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filter rule

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Financial Dictionary

Filter Rule

Rules that attempt to guide investors towards buying and selling patterns that will be the most profitable.

Investopedia Commentary

Filter rules are created from analyzing the historical price trends of a security.

Evidence has suggested that filter rules are rarely successful in creating profits for the investor.

See also: Back Testing, Technical Analysis, Trend, Trend Analysis

Investopedia.com. Copyright © 1999-2005 - All rights reserved. Owned and Operated by Investopedia Inc.
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Financial Dictionary

filter rule

A technical trading rule in which an investor buys and sells stocks if their price movement reverses direction by a minimally acceptable percentage. For example, a technician may decide on a filter of 10%. If a stock being followed by the technician subsequently reverses a downtrend and rises by 10% from its low price, the filter rule indicates that the stock should be bought. A 10% decline from a high price indicates that a stock should be sold or sold short. The size of the filter is determined by the technician. The filter rule is supposed to permit an investor to participate in a security's major price trends without being misled by small fluctuations.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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