Key Terms

Question 1

What is the “Dow Theory”

Answer 1

Market action discounts everything.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 2

What is the “Efficient Market Hypothesis”

Answer 2

Price behavior is “serially independent” and unpredictable.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 3

What is the “Random Walk Theory”

Answer 3

The Random Walk Theory claims that price changes are “serially independent” and that price history is not a reliable indicator of future price direction. The theory is based on the efficient market hypothesis, which holds that prices fluctuate randomly about their intrinsic value.

Murphy, John J.. Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance) (p. 19). Penguin Publishing Group. Kindle Edition.

Question 4

Define the term “Fundamental Approach”

Answer 4

Study of the effect of supply and demand on commodity prices.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 5

Define the term “Day Trading”

Answer 5

Trading intraday changes, tic by tic.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 6

Define the term “Technical Forecasting”

Answer 6

Answer

Question 7

Define the term “flow of fund analysis”

Answer 7

Flow of funds analysis refers to the cash position of different groups, such as mutual funds or large institutional accounts. The thinking here is that the larger the cash position, the more funds that are available for stock purchases.

Murphy, John J.. Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance) (p. 15). Penguin Publishing Group. Kindle Edition.

Question 8

Define the term “accumulation” in context with Technical Analysis.

Answer 8

Informed buying by astute investors.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 9

Define the term “Public Participation” in context with Technical Analysis.

Answer 9

Answer

Question 10

Define the term “Distribution” in context with Technical Analysis.

Answer 10

Informed selling.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 11

Define the term “confirmation” in context with Technical Analysis.

Answer 11

Either the industrial or the Rail average gives the signal, not both.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 12

Define the term “Failure Swing”

Answer 12

Usually retraces 33% to 50%.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 13

Define the term “Volume” in con text with Technical Analysis

Answer 13

A secondary indicator that should expand in the direction of the trend.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 14

Define the term “Trend” in context with technical analysis.

Answer 14

A pattern of successively rising or dropping peaks and troughs.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 15

Define the term “Primary Trend”

Answer 15

Answer

Question 16

Define the term “Secondary Trend”

Answer 16

Answer

Question 17

Define the term “Divergence” in context with Technical Analysis.

Answer 17

Either the industrial or the Rail average gives the signal, not both.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 18

Define the term “market action”

Answer 18

“Market action” includes the three principal sources of information available to the technician

1. Price
2. Volume
3. Open Interest. (Open interest is used only in futures and options.)

Murphy, John J.. Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance) (pp. 1-2). Penguin Publishing Group. Kindle Edition.

Question 19

Define the term “Descriptive Statistics” in context with Technical Analysis.

Answer 19

Presentation of data.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 20

Define the term “Statistical Analyst” (quantitative) in context with Technical Analysis.

Answer 20

Answer

Question 21

Define the term “Inductive Statistics” in context with Technical Analysis.

Answer 21

Generalizing, projecting, and predicting on the basis of collected data.

Murphy, John J.. Study Guide to Technical Analysis of the Financial Markets (New York Institute of Finance S) (p. 3). Penguin Publishing Group. Kindle Edition.

Question 22

Define the term “Sentiment Indicators”

Answer 22

Answer