Trends, Breakouts, Stops and Retracements

Question 1

Trading range

Answer 1

• Consolidation
• Rectangle formation

Question 2

• Highest point in the rise
• Lowest point in the decline

Answer 2

• Resistance point
• Support point

Question 3

• When more than one resistance level occurs roughly at the same price
• When more than one support level occurs roughly at the same price

Answer 3

• Resistance zone
• Support zone

Question 4

DeMark or Williams method for determining peaks and troughs

Answer 4

• A peak will be surrounded by two bars with lower highs on either side
• A trough will be surrounded by two bars with higher lows on either side

Question 5

Reversal volume

Answer 5

Reversal points are often accompanied with high volume

Question 6

Outside reversal day

Answer 6

• Happens where the high is greater than the previous bar’s high and where the low is lower than the previous bar’s low
• Often matched by high volume

Question 7

Channel

Answer 7

A trending range that is trending

Question 8

Channel trading strategy

Answer 8

• Go long only on upward trending channel - buy the low bound trending line and sell the upper bound trending line
• Do the opposite for downward trending channel

Question 9

Donchian breakout strategy

Answer 9

• Buy when the highest high over the past four weeks is broken
• Buy when the lowest low over the past four weeks is broken

Question 10

Fan line

Answer 10

A decelerating trend line

Question 11

Point or percent filter

Answer 11

Move required above or below the breakout level that confirms the breakout

Question 12

Average True Range (ATR)

Answer 12

The true range is the largest of the:

• Most recent period’s high minus the most recent period’s low
• Absolute value of the most recent period’s high minus the previous close
• Absolute value of the most recent period’s low minus the previous close

The ATR is the average of the true range over some time period

Question 13

Pivot Points

Answer 13

• R2 = P + (H - L) = P + (R1 - S1)
• R1 = (P x 2) - L
• P = (H + L + C) / 3
• S1 = (P x 2) - H
• S2 = P - (H - L) = P - (R1 - S1)

Question 14

Position of a stop-loss order

Answer 14

Should be based on the price action of the security and the level at which a reversal is likely to occur. Should not be based on an arbitrary percentage

Question 15

Chandelier Exit

Answer 15

• A trailing stop based on a multiple of the ATR
• A multiple of 2.5 to 4 is usually used

Question 16

Limited ATR trailing stop

Answer 16

A trailing stop which is not allowed to decline below the level of a previous stop

Question 17

Parabolic SAR (Stop and Reverse)

Answer 17

A trailing stop that includes an acceleration factor

Question 18

• Rising Parabolic SAR
  
  • Current SAR = Previous SAR + Previous AF(Previous EP + Previous SAR)
• Falling Parabolic SAR
  
  • Current SAR = Previous SAR - Previous AF(Previous SAR - Previous EP)

Answer 18

• Previous SAR = The SAR value for the previous period
• Extreme Point (EP) = The highest high of the current uptrend or the lowest low of the current downtrend
• Acceleration Factor (AF) = Determines the sensitivity of the SAR
• AF starts at .02 and increases by .02 every time the EP rises in a Rising SAR or EP falls in a Falling SAR

Question 19

Pullbacks and throwbacks

Answer 19

• A pullback occurs when the price breaks below a support, retraces back to the support, which however now begins to act as a resistance and rebounds from it, continuing its downward movement
• A throwback occurs when the price breaks above an established resistance, retraces back to that resistance, which however has switched roles and now acts as a support and bounces back up

Question 20

Retracement percentage

Answer 20

• Most common
  
  • 33.3%, 50%, 66.6%
• Fibonacci
  
  • 38.2%, 50%, 61.8%