjusted return is zero. Since NCAlpha is based on relative volatility and is tied to a market index, high NCAlpha-ranked funds may be more volatile but achieve higher returns that those for the Sharpe Ratio.
This volatility adjusted performance measure is based on the verifiable idea that in a managed fund’s volatility (and especially its relative volatility vs. the target index) is a fund characteristic that is controllable by the manager and therefore is relatively consistent over time.
NASDAQ – National Association of Securities Dealers A Q
NASD – National Association of Securities Dealers
Standard Deviation (SD) - SD will vary with time. The SD is calculated day by day, but adjusted to a monthly basis. More information: Understanding Standard Deviation in the Fasttrack Charts.
RUTTR – and RUTVOL - The trend of small cap stocks is a measure of investor confidence. Small caps are the riskiest and least liquid segment of the market. When they are moving up with the broad market, investors are more confident that the general trend will continue. When the market is perceived by investors to be getting too risky, the small caps are the first to be sold since they are the least liquid holdings in an equity portfolio.
RUTTR - is a timing signal developed in 1998 that tracks the intermediate trend in small cap stocks using the Russell 2000 index. In 1999, RUTTR was modified to RUTVol by adding NASDAQ volume as an additional measure of confidence. RUTVol has demonstrated more versatility in dealing with both bull and bear markets. It underperforms RUTTR slightly in the pre-2000 bull market but outperforms it significantly during the recent (on-going?) bear market.
RS – Relative Strength
Stochastic – Stochastic Oscillator Developed by George Lane, the Stochastic Oscillator is a momentum indicator that measures the price of a security relative to the high/low range over a set period of time. The indicator oscillates between 0 and 100, with readings below 20 considered oversold and readings above 80 considered overbought. A 14-period Stochastic Oscillator reading of 30 would indicate that the current price was 30% above the lowest low of the last 14 days and 70% below the highest high. The Stochastic Oscillator can be used like any other oscillator by looking for overbought/oversold readings, positive/negative divergences and centerline crossovers.
RSI – Relative Strength Index - Relative Strength Index (RSI) A popular oscillator developed by Welles Wilder, Jr. and described in his self-published 1978 book "New Concepts in Technical Trading Systems." RSI is plotted on a vertical scale from 0 to 100. Values above 70 are considered overbought and values below 30, oversold. When prices are over 70 or below 30 and diverge from price action, a warning is given of a possible trend reversal.
Stochastic/RSI - StochRSI StochRSI is an oscillator used to identify overbought and oversold readings in RSI. Because RSI can go for extended periods without becoming overbought (above 70) or oversold (below 30), StochRSI provides an alternative means to identify these extremities. StochRSI is found by applying the Stochastics formula to RSI readings -- hence its name. As an indicator of RSI, it measures the value of RSI relative to its high/low range over a set number of periods. When RSI records a new low for the set period, StochRSI will be at 0. When RSI records a new high for the set period, StochRSI will be at 100. See ChartSchool article on StochRSI.
The Ulcer Index – UI – Ulcer Index - Developed by Peter G. Martin and Byron B. McCann and described in detail in their book, The Investor's Guide To Fidelity Funds in 1989, the Ulcer Index is a risk indicator and the index is a very good vehicle to measure it. Risk means many things to many people and it is the risk inherent in investing that has had most people sitting on the sidelines in the bear market that we have seen over the last few years. Peter Martin and Byron McCann, once stated, "the higher an investment's Ulcer Index, the more likely investing in it will cause ulcers or sleepless nights."