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IAPM > Technical Analysis > Flashcards

Technical Analysis Flashcards

1
Q

What is Technical Analysis?

A

It is the forecasting of future financial price movements based on past price movements.

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2
Q

What instruments can Technical Analysis be applied to?

A

It can be applied to stocks, indices, commodities, futures, or any tradable instruments influenced by supply and demand.

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3
Q

What is the key assumption of Technical Analysis?

A

The current price reflects all information, and future price movements can be anticipated from past price patterns.

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4
Q

What are the three key ideas from Dow Theory?

A

Price Discounts Everything
Price Movements Are Not Totally Random
‘What’ is More Important Than ‘Why’

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5
Q

How does Technical Analysis differ from Fundamental Analysis?

A

Technical Analysis focuses on short-term price movements and internal market data, while Fundamental Analysis evaluates long-term value based on economic, industry, and company factors.

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6
Q

Who generally uses Technical Analysis?

A

Speculators who aim to make quick money use Technical Analysis, while investors rely more on Fundamental Analysis for long-term investments.

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7
Q

What is a trend in Technical Analysis?

A

A trend refers to the direction of price movement, which can be rising, falling, or flat.

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7
Q

What are Primary, Secondary, and Minor Trends?

A

Primary Trend: Long-term price movement, e.g., bull or bear market.
Secondary Trend: Short-term corrections in the main trend.
Minor Trend: Daily fluctuations, often random and not significant for long-term decisions.

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8
Q

What is a Support Level?

A

A price level where demand is expected to prevent further decline.

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9
Q

What is a Resistance Level?

A

A price level where selling pressure is expected to prevent further increase.

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10
Q

What is consolidation?

A

A period when a stock’s price moves within a narrow range without reversing or continuing a trend.

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11
Q

What is momentum in technical analysis?

A

The rate of price change and its inertia to continue rising or falling for a period.

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12
Q

What are the main types of charts used in Technical Analysis?

A

Line Chart: Based on closing prices.
Bar Chart: Shows highest, lowest, and closing prices for a day/week/month.
Point & Figure Chart: Focuses only on price movements.
Candlestick Chart: Uses open, high, low, and close prices to show bullish or bearish trends.

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13
Q

What is the Head & Shoulders pattern?

A

A reversal pattern with three rallies resembling two shoulders and a head, indicating a potential market decline when the neckline is breached.

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14
Q

What are the key features of Triangle Patterns?

A

Triangles can be ascending, descending, or symmetrical, and they indicate consolidation before a breakout.

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14
Q

What is the Rectangle pattern?

A

A pattern where the price moves between parallel support and resistance levels, signaling either consolidation or trend continuation.

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15
Q

What is the Cup and Handle pattern?

A

A bullish continuation pattern where the price forms a rounded bottom (cup) and a smaller downward movement (handle) before resuming the upward trend.

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15
Q

What is a Flag pattern?

A

A pattern where prices move in a small counter-trend after a strong move in the same direction, often signaling a continuation of the previous trend.

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16
Q

What is the Saucer pattern?

A

A U-shaped pattern indicating a reversal from a downtrend to an uptrend, often found at support levels.

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17
Q

What is a Double Top?

A

A bearish reversal pattern where the price peaks twice before falling, resembling an ‘M’ shape.

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18
Q

What is a Double Bottom?

A

A bullish reversal pattern where the price falls to a support level twice before rising, resembling a ‘W’ shape.

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19
Q

What are the different time frames used in Technical Analysis?

A

Time frames can range from intraday (1-minute, 5-minutes, hourly), daily, weekly, to monthly price data.

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20
Q

Why are different time frames important in Technical Analysis?

A

Different time frames allow for the identification of short-term, medium-term, and long-term trends.

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21
Q

What role does volume play in Technical Analysis?

A

Volume is used to confirm price movements, indicating the strength or weakness of a trend.

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22
Q

What does low volume during a price increase indicate?

A

It may indicate a weak trend or lack of confidence in the price rise, potentially signaling a reversal.

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23
Q

What does “Price Discounts Everything” mean?

A

It means all available information, including economic, political, and psychological factors, is reflected in the current price.

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23
Q

Are price movements random according to technical analysts?

A

No, price movements are not totally random. Trends exist, and technicians believe they can be identified and exploited for profit.

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24
Q

What is a Bull Market?

A

A market condition where prices are generally rising, and investor confidence is high.

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25
Q

What is a Bear Market?

A

A market condition where prices are generally falling, and pessimism prevails among investors.

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25
Q

What is a reaction in price movements?

A

A counter-move or pullback during a price trend, such as a brief decline in a bull market or a brief rise in a bear market.

25
Q

What does a violation of support level indicate?

A

It signals that selling pressure has overcome buying pressure, and a further decline in price is likely.

26
Q

What does a violation of resistance level indicate?

A

It indicates that buying pressure has overcome selling pressure, and the price is likely to rise further.

27
Q

What are momentum oscillators used for in Technical Analysis?

A

They are used to measure the speed and change of price movements, helping identify overbought or oversold conditions.

28
Q

When are momentum oscillators most effective?

A

They are most effective in trending markets but can give false signals during consolidation.

29
Q

What is the difference between a line chart and a bar chart?

A

A line chart shows only the closing prices over time, while a bar chart includes the high, low, and closing prices for each time period.

30
Q

What does a white candlestick indicate?

A

A white (or unfilled) candlestick indicates a bullish trend, where the closing price is higher than the opening price.

31
Q

What does a black candlestick indicate?

A

A black (or filled) candlestick indicates a bearish trend, where the closing price is lower than the opening price.

31
Q

What is a symmetrical triangle pattern?

A

It is a pattern of narrowing price fluctuations, with neither the bulls nor bears dominant, often signaling a continuation of the previous trend after a breakout.

32
Q

What is an ascending triangle?

A

An ascending triangle has a horizontal resistance line and a rising support line, indicating increasing demand and a potential breakout upwards.

33
Q

What is a descending triangle?

A

A descending triangle has a falling resistance line and a horizontal support line, indicating increasing supply and a potential breakdown downwards.

34
Q

What does a flag pattern indicate?

A

It indicates a brief consolidation phase within a strong trend and signals the continuation of the trend once the pattern is completed.

35
Q

What signals a breakout in the Cup and Handle pattern?

A

A breakout occurs when the price surpasses the resistance line formed by the handle, confirming the upward trend.

36
Q

What does the Head and Shoulders pattern signal?

A

It signals a reversal in a bullish trend and the beginning of a bearish trend when the price breaks below the neckline.

37
Q

What is a Double Top pattern?

A

A Double Top pattern signals a reversal from a bullish to a bearish market, resembling an ‘M’ shape on the chart.

38
Q

What is a Double Bottom pattern?

A

A Double Bottom pattern signals a reversal from a bearish to a bullish market, resembling a ‘W’ shape on the chart.

39
Q

Why are trend lines important in technical analysis?

A

Trend lines help in identifying the direction and strength of a trend, serving as key points for buying or selling decisions.

40
Q

What is a bullish rectangle?

A

A bullish rectangle forms after an uptrend when the price consolidates within a narrow range, signaling a potential upward breakout.

41
Q

What is a bearish rectangle?

A

A bearish rectangle forms after a downtrend when the price consolidates, signaling a potential downward breakout.

42
Q

What are the four key elements of a candlestick chart?

A

The four elements are the open, high, low, and close prices for a given time period.

43
Q

What does a saucer pattern indicate?

A

It indicates a gradual reversal from a bearish to a bullish trend, usually forming at key support levels and signaling a long-term price increase.

44
Q

What are minor trends?

A

Minor trends are daily price fluctuations that are often random and do not have significant implications for long-term trends.

45
Q

Should investors focus on minor trends?

A

No, it is better to focus on primary or secondary trends rather than on minor trends.

46
Q

What is Price Action in Technical Analysis?

A

Price action refers to the movement of a security’s price over time and is used by technical analysts to make trading decisions based on historical patterns.

47
Q

What information does a bar chart provide?

A

A bar chart shows the highest, lowest, and closing prices for each time period.

48
Q

What is unique about Point and Figure (P&F) charts?

A

P&F charts focus solely on price changes without considering time or volume, making them useful for identifying price direction.

49
Q

What does the open and close represent in a candlestick chart?

A

The open represents the price at the start of the period, while the close represents the price at the end of the period.

50
Q

In which direction can a symmetrical triangle break out?

A

It can break out in either direction, indicating a continuation of the previous trend after a period of consolidation.

51
Q

How do traders use rectangle patterns?

A

Traders buy near the rectangle’s support level and sell near the resistance level, or they wait for a breakout to occur in either direction.

52
Q

What is the difference between a flag and a pennant?

A

Both patterns indicate consolidation, but a flag is rectangular while a pennant is triangular. Both signal trend continuation.

53
Q

Why is volume important in confirming patterns?

A

Volume helps confirm price movements in patterns like triangles, flags, and double tops/bottoms, signaling the strength of the breakout.

54
Q

What does the handle in a Cup and Handle pattern represent?

A

The handle is a small dip or sideways movement after the cup formation, signaling a pause before an upward breakout.

55
Q

What are moving averages used for?

A

Moving averages smooth out price data to identify the direction of a trend over a specific period.

55
Q

What is the difference between a simple and exponential moving average?

A

A simple moving average gives equal weight to all data points, while an exponential moving average gives more weight to recent data.

56
Q

What is a reversal pattern in Technical Analysis?

A

A reversal pattern indicates a change in the existing trend, such as the shift from a bullish to a bearish market or vice versa.

57
Q

What does the Head and Shoulders pattern signal?

A

It signals a bearish reversal when the price breaks below the neckline after forming three peaks (shoulders and head).

58
Q

What does RSI measure?

A

RSI measures the speed and change of price movements, typically indicating overbought or oversold conditions when the index reaches extreme values.

59
Q

How is a Double Top confirmed?

A

It is confirmed when the price falls below the support level after forming two peaks, indicating a bearish reversal.

60
Q

What does MACD indicate?

A

MACD shows the relationship between two moving averages of a security’s price and is used to identify momentum, trend direction, and potential buy/sell signals.

60
Q

What is a common threshold for overbought and oversold conditions in RSI?

A

An RSI above 70 indicates overbought conditions, while an RSI below 30 indicates oversold conditions.

61
Q

What do Bollinger Bands represent?

A

Bollinger Bands consist of a moving average with two standard deviation lines (upper and lower bands) and are used to measure price volatility.

62
Q

What does it mean when price moves outside the Bollinger Bands?

A

It may indicate that the asset is overbought (above the upper band) or oversold (below the lower band).

63
Q

What is a breakout in technical analysis?

A

A breakout occurs when the price moves above a resistance level or below a support level, signaling the start of a new trend.

64
Q

What is Fibonacci Retracement used for?

A

It is used to identify potential support and resistance levels based on key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%) during price corrections.

65
Q

What is a gap in technical analysis?

A

A gap occurs when there is a significant difference between the closing price of one period and the opening price of the next, often signaling strong momentum in that direction.

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