Itech lecture 6

Question 1

What is volume

Answer 1

-The amount of shares or contracts traded over a specific period
-Can also mean a change in volume

Question 2

What is volumed used for?

Answer 2

Used to confirm price, so it is a secondary analysis

Question 3

How is volume depicted on the chart?

Answer 3

As a bar chart at the bottom

Question 4

How should HIGH volume move in regards to the trend?

Answer 4

Volume should move in the direction of the trend

Question 5

If volume is not going with the trend, what does that mean?

Answer 5

Warning of potential trend reversal

Question 6

What does exceptionally high volume refer to?

Answer 6

Signal of important change

Question 7

When prices are rising, how should volume act? (give 2)

Answer 7

1) volume increasing is confirming
2) volume decreasing is questionable (puts upward trend in question)

Question 8

When prices are declining, how should volume act? (give 2)

Answer 8

1) volume increasing is confirming (lower price = more sales)
2) Volume decreasing is questionable (puts downward trend in question)

Question 9

When price advance halts with high volume, what may this mean?

Answer 9

It is a potential top

Question 10

When price decline halts with high volume, what may this mean?

Answer 10

It is a potential bottom

Question 11

What are the 2 methods of analyzing volume confirmation

Answer 11

1) volume indexes
2) volume related oscillators

Question 12

What are indexes compromised of?

Answer 12

cumulative sums of data measuring supply and demand over time, rather than a specific period

Question 13

When are volume indexes more useful?

Answer 13

In trending markets

Question 14

**What is on-balance volume (OBV)?

Answer 14

Cumulative index of plus or minus volume days based on change of closing prices

Question 15

How is OBV calculated if price close is higher than previous day close?

Answer 15

Add the day’s volume

Question 16

How is OBV calculated if price close is lower than previous day close?

Answer 16

Deduct the day’s close

Question 17

If price reaches a new high, what should OBV do?

Answer 17

Confirmation should come from OBV hitting a new high as well

Question 18

If price and OBV go in opposite directions, what does this mean?

Answer 18

It is a negative divergence which warns of potential reversal

Question 19

In AD index, if the close occurs above the midpoint for the day, what is the result?

Answer 19

Result is positive accumulation, so the AD goes up

Question 20

In AD index, if price closes below midpoint for the day, what is the result?

Answer 20

Result is a negative accumulation, AD goes down

Question 21

If price moves to high upper bound level, what does this mean?

Answer 21

Creates an overbought condition
(price > fair price)

Question 22

If price moves to lower bound, waht does this mean?

Answer 22

Creates an oversold condition
(price < fair price)

Question 23

When are volume related oscillators most useful?

Answer 23

For trading in range markets

Question 24

What are volume oscillators?

Answer 24

A ratio between two main moving averages of volume and is used to determine when volume is expanding or contracting

Question 25

If volume is expanding, what does this mean?

Answer 25

Implies strength of trend

Question 26

If volume is contracting, what does this mean?

Answer 26

Implies weakness of trend

Question 27

Volume oscillator is useful for...?

Answer 27

Confirming the trend and giving advance warning in a trend range of potential next breakout

Question 28

What does the Chaikin money flow use?

Answer 28

Uses the accumulation/distribution calculation each day

Question 29

In chaikin money flow, when does the oscillator rise above zero?

Answer 29

When an upward trend begins

Question 30

In chaikin money flow, when does the oscillator go below zero?

Answer 30

When a downtrend begins

Question 31

What do volume spikes represent?

Answer 31

A sign of sudden change in information (gap) or other pattern breakout

Question 32

When are volume spikes most common?

Answer 32

At the begging and end of a trend

Question 33

What is momentum?

Answer 33

-It is the measure of velocity of price movements, rather than price movements themselves -Rate of change, how quick they are going up or down

Question 34

What leads to price action

Answer 34

Momentum

Question 35

What are the 4 momentum indicators?

Answer 35

1) Rate of change 2) MACD 3) Stochastic 4) RSI

Question 36

What two lines does the MACD use?

Answer 36

The MACD line and the signal line

Question 37

How is the MACD line calculated?

Answer 37

By finding the difference between two exponential moving averages (EMA's) of closing prices

Question 38

What is the signal line?

Answer 38

It is the 9 period EMA of the MACD

Question 39

When the MACD is above 0, what does this mean?

Answer 39

Suggests an upward trend

Question 40

What is a buy signal using the MACD line

Answer 40

When the MACD line crosses the signal line from below and both lines are below 0

Question 41

What is a sell signal using the MACD line?

Answer 41

When MACD line crosses the signal line from above and above the 0 zone

Question 42

When is a stock overbought in MACD

Answer 42

when lines are far above the 0 line

Question 43

When is a stock oversold in a MACD

Answer 43

when lines are far below the 0 line

Question 44

If MACD histogram is getting smaller, what does this mean?

Answer 44

Provides early warnings that current trend is losing momentum

Question 45

What does rate of change (ROC) measure

Answer 45

Measures the amount a stock price has changed over a given period of past periods

Question 46

What are some problems with ROC

Answer 46

-drop off effect -only two prices in calc -prices are equally weighted

Question 47

What is a buy signal in ROC

Answer 47

When ROC crosses the 0 line from above

Question 48

What is a sell signal in ROC

Answer 48

When the ROC goes lower from above overbought level

Question 49

RSI is bounded from what range?

Answer 49

0-100

Question 50

When is an RSI overbought?

Answer 50

Above 70

Question 51

When is an RSI oversold?

Answer 51

Below 30

Question 52

How long can a trending market stay overbought or oversold in RSI

Answer 52

Can be for a long time

Question 53

If oscialltor moves to lower or upper bound in RSI, should you sell/buy

Answer 53

No, it may not be a reason to sell/buy

Question 54

**In a bull market, RSI is usually...?

Answer 54

Above 50

Question 55

**In a bull market RSI ranges from?

Answer 55

55-85

Question 56

**In a bear market, RSI ranges from?

Answer 56

25-65

Question 57

When would a positive RSI take place?

Answer 57

Once the RSI reaches a low that is lower than its previous low at the same time as the price reaches a higher low than its previous low. This is a bullish sign and a buy signal

Question 58

When would a negative RSI take place?

Answer 58

Once the RSI reaches a high that is higher than its previous high while security's price reaches a lower high. This is a bearish sign and sell signal

Question 59

In stochastic oscillator, as prices increase, where to prices tend to be?

Answer 59

Tend to be at the upper end of the price range

Question 60

In stochastic oscillator, in down trends, where do prices tend to be?

Answer 60

Tend to be near the lower end of the range

Question 61

What does stochastic oscillator measure?

Answer 61

Measures current closing price versus defined past window of prices

Question 62

**When does stochastic oscialltors work best?

Answer 62

In trading markets but still give valuable info in trending markets

Question 63

Stochastic oscillators are bounded from what range?

Answer 63

0-100

Question 64

When is stochastic oscillators overbought

Answer 64

above 80

Question 65

When is stochastic oversold

Answer 65

below 20

Question 66

What are some similarities between oscillators? (name 3)

Answer 66

-similar in use -strong trending markets can stay overbought or oversold for a long time -just because oscillator moved to upper or lower bound, does not mean its a buy or sell signal

Question 67

What does strong momentum suggests?

Answer 67

Trending market

Question 68

What does weak momentum suggest?

Answer 68

Consolidating market, trend is dissapearing (trading market)

Question 69

When are oscillators more useful?

Answer 69

In trading range markets as overbought/oversold indications

Question 70

In trading markets, oscillators are more useful as...?

Answer 70

overbought/oversold indications

Question 71

What does market breadth measure?

Answer 71

Measures the internal strength of the market by considering whether stocks are gaining or losing strength in price

Question 72

How should breadth line move?

Answer 72

Should follow and move to new highs and lows with the stock market index

Question 73

If breadth line does not move to new highs and lows with the stock market index, what does this mean?

Answer 73

There is a divergence which will lead to a price reversal

Question 74

If the S&P 500 is rising and if S&P 500 A-D line is falling, what sign is this?

Answer 74

This is a bearish sign/warning