Section III.D. Flashcards
What are Technical Indicators?
Defined
* indicators track the change in price and/or volume and measure flow, trends, volatility, and momentum
* tools used in technical analysis that attempt to discern when a stock is being purchased at higher prices (accumulation) or sold at lower
prices (distribution)
* used to generate buy and sell signals
What is a “Pattern”?
Explain Dow Theory and Moving Averages
Moving Average Defined:
“A moving average is the average of the closing price of a security over a specified number of periods. Moving averages smooth out short term price fluctuations…” (CIMA text)
What is a Bullish Signal? Bearish Signal?
+Bullish signal: Market price breaks through the moving average line from below, it is time to buy
-Bearish signal: When prices fall below the moving average, it is time to sell
What A Golden Cross?
shorter term average moves up and
through a longer term average;
typically cited is the 50 day moving average coming up through the 200
day moving average, but it’s also common to see the 15 day moving average crossing the 50 day moving average referenced along with others.
What is a Dead Cross?
shorter term average moves down
and through a longer term average
What is Dow Theory?
a momentum indicator theory that claims a market is in an uptrend (will go higher) if one of its averages advances above a previous important high and is accompanied or followed
by a similar advance in the other
What are the 3 movements of Dow Theory?
- 3 Movements
Primary trend
Secondary reaction
Daily fluctuations
Criticism of Dow Theory?
- Criticism
Current reflection Not an accurate predictor
Limited to Dow industrial and transports indices
More helpful for seeing big picture (not short term bets)
Dow Theory - Buy Signal?
Dow Theory - Sell Signal?
What are Momentum Indicators?
Defined
* momentum indicators that fall within a bounded range
- tools used in technical analysis that attempt to determine trends in security price movements by measuring the rate of change in a security’s price
- oscillators, usually based on recent moving average prices, also help to provide entry and exit trading points
What is “relative strength”?
What is “relative strength” - Breadth?
Breadth
Often measured as the spread between the number of stocks that
advance and decline in price
What is “Trin Statistic” as it relates to Technical Analysis: Sentiment Indicators?
“Short-term trading index”
- Ratio above 1 is bearish
Technical Analysis: Sentiment Indicators as it relates to Put/Call Ratio?
What is Moving Average
Convergence/Divergence (MACD)?
- Momentum based indicator
- Is the difference between a short term and long term moving average of the price of the security
Examples of Price-Based Indicators?
- Moving averages
– Golden cross
– Dead cross - Bollinger bands
What is Convergence?
Convergence
: when the oscillator (indicator) moves in the same manner as the security being analyzed
What is Divergence?
Divergence
: when the oscillator (indicator)
moves differently from the security
Which Asset Allocation Strategy is used in Technical Analysis?
What is Tactical Asset Allocation?
- similar to strategic asset allocation, tactical asset allocation allows for a more active investment approaching including the concept of market timing
- example: the portfolio manager may attempt to take advantage of asset class or sector price anomalies or mispricing through reallocation and
rebalancing
What does techinical Asset Allocation Rely on and offers an opportunity for what?
- TAA relies on the investor (or advisor) to make tactical, short term decisions, to help manage risk.
- TAA offers a greater opportunity for risk management and better risk adjusted returns but there is no guarantee.
- TAA carries an implicit risk of opportunity cost compared to SAA if one experiences poor results.
What is Dynamic Asset Allocation?
- used to describe several asset allocation methodologies
- commonly refers to an asset allocation strategy that maintains equity exposure but also protects
against loss of capital - example: CPPI constant proportion portfolio insurance
Dynamic Asset Allocation offers what?
- DAA offers more opportunity for risk
management than SAA and a more tightly defined methodology compared to TAA. - specific forms of risk management
-example: constant proportion portfolio insurance (CPPI)
