P1:a/b P2:c/d QC:e/f T1:g
gloss JWBK182-McDowell April 25, 2008 16:35 Printer: Yet to come
Glossary 19755 percent retracement would indicate a price decline equal to 55 percent of the
prior advance.
return on investment (ROI) Book income as a proportion of net book value.
reward-to-risk ratio The average winning trade divided by the size of the average
losing trade. This formula will enable you to determine the estimated potential loss
or gain of future transactions. Provided that you have more winners than losers, a
ratio of three is excellent.
right brain The human brain is divided into two hemispheres, the left and right,
each of which is responsible for specific functions in human behavior and exis-
tence. The right brain is considered to be primarily responsible for feelings, emo-
tions, and creativity. The right brain tends to think in pictures as opposed to words
and is able to look at the big picture as opposed to minute detail. Those of us that
are more creative tend to be considered right-brain thinkers.
right side of the chart When trading the live market, the right side of the chart
is the unknown. Hindsight is 20/20, and when in the live market there is always
uncertainty as to where the market actually will go.
risk The chance of being wrong about an investment or trade.
risk control See money management.
ROI Seereturn on investment.
RSI Seerelative strength indicator.
Russell 2000 index A capitalization-weighted index designed to track the perfor-
mance of the 2000 smallest U.S. stocks included in the Russell 3000 Index.
Russell 3000 index A capitalization-weighted index designed to track the perfor-
mance of the 3000 larges and most liquid U.S. stocks.
S&P SeeStandard & Poors.
S&P 500 Composite Stock Price Index A capitalization-weighted index de-
signed to track the performance of the 500 stocks of the S&P 500. Stocks are
included in the index based on their liquidity, market cap, and sector. While
not necessarily the 500 largest U.S. companies, these are generally the 500 most
widely held.
S&P e-mini Often abbreviated to e-mini and designated by the commodity ticker
symbol ES, a stock market index futures contract traded on the Chicago Mercantile
Exchange’s Globex electronic trading platform.
SAR Seestop and reverse.
scaling in Refers to adding onto your current trade position to increase yourtrade
size.Onlyscale inif the trade or investment is already profitable.
scaling out Exiting 30 percent of your position when your trading rules tell you
to. This is a technique that is effective in reducing stress and locking in profit.