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FINA 408 > Itech lecture 6 > Flashcards

Itech lecture 6 Flashcards

1
Q

What is volume

A

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

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2
Q

What is volumed used for?

A

Used to confirm price, so it is a secondary analysis

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3
Q

How is volume depicted on the chart?

A

As a bar chart at the bottom

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4
Q

How should HIGH volume move in regards to the trend?

A

Volume should move in the direction of the trend

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5
Q

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

A

Warning of potential trend reversal

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6
Q

What does exceptionally high volume refer to?

A

Signal of important change

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7
Q

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

A

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

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8
Q

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

A

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

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9
Q

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

A

It is a potential top

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10
Q

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

A

It is a potential bottom

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11
Q

What are the 2 methods of analyzing volume confirmation

A

1) volume indexes
2) volume related oscillators

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12
Q

What are indexes compromised of?

A

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

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13
Q

When are volume indexes more useful?

A

In trending markets

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14
Q

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

A

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

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15
Q

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

A

Add the day’s volume

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16
Q

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

A

Deduct the day’s close

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17
Q

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

A

Confirmation should come from OBV hitting a new high as well

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18
Q

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

A

It is a negative divergence which warns of potential reversal

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19
Q

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

A

Result is positive accumulation, so the AD goes up

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20
Q

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

A

Result is a negative accumulation, AD goes down

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21
Q

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

A

Creates an overbought condition
(price > fair price)

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22
Q

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

A

Creates an oversold condition
(price < fair price)

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23
Q

When are volume related oscillators most useful?

A

For trading in range markets

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24
Q

What are volume oscillators?

A

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

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25
Q

If volume is expanding, what does this mean?

A

Implies strength of trend

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26
Q

If volume is contracting, what does this mean?

A

Implies weakness of trend

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27
Q

Volume oscillator is useful for…?

A

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

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28
Q

What does the Chaikin money flow use?

A

Uses the accumulation/distribution calculation each day

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29
Q

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

A

When an upward trend begins

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30
Q

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

A

When a downtrend begins

31
Q

What do volume spikes represent?

A

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

32
Q

When are volume spikes most common?

A

At the begging and end of a trend

33
Q

What is momentum?

A

-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

34
Q

What leads to price action

A

Momentum

35
Q

What are the 4 momentum indicators?

A

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

36
Q

What two lines does the MACD use?

A

The MACD line and the signal line

37
Q

How is the MACD line calculated?

A

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

38
Q

What is the signal line?

A

It is the 9 period EMA of the MACD

39
Q

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

A

Suggests an upward trend

40
Q

What is a buy signal using the MACD line

A

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

41
Q

What is a sell signal using the MACD line?

A

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

42
Q

When is a stock overbought in MACD

A

when lines are far above the 0 line

43
Q

When is a stock oversold in a MACD

A

when lines are far below the 0 line

44
Q

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

A

Provides early warnings that current trend is losing momentum

45
Q

What does rate of change (ROC) measure

A

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

46
Q

What are some problems with ROC

A

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

47
Q

What is a buy signal in ROC

A

When ROC crosses the 0 line from above

48
Q

What is a sell signal in ROC

A

When the ROC goes lower from above overbought level

49
Q

RSI is bounded from what range?

A

0-100

50
Q

When is an RSI overbought?

A

Above 70

51
Q

When is an RSI oversold?

A

Below 30

52
Q

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

A

Can be for a long time

53
Q

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

A

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

54
Q

**In a bull market, RSI is usually…?

A

Above 50

55
Q

**In a bull market RSI ranges from?

A

55-85

56
Q

**In a bear market, RSI ranges from?

A

25-65

57
Q

When would a positive RSI take place?

A

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

58
Q

When would a negative RSI take place?

A

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

59
Q

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

A

Tend to be at the upper end of the price range

60
Q

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

A

Tend to be near the lower end of the range

61
Q

What does stochastic oscillator measure?

A

Measures current closing price versus defined past window of prices

62
Q

**When does stochastic oscialltors work best?

A

In trading markets but still give valuable info in trending markets

63
Q

Stochastic oscillators are bounded from what range?

A

0-100

64
Q

When is stochastic oscillators overbought

A

above 80

65
Q

When is stochastic oversold

A

below 20

66
Q

What are some similarities between oscillators? (name 3)

A

-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

67
Q

What does strong momentum suggests?

A

Trending market

68
Q

What does weak momentum suggest?

A

Consolidating market, trend is dissapearing (trading market)

69
Q

When are oscillators more useful?

A

In trading range markets as overbought/oversold indications

70
Q

In trading markets, oscillators are more useful as…?

A

overbought/oversold indications

71
Q

What does market breadth measure?

A

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

72
Q

How should breadth line move?

A

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

73
Q

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

A

There is a divergence which will lead to a price reversal

74
Q

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

A

This is a bearish sign/warning

FINA 408 (15 decks)

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