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Technicals

Characteristic line

One important term in finance is the Characteristic Line, which is the regression line derived from regression analysis. This line showcases the estimated linear relationship between the dependent variable, the factor we aim to explain, and the independent variable, the factor we use to explain it.

For instance, if we want to explain IBM's return by using the Dow Jones Industrial Index, we can represent this relationship through a linear equation: RIBM = a + bRDow Jones. The line with an intercept of a and a slope of b is known as the characteristic equation.

Three Percent Rule

When determining the validity of a breakout or breakdown, it is common practice to use the 3% rule. This means that the price should move at least 3% above or below the desi...

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stochastic–random

Futures prices, according to believers of the efficient market hypothesis, follow a stochastic process, meaning they move in a random manner. This theory suggests that all a...

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Continuation Pattern

A correction, in the realm of finance, refers to a temporary interruption in a market's upward or downward trend. This phenomenon often serves as a precursor to a continuati...

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Relative Strength

As we delve into the world of finance, it is important to understand the concept of relative strength. This refers to the comparison of a stock or group of stocks against a ...

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