Call: An options agreement that gives a trader the right (although not the obligation) to buy a stock at a specific price within a specific time period.

Candlestick and/or Candlestick Chart: See Introduction to Candlestick Charts.

Capital Gain: The profit gained from the selling price exceeding the initial purchase price. A realized capital gain is a trade that has been closed for a profit. An unrealized capital gain is a trade that hasn’t been closed yet, but would still result in a profit if sold.

CBOE: The Chicago Board Options Exchange (CBOE). The largest options exchange in the US.

Chaikin Money Flow (CMF): An oscillator that assists in signaling when a stock may be undergoing accumulation or distribution. It is calculated from the daily readings of the Accumulation Distribution Line. The CMF is different from a momentum oscillator as it is not influenced by daily price action. Instead, the CMF focuses on the close relative to the range for the overall period (daily or weekly).

Chaikin Oscillator: A moving average of the Accumulation Distribution Line. Is formed by subtracting a 10 period exponential moving average of the accumulation/distribution line from a 3 period exponential average of it.

Channel: Price action trending between two parallel trendlines. A channel can trade sideways, up or down.

Channel Line: A straight line that is drawn parallel to the overall trendline. In a downtrend, the channel line is drawn below the lows, and slants down to the right. In an uptrend, the channel line slants up to the right and is drawn above the highs.

Commodities: Raw materials such as orange juice, oil, silver, gold, or pork bellies. Commodity traders buy and sell contracts (or futures) for such materials.

Commodity Channel Index (CCI): An indicator designed to identify cyclical turns in commodities. The CCI can also be applied to stocks or bonds.

Confirmation: An indication to the trader that validates their stance on a position. Traders/investors sometimes watch for more than one indication or require validation before applying action. As an example, a confirmation of a trend change might require a push past the recent high. For an indicator like the MACD, confirmation of a divergence might be a moving average crossover.

Continuation Pattern: A chart pattern which forms in the middle of an existing trend. This same trend then resumes once the pattern has completed.

Contango: A situation that is possible with any investment that is based on futures. The exact opposite of backwardation, “contango” is when the near-month futures are actually less expensive than those that expire later on. As a result, when the contract roll over occurs, it can easily result in you buying the ETF premium, and selling it lower.

Contrarian: An investment or trading strategy based on sentiment. Contrarians are typically bullish when sentiment is bearish, and are typically bearish when sentiment is bullish. The Put/Call Ratio is a common sentiment indicator used by contrarians.

Conviction: A firmly held belief or opinion (or) The quality of showing that one is firmly convinced of what one believes or says.

Correction: Also referred to as a retracement, a correction is a decline after a move up that does not penetrate the low from which the move began. Corrections usually retraces 33% to 66% of the previous move.

Cover: A term used to describe buying back borrowed shares that you have sold short through your broker. The closing a short trade.

Crossover: A point on a chart where two lines cross. Based on which lines they are, a crossover may indicate a buy or sell signal. As an example, the price line crossing above a moving average line may indicate a buy signal. Oscillators like the MACD and Chaikin Money Flow (CMF) also see centerline crossovers.

Cup and Handle: A bullish chart pattern that marks a consolidation period followed by a breakout. The “cup” resembles a rounding bottom, while the “handle” that follows acts as a final consolidation before a breakout.

Cycles: A price high or low that repeats itself at the same interval over time. Cycle theory asserts that cyclical forces, both long and short, drive price movement in the financial markets.

Cyclical Stocks: Companies that are very sensitive to economic performance. Cyclical stocks tend to perform well when the economy is growing, but suffer greatly when the economy contracts. Transportation (FDX Corp), Auto (GM), Chemical (Dupont), paper (International Paper), and steel (Nucor) are examples of a few cyclical industries.

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