Chapter 3 Crunch time Flashcards
price forecasting
the level at which prices tend to stop falling
support level
the level at which prices tend to stop rising
resistance level
when prices are trapped in a trading range
congestion
occurs when prices break through an area of resistance or support
breakout
A breakout of an area of support is considered…
bearish
A breakout of an area of resistance is considered…
bullish
What are the 2 ways a person can profit on a breakout? (prices falling)
1) enter sell stop orders below a support level
2) buy puts
What are the 2 ways a person can profit on a breakout? (prices rising)
1) enter buy stop orders above a resistance level
2) buy calls
head and should top formation is….
a reversal of an upward trend and is a bearish indicator
an inverted head and shoulders (bottom) formation is…
a reversal of a downward trend and is a bullish indicator
When must prices converge when it comes to cash and futures?
by the first day delivery
What happens if cash and futures’ prices do not converge on the first delivery day?
an arbitrage opportunity will exist…as a result of arbitrage activity: prices will then converge
Carrying charges include the following:
storage, insurance and interest
In a normal market, prices rise as you go further…
out in futures.
the degree to which the quantity demanded responds to a price change
demand elasticity
