4050 Portfolio Management Final Exam Flashcards
1902 - Charles Dow suggests ___________________________.
using stock prices to forecast business conditions.
1922 - William Hamilton extend’s Dow’s theory and suggests that ______________________.
stock prices can be used to forecast the stock market.
1932 Robert Rhea extended Dow’s theory and suggests that ____________.
Stock prices can be used to forecast stock prices.
Essay: Explain the evolution of technical analysis using dates, names and suggestions.
What does Dow Theory state?
There are three types of movements present in the market
- Major or primary trends
- Intermediate or secondary trends
- Minor or short run trends
How long does a major or primary trend last under Dow Theory?
May last several years
How long does an intermediate or secondary trend last under Dow Theory?
May last several months
How long does a minor or short run trend last under Dow Theory?
May last several weeks
Essay: Explain what Dow Theory states and the types of trends observed under it.
What is a support level according to Dow Theorists?
The support level is the price level that investors will begin to buy the stock creating a surge in demand and a rise in price.
What is a resistance level according to Dow Theorists?
The resistance level is the price level that investors will begin to sell the stock creating a surge in supply and a fall in price.
In the near term, where do Dow Theorists expect the price of a stock to stay?
Between the support level and resistance level.
Essay: Explain support and resistance levels in words.
Essay: Explain support and resistance levels using an illustration.
What is an up trendline?
An up trendline is a line drawn up and to the right connecting successive rising market bottoms.
What is a down trendline?
A down trendline is a line drawn down and to the right connecting successive falling market peaks.
What is required to draw a trendline versus validate or test a trendline?
A third point is necessary to validate or test a trendline.
Draw an example of an up trendline.
Drawn an example of a down trendline.
Essay Question:
A) Explain what an up or down trendline is.
B) What is necessary to draw versus validate or test a trendline?
C) Explain trendline testing, validation and violation
D) Explain channel lines
E) What happens when a channel line is violated?
F) Illustrate an up and down trendline include labels of
- Direction
- Support / Resistance
- Test, Validation, Violation
A) An up trendline is a line drawn up and to the right connecting successive rising market bottoms.
A down trendline is a line drawn down and to the right connecting successive falling market peaks.
B) While it may take two points to draw a trendline, a third point is necessary to validate or test a trendline.
C)
Everytime a trend line is touched it is said to be”tested.”
If it is touched and it bounces off it is said to be “validated.” The more times a trendline is tested and validated, the more significant it becomes.
If the trendline is touched and goes through it is said to be “violated. Once a trendline is violated it is redrawn with new peaks or troughs.
D) Channel lines are drawn parallel to trendlines but away from the price action. If the market was trending up,the channel line would be drawn above the up trendline, and represents the resistance level. If the market was trending down, the channel line would be drawn below the down trendline, and represent the support level.
D) If a channel line is violated, the chartist has the option of moving the channel line further away from the trendline, or redrawing both the trendline and channel line once two new peaks or troughs have been established.
What does it mean for a trendline to be tested?
Every time a trendline is touched it is said to be “tested”
If a trendline is touched and it bounces off it is said to be _________.
validated
The more times a trendline is tested and validated, the more _____________.
significant it becomes.
If a trendline is touched and goes through it it is said to be _________.
Violated