Daily Range
The difference between the high price and the low price during one day’s trading.
Dark Cloud and Piercing Line
(Candlestick Reversal Pattern)
The Piercing Line is a bullish reversal in a downtrend. During this trend a long black day develops following which price opens below the low of the black day and rallies to form a long white day. The close of the white day will be below the close of the black day but above the mid point.
The pattern suggests that the underlying bearishness may be overdone and a further move higher to breach the high of the white day will confirm further gains.
A Dark Cloud is the opposite of the Piercing Line. During an uptrend a long white day develops. The following day’s open will be above the high of the white day and price then declines in a long black day to close above the white day’s close but below the mid price.
The pattern suggests that the underlying bullishness may be overdone and a further move lower to breach the low of the black day will confirm further losses.
Day Trading
Trading positions are squared up by the end of the trading day. No positions are carried overnight.
Dead Cross
A Dead Cross is created when shorter moving average crosses below a longer moving average. This is generally considered a bearish signal.
Dealer
An individual or FX brokerage firm that risks its own capital, offering buy and sell quotes in a currency market. One that consistently makes two-way prices, providing both bids and offers.
Dealing Rates (Trade Entry)
The section on a trading screen that shows prices at which you can buy and sell currencies.
Debit Spread
Buying one option and selling another option, creating a spread position where the value of the long position exceeds the value of the short position.
Delta
The percentage amount by which the price of an option changes for every dollar move in the underlying instrument.
Derivatives
An over-the-counter (OTC) or exchange-traded financial contract whose value depends on the value of the underlying instrument. Some examples are futures contracts, stock options, equity indexes, and mortgage backed securities, and OTC Forex options.
Descending Triangle
A pattern of corrective trading that develops between two converging lines where the support line is horizontal and the resistance line is declining. This pattern is generally described as a continuation pattern but can also be a reversal pattern.
Detrend
The removal of the underlying trend in price. One method of detrending prices is to subtract price from its average and represent the result around a zero line.
Devaluation
When a Central Bank abandons the pegging of its currency to a fixed rate of exchange, resulting in a significant drop in its currency’s value (example: Argentine Peso 2002). Also used when a government actively promotes a dramatic decline in its country’s exchange rate (example: Japanese Yen 2001-2002).
Diagonal Triangle
(Elliott Wave)
This is a five-wave pattern in which the waves are constructed of three waves. The pattern emerges normally between two rising (or falling) converging lines, though they can be parallel. It is most commonly found in wave 5 positions, but can also occur in wave A or wave C. In classic technical analysis it is called a wedge.
Diffusion Index
A measurement of the percentage of individual cases that are positive when compared with the aggregate group. For example, the number of stocks within the S&P 500 that are above their 200 day moving average.
Divergence
Occurs when an oscillator line and prices move in opposite directions providing early warning of a possible trend reversal.
A Bullish Divergence is identified when price declines make new lows while the underlying momentum indicator (eg RSI or Stochastics) does not make new lows.
A Bearish Divergence is identified when price rallies make new highs while the underlying momentum indicator (eg RSI or Stochastics) does not make new highs.
The implication of momentum and price making divergences is important. It implies that the movement in price in one direction is slowing and highlights the risk for reversal. Divergence commonly occurs after a trend and therefore highlights potential for the trend to complete or reverse. It is important to ensure that other analysis confirms the possibility of a reversal.
Doji
(Candlestick)
A Doji occurs when the open and close are the same value (or very close). The length of the shadow is not important and interpretation will depend on the position and length of the shadows. They can occur at market reversals since they indicate a balance of buyers and sellers. (Indecision of buyers in an up trend, of sellers in a downtrend). By themselves single bars do not necessarily provide any indications but will contribute to a group that represent a candlestick pattern.
Doji Stars - Morning and Evening
(Candlestick Reversal Pattern)
The Morning Doji Star is a reversal in a downtrend. During a downtrend a long black day is formed. The next day is a short day with the open having gapped lower below the low of the black day but which also closes around the same level as the open. The next day price gaps open once again, but to above the high of the Doji Star and forms a white day.
The long black day in the downtrend fuels the underlying bearish sentiment. However, this is not continued on the day of the Doji Star and the gap higher again leaves many traders short and causes squaring of those positions.
The Evening Doji Star is a reversal in an uptrend. During an uptrend a long white day is formed. The next day is a short day with the open having gapped higher above the high of the white day but which also closes around the same level as the open. The next day price gaps open once again, but to below the low of the Doji Star and forms a black day.
The long white day in the downtrend fuels the underlying bullish sentiment. However, this is not continued on the day of the Doji Star and the gap lower again leaves many traders long and causes squaring of those positions.
Doji Star Up and Down
(Candlestick Reversal Patterns)
The Doji Star may be both bullish and bearish reversals. In a Bullish Doji Star a long black day develops in a downtrend. This is followed by a Doji Star that opens below the low of the black day and closes at, or around, the level of the open. The shadows of the star should not be long.
The fact that a Doji Star occurs in a downtrend signifies that the bearish sentiment is becoming weaker with traders uncertain of committing to a short position. A subsequent open above the high of the star would cause further short covering.In a Bearish Doji Star a long white day develops in an uptrend. This is followed by a Doji Star that opens above the high of the white day and closes at, or around, the level of the open. The shadows of the star should not be long.
The fact that a Doji Star occurs in an uptrend signifies that the bullish sentiment is becoming weaker with traders uncertain of committing to a long position. A subsequent open below the low of the star would cause further long covering.
Dollar Risk Stop
Also referred to as a money management stop. It exits a trade at a pre-determined monetary loss.
Double Bottom
The opposite of a double top. When price declines once to a level then rebounds, and over a period of time once again declines to the same approximate level then rallies above the peak between the two troughs a double bottom is confirmed at the two equal price lows. This can be likened to the shape of a ‘W’. A target can be generated by measuring the distance from the lows to the peak and projecting this value upwards from the intervening peak.
Double-Smoothed
A price series that has been smoothed first by a mathematical algorithm such as an exponential moving average and then the output of the first smoothing is then smoothed a second time by a similar method.
Double Top
The opposite of a double bottom. When price rallies once to a level then rebounds, and over a period of time once again rallies to the same approximate level then declines below the trough between the two peaks a double top is confirmed at the two equal price highs. This can be likened to the shape of an ‘M’. A target can be generated by measuring the distance from the highs to the trough and projecting this value downwards from the intervening trough.
Double Zig-zag
(Elliott Wave)
This is an extended correction in which two ABC patterns occur with a Wave X separating them.
Dow Theory
Originated by Charles Dow, describes the action of price trends. Dow Theory is used by technical analysts to chart the direction of market prices.
Downtrend
Price movement characterized by a series of lower price highs and lower price lows.
Downtrend Line
Needs at least two descending price highs with a third for confirmation of the trendline.
Drawdown
The reduction in the equity of an account as a result of a losing trade or series of losing trades.