This is a trading tactic in which a trader will trade based on strong resistance and support levels; entering long positions when the security bounces off the support, and going short when the security trades down from resistance. The idea is that the Support & Resistance levels create the range which a security can and will be trading. Range bound trading can also be used simply to describe the manner in which a stock trades.

This indicator compares recent stock gains to recent stock losses over a certain trading period and converts this observation into a fraction 0 and 100. The calculation is:

RSI= 100- 100/1 + RS

Average Gain= (Total Gains/n)

Average Loss= (Total Losses/n)

RS= (Average Gain/Average Loss)

Where n is the number of periods, typically 14.

Technicians use the RSI to signal for overbought and oversold levels, with 70 being overbought, and 30 being oversold. Divergences in the RSI can also be used to generate signals- an example could be an RSI failing to make new highs while the stock continues to climb higher. This divergence diminishes the strength of the stock’s upward move and could indicate an “extended” security. We use the word could because as with all indicators, the RSI needs to be used in conjunction with other data points to properly evaluate investment decisions.

The price level on a chart where the security finds sellers. The security may be ticking upward, but when the security reaches resistance, sellers come into the market and outnumber the buyers. Resistance levels can stay in tact for extended periods of time and the more times a security tests its resistance level (see the points below) through, the stronger the breakout when the security does indeed trade past this point.

This technical term occurs when a security breaks a trend and turns the other way. This is usually found once a security has been in an established uptrend with support; the reversal begins once the security breaks the support and begins a downtrend.

Often times a stock in high demand will gap up due to increased awareness or enthusiasm. This can result from an earnings announcement or news event and is accompanied with high volume. This is not a change of trend, but rather a continuation of the trend in place.

The Russell 2000 Index is a market capitalization weighted index comprised of the smallest 2,000 companies in the Russell 3000 index and is considered the premier measure of small cap stocks in the U.S. equity markets.

Statistical derivative which is designed to measure correlation between two asset classes. The range in value of R^2 is between +1 and -1. A value of 1 signifies the asset classes move in perfect harmony, whereas a value of -1 means the securities move perfectly opposite in direction. Lastly, no correlation exists when the value of R^2 is equal to 0.