Itech lecture 10

Question 1

Trading a security can be based off of 3 things, name them

Answer 1

1) performance
2) catching large trends
3) diversification

Question 2

What are some costs associated with trading (TA)

Answer 2

-time consumption
-opportunity costs
-trading losses from learning curve
-setup costs
-commission
-slippage
-missing orders

Question 3

When you start trading, what kind of market should you go into

Answer 3

A “slower” market or lower risks

Question 4

What sort of volume must be present to have high liquidity

Answer 4

heavy volume

Question 5

What are the 3 types of trading for different time horizons?

Answer 5

1) scalping
2) day trading
3) swing trading

Question 6

What is scalping?

Answer 6

Taking very small profits between bid-ask spreads and accumulating liquidity credits

Question 7

What does scalping need to have in order to be profitable?

Answer 7

Time, excellent order entry system and experience

Question 8

How quick is scalping

Answer 8

Very fast paced (minutes)

Question 9

What is day trading?

Answer 9

Starting the day with no positions and ending the day with no positions

Question 10

How short is day trading?

Answer 10

Very short term, minute and hour bars are used

Question 11

What is swing trading?

Answer 11

Catching small trends or counter trends over several days or weeks

Question 12

How experience might an investor be in order to make swing trading profitable?

Answer 12

Less experience compared to day trading

Question 13

What are the two approaches in to select investments?

Answer 13

Top down
Bottom up

Question 14

What is the sequence of events in a top down selection

Answer 14

market -> country -> industry -> security

Question 15

What is the sequence of events in a bottom up selection

Answer 15

Security -> industry -> country

Question 16

What does Canslim stock selection focus on?

Answer 16

Focuses on “leading” growth stock

Question 17

How are stocks ranked in CANSLIM

Answer 17

12 month relative price strength, with 3 month price strength weighted more heavily in percentiles from 0-99, 99 being the strongest

Question 18

What is the stop loss in CANSLIM

Answer 18

7-8% strict stop loss rule

Question 19

When do you hold the position in CANSLIM

Answer 19

Hold position if stock rises greater than 20% within 1-3 weeks

Question 20

What are the 3 patterns used in CANSLIM

Answer 20

1) cup and handle
2) Flat base
3) double bottom

Question 21

When is the best time to buy in CANSLIM

Answer 21

when breakout from a pattern with at least 50% increase in volume

Question 22

What does the C in CANSLIM represent + describe

Answer 22

Current Quarterly Earnings

+25 % or more in recent quarter
Look for stocks with string current results as well as string history of solid earnings growth

Question 23

What does the A in CANSLIM represent + describe

Answer 23

Annual earning
+25% for more for the past 3 years (year over year)

Question 24

What does the N in CANSLIM represent + describe

Answer 24

New product, Management, Highs
Biggest stock winners had new products, new management or new conditions in an industry that propelled the company to astounding height

Question 25

What does the S in CANSLIM represent + describe

Answer 25

Supply & demand Strong demand for a limited supply of available shares will push a stock's price up

Question 26

What does the L in CANSLIM represent + describe

Answer 26

Leaders: choosing to win Steer clear of stocks that are laggards

Question 27

What does the I in CANSLIM represent + describe

Answer 27

Institutional sponsorships Big institutional investors, managers of the company investing their ow money into stock of the company

Question 28

What does the M in CANSLIM represent + describe

Answer 28

Market direction Don't buy against the trend

Question 29

What are the retracement levels in Fibonnaci sequence

Answer 29

38.2%, 50%, 61.8%, 100%

Question 30

What do the retracement levels mean in Fibonnaci sequence

Answer 30

Spots where prices can find a resistance or support

Question 31

When can Fibonacci retracements be used? (3)

Answer 31

1) To place entry orders 2) determine stop-loss levels 3) set price targets

Question 32

In Eliott wave theory (EWT), how are stock prices governed

Answer 32

By irregular cycles founded upon the Fibonacci series (1-2-3-5-8-12-21...)

Question 33

In EWT how do impulse waves and corrective waves move

Answer 33

Impulsive waves move with the trend and corrective waves move against the trend

Question 34

Draw EWT in a bull market, identify the impulse, retracement and the corrective waves

Question 35

Draw EWT in a bear market, identify the impulse, retracement and the corrective waves

Question 36

In a bull market in EWT how many waves go up and how many waves go down

Answer 36

5 waves up, 3 waves down

Question 37

In a bear market in EWT how many waves go down and how many waves go up

Answer 37

5 waves down, 3 waves up

Question 38

In EWT, each larger wave is comprised of what?

Answer 38

Even smaller waves

Question 39

What are the 3 types of corrective waves?

Answer 39

1) zig zag 2) flats 3) triangles

Question 40

Draw a zig zag corrective wave

Question 41

Draw a flat corrective wave

Question 42

Draw a triangle corrective wave

Question 43

**What are the 3 rules of EWT that cannot be broken?

Answer 43

1) wave 2 must not break below wave 1 (original wave) 2) Wave 3 is never shorter than wave 1 and 5 3) Wave 4 cannot overlap the termination of wave 1

Question 44

What are some EWT guidelines (don't always have to be followed)

Answer 44

-Alternation -Equality -Truncation

Question 45

What is alternation as EWT guidelines

Answer 45

Type of corrective wave in wave 2 and 4 alternate (a flat is followed by a zig-zag, or triangle)

Question 46

What is equality as EWT guidelines

Answer 46

Waves 1 and 5 are usually equal in length

Question 47

What is truncation as EWT guidelines

Answer 47

Occasionally the fifth wave fails to exceed the third wave and gets "truncated"