3. Fundamental & Technical Analysis

Question 0

Does fundamental analysis use qualitative or qualitative factors?

Answer 0

Both -

Quant such as numerical results of the analysis of a company & the market it operates in

Qual such as the quality of the company’s management, the value of its brand and areas such as patents and proprietary technology.

Question 1

What is fundamental analysis?

Answer 1

Fundamental analysis involves the financial analysis of a company’s published accounts, along with a study of its management and competitive position. It is a technique that is used to determine the value of a security by focusing on the underlying factors that affect a company’s business.

Question 2

What is the assumption behind fundamental analysis?m

Answer 2

The market does not always value securities correctly in the short term but that by identifying the intrinsic value of a company, securities can be bought at a discount and the investment will pay off over time once the market realises the fundamental value of the company.

Question 3

What is technical analysis?

Answer 3

Technical analysis seeks to evaluate a company by using historical price and volume data to assess where the price of a security or market will move in the future.

Question 4

What are the assumptions underlying technical analysis?

Answer 4

The market discounts everything
Prices move in trends
History tends to repeat itself

Question 5

What are indicators?

Answer 5

Indicators are calculations that are used to confirm a price movement and to form buy and sell signals.

Question 6

What are oscillators?

Answer 6

Oscillators are another type of calculation that indicates whether a security is over-bought or over-sold.

Question 7

What are primary movements?

Answer 7

Long term price trends, which can last a number of years. Primary movements in the broader market are know as bull (rising markets) and bear (falling market) markets.

Question 8

What are secondary movements?

Answer 8

These make up the primary movements and are the smaller movements, each of which can last for up to a couple of months, and are comprised from a number of tertiary or day-to-day movements.

Question 9

What are line charts?

Answer 9

This is when the price of an asset or security, over time, is simply plotted using a single line. Each point on the line represents a security’s closing price.

Question 10

What are point and figure charts?

Answer 10

These record significant price movements in vertical columns by using a series of Xs to denote significant up moves and Os to represent significant down move, without employing a uniform timescale.

Question 11

What are bar charts?

Answer 11

These join the highest and lowest price levels attained by a security over a specified time period by a vertical line.

Question 12

What are channel lines?

Answer 12

Two parallel lines added to indicate the areas of support and resistance which respectively connect the series of lows and highs.

Question 13

Name the two types of breakouts

Answer 13

Is a support level is broken this provides a sell signal

If a resistance level is broken this provides a buying opportunity

Question 14

Name three breakout patterns

Answer 14

Triangle
Rectangle
Flag

Question 15

When does a head and shoulders reversal pattern arise?

Answer 15

A head and shoulders reversal pattern arises when a price movement causes the right shoulder to breach the neckline, the support level, indicating the prospect of a sustained fall in the price of the security.