Tools and strategies Flashcards
Technical indicators defined
track the change in price and/or volume
Meaure flows, trends, volatility and momentum
generate buy and sell signals
Continuation pattern
price trend is experiencing a temporary diversion from its longer-term trend but will eventually revert back to the longer-term trend
Cyclical Corrective Patterns means
shorter
Secularc continuation pattern means
longer
Moving average defined
is the average of the closing price of a security over a specified number of periods.
Smooth out short term price flucations
Golden Cross
shorter term average moves up and through a longer term average
50 day moving up and through the 200 day average
Dead cross
shorter term average moves down and through a long term average
Dow Theory
Momentum indicator theory that claims a market is in an uptrend if one of its averages advances above a previous important high and is accompanied or followed by a similar advance in the other
3 movements in Dow Theory
Primary trend, secondary relation, and daily flucuations
Criticism of Dow Theory
Current reflection
Not an accurate predictor
Limited to Dow Industrials and transport indices
Relative Strength measures what
the extent to which a security has out or underperformed either the market as a whole or its particular industry
Relative strength calculation
Security price divided by industry price index
Breadth meaning
often measured as the spread between the number of stocks that advance and decline in price
Trin Stat calculation
volume declining / number declining divided by volume advancing / number advancing
Trin Stat Ratio above 1 means
bearish signal
Put/Call Ratio rising indicates
signal investor pessimism and a coming market decline
Examples of momentum oscillators
RSI
Stochastic
MACD
MACD signal line
exponentially smoothed average (9 days)
Examples of price based indicators
moving averages - golden and dead cross
bollinger bands
Convergence
when the oscillator (indicator) moves in the same manner as the security being analyzed
Example of Divergence
the price of a stock reaches an all-time high, but momentum is weak; this patten is considered bearish
Use of technical analysis in asset allocation strategies
Strategic - no
Tactical - yes
Dynamic - sometimes
Inflation - assets move in the same direction
stock and bonds
Inflation - assets move in opposite directions
Bond and Commodities
US Dollar and commodities
Deflation - assets move in opposite directions
Stocks and commodities
Stocks and bonds
Bonds and commodities
US Dollar and commodities
Deflation - assets move in same direction
zero
Dynamic Asset Allocation maintains what
equity exposure but also protects aginst loss of capital
Example of Dynamic
CPPI - constant proportion portfolio insurance
