Ch 6 - Technical Analysis Flashcards
Technical analysis is based on three assumptions:
1- all known market influences are fully reflected in market prices.
2- Prices move in trends that tend to persist for relatively long periods of time
3- The future can be found in the past.
Technical analysis incorporates four types of Analysis:
- Chart analysis
- Statistical analysis
- Sentiment analysis
- Intermarket analysis
Getting whipsawed means
taking a position in anticipation of the market moving in a certain direction, only to have it reverse and go in the opposite direction.
What is an oscillator?
an indicator that fluctuates between two values
momentum oscillator can be used in three ways:
1- to generate buy and sell signals
2- to indicate overbought and oversold levels
3- divergence analysis
what is divergence analysis?
if the oscillator differs from the price action.
What is the moving average convergence-divergence (MACD
The difference between a short-term and longer-term exponential moving average (EMA).
The Relative Strength Index (RSI
measures momentum by comparing the relative strength of price gains on days when a stock closes up to the strength of price declines on days when a stock closes down
The Public Short Ratio (PSR)
divides the total number of public short sales by the total number of short sales. When the ratio is high, it indicates that public investors are more pessimistic about future market gains relative to member firms. Good contrarian indicator
3 ways Technical analysis tools can be used
1- to improve market timing
2- to forecast price movements
3- to indicate turning points before they occur