The basic Principle of Technical Analysis - The Trend

Question 1

What is the major assumption of Technical Annalysis?

Answer 1

Freely traded, Market prices , in general , travel in trends

Question 2

What does the technical analyst spend most time on?

Answer 2

Finding a new trend early, ride the trend as long as possible and exit at a higher price near its culmination

Question 3

What 2 decisions must the TA make in order to make money and curb loses

Answer 3

1. when to ender a position

2. when to exit a position to capture profit or when to exit a position to cut losses.

Question 4

When should a risk of loss be determined

Answer 4

At the beginning of the investment

Question 5

The three basic strategies to making money using technical methods include

Answer 5

1. The trend is your friend
2. Don’t lose Control risk of capital loss
3. Manager money and avoid ruin

Question 6

What is a trend from a technical analyst perspective

Answer 6

A trend is a directional movement of prices that remains in effect long enough to be identified and still be profitable

Question 7

what is linear least squares regression

Answer 7

A statistical process that uses two sets of related variables mostly time and price within imaginary straight line drawn through the data

Question 8

What can we determine using a least squares regression line (3 items)

Answer 8

1. We can measure he amount by which the actual data varies from the line and thus the reliability of the line
2. We can measure the slope of the line to determine the rate of change in prices overtime
3. We can determine when the line begins

Question 9

what are trendlines

Answer 9

A line drawn along the Extreme points and prices, tops and bottoms, separated by reasonable time periods

Question 10

1. what can we discern using trendlines

2. What causes the development of a trend

Answer 10

1. A feeling of price direction and limit and a feeling of slow or the rate of change in prices
2. Supply and demand

Question 11

the number of players in the number of different reasons for the participation supply and demand is close to infinite. Thus the technical analyst believes what about supply and demand

Answer 11

It is futile to analyze the component of supply and demand except for the price it creates

Question 12

did ability for trends to act similarly over different periods of time is called what

Answer 12

They’re fractal nature

Question 13

the trend length of interest is determined solely by the investor for traders …..(fill in the blank)

Answer 13

period Of interest

Question 14

for identification purposes technical analyst have divided trends into three categories. What are they

Answer 14

1. Primary trend-measured in months or years
2. Secondary trend-measured in weeks or months
3. Intraday trend- measured in minutes or hours

Question 15

what are the six assumptions technical analyst snake

Answer 15

1. Price is determined by the interaction of supply and demand
2. Price discounts for everything-it discounts all information related to the security as well as the interpretation of expectations derived from that information. This concept was first articulated by Charles H Dow, later re-emphasized by William Peter Hamilton in his wall street journal editorials, and succinctly described by Robert Rhea.
3. Prices are non-random
4. History will repeat itself creating recognizable patterns
5. Patterns are fractal
6. Emotions are affected by earlier emotions through emotional feedback prices will expand beyond equilibrium for emotional reasons eventually will revert to the mean and then expand beyond mean in the opposite direction constantly oscillating back-and-forth with the excessive investor sentiment

Question 16

conclusion the focus of this chapter has being on the importance of understanding price trends to the practice of technical analysis
6 main topics recovered which are…

Answer 16

1. The interaction of supply and demand determined price
2. Supply and demand are affected by investors emotions and biases particularly fear and greed
3. Price discounts everything
4. Places trend
5. Recognizable patterns form within trends
6. Patterns are fractal