Chapter 3 - Trend Analysis Flashcards
What is the accumulation phase?
In Dow Theory, the first phase in a bull market; it is the period when prices are depressed and financial reports are negative, but informed investors are buying in anticipation of a recovery.
What is confirmation?
Occurs when indicators or signals are pointing in the same direction, therefore reaching the same conclusion or “confirming” each other.
What is the distribution phase?
In Dow Theory, the first phase in a bear market; prices are high, and farsighted investors begin to sell.
What is divergence?
The opposite of confirmation, also known as non-confirmation, when indicators do not confirm each other, which is an extremely valuable early warning signal of potential trend reversals.
Describe what the Dow Theory is.
The theory that laid the foundation for modern technical analysis; it incorporates the concepts of trend identification and analysis, the principles of divergence and convergence, the importance of volume, and the use of percentage retracement.
What is a downtrend?
When a market or security is trading in a pattern of lower highs and lower lows.
What are fan lines?
A chart formation used to predict potential price objectives once a trendline is violated; lines are drawn from the initial point on the violated trendline using predetermined angles, with the result resembling a fan.
What is a market profile chart?
A graphical representation that incorporates price, time and volume for one time period. A time-related distribution of trading activity at each price level.
What is a minor trend?
The direction that prices are headed over a short period of time; usually the minor trend is opposite to the primary trend.
What is on-balance volume (OBV)?
A cumulative total of upside and downside volume based on the underlying security’s close, which indicates buying or selling pressure.
What is a primary trend?
The general direction in which prices are moving on a long-term chart.
What is a resistance level?
The price point at which holders are willing to sell, but few investors are willing to buy; accordingly, prices have trouble rising above resistance.
What is a secondary trend?
The general direction in which prices are moving on a medium-term (i.e., daily or weekly) chart; the secondary trend is usually opposite to the primary trend.
What is a support level?
The price point at which investors are willing to buy, but few investors are willing to sell; accordingly, prices have trouble falling below support.
What is a trend channel?
A formation in which prices move back and forth between parallel ascending or descending lines.
What is a trendline?
A line connecting a series of ascending lows (in the case of an up trendline) or descending highs (in the case of a down trendline).
What is an uptrend?
When a market or security is trading in a pattern of successive higher highs and
higher lows.
What does it mean to get “WHIPSAWED?”
Taking a position in anticipation of a market moving in a certain direction, only to see the market reverse and go in the
opposite direction, forcing you out of the trade, and then reverse back to its original direction.