Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FINA 408 > Lecture 3 (history and construction of charts, trends, breakouts, stops) > Flashcards

Lecture 3 (history and construction of charts, trends, breakouts, stops) Flashcards

1
Q

What are the 4 types of charts?

A

1) line chart
2) bar chart
3) candle chart
4) Point and figure chart

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 5 types of data needed to construct most charts

A

-open price
-high price
-low price
-close price
-volume

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does a line chart use and name one advantage and disadvantage of this chart

A

-uses closing price and time
ADV: easy to construct and maintain
DISadv: gives little info, exact time or trend change can be unclear

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What does a bar chart display and name 2 adv and 1 disadv of this chart

A

-displays the high, low, closing prices or HLC
ADV:
-HLC can give you a better sense of direction
-More versatile, volume usually included below
DISadv:
-harder to maintain and requires more space if done by hand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the two aspects shown on a candlestick chart and name 1 adv and disadv of this chart

A

Shows the real body (the rectangular box) and the shadow (price extremes)
ADV: more visual, positive and negatove easily seen
DISadv: harder to calculate and maintain by hand, patterns must be studied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

When is a logarithmic chart best used

A

for long term charts and for >20% increase in security values

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a directional trend

A

A trend that shows rising or falling prices, from which a profit can be made with a trend following method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the famous phrase about trends

A

Trends tend to continue rather than reverse

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If an investor was to zoom into a trend, what would he find

A

A large primary trend is made up of samller intermediate trends, which is made up of even smaller minor trends, meaning that these same trends are made up of the same trend patterns though at a much smaller degree, such as to the minute

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If buyers are more aggressive what kind of trend can this show?

A

A uptrend (demand > supply)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

If sellers are more aggressive what kind of trend can be seen?

A

A downtrend (demand < supply)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Are trends ever straight lines?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What makes the price oscillate back and forth in the general direction of the larger trend?

A

The people who are willing to bet against the general trend of prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When does trading ranges (or sideways trends) occur?

A

When peaks and throughs appear at roughly similar levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is it called when prices have been rising and then reverse downwards? What is the highest point called?

A

The highest point is called the peak which is referred to as the resistance level

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When does a resistance level become a resistance zone and what can be said about support levels

A

when more than one resistance level occurs at roughly the same price (acts as if its a ceiling and seems to block the price from going higher). This same “theory” can be said about support levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Once the price breaks the support or resistance zone, what happens?

A

They switch functions/roles. The resistance price level becomes the support level or vice-versa

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What can be said about prices when they are at round numbers

A

when prices are at round numbers, there is more tendency to buy and sell, because people tend to think in terms of round numbers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is called when prices break below a support zone or above a resistance zone

A

It is called a breakout

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When do you buy in a breakout?

A

When the price goes above resistance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the Donchian rule?

A

Buy when the highest price over the past 4 weeks has been broken, and sell when the lowest low over the past four weeks has been broken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the Demark method in reversal points

A

In a low bar, we’d look for 2 bars with higher lows on both sides of the suspected through bar. The same can be said for resistance point or peak, we’d look for 2 bars with lower highs one both sides of the peak

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the Gann two-day swing method in reversal points

A

-To find a support point, or through, a low bar is identified. Once it is identified, the following 2 trading days are observed. If these 2 days have higher highs than the low bar, then we’d consider the low bar a support point
-The opposite is true for a resistance point or peak. The high bar is followed by 2 successive bars with lower lows

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the High volume method in reversal points

A

-high volume on the reversal day, indicates that larger than usual activity occurred on that day - ultimately stopping the rally or sell off. This is a strong indication that a previous trend will be broken

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What can be said about the steepness of a trend

A

The steeper, the more powerful the trend is. The problem with this is that it is not sustainable to have such a steep trend which could make us expect a reversal in the trend if it gets too overheated

26
Q

What can be said about an uptrend that are bigger or equal to 45 degree angle

A

An uptrend that is steeper than 45 degrees is over heated and should expect to correct

27
Q

What are the two ways trends are spotted?

A

1) using regression lines
2) using trend lines

28
Q

How is a regression line made and how can it be used?

A

-We would run a regression to determine the mathematical equation that would minimize the distance between all data points and the theoretical line, to find the BEST FIT line.
-We can use the stand dev around this regression line to help encompass most of the data. The prices outside this stand dev would be ignored.

29
Q

Do TA’s use regression line? If not, what do they use?

A

They dont use regression line, instead they draw a trendline after 2or more touch point

30
Q

How are trend lines drawn?

A

-The lines are drawn between lows (support points) when the line is rising (uptrend)
-The line is drawn between tops (resistance points) when the price is declining (downtrend)

31
Q

What is an issue with trend lines?

A

They may not always be a straight line. Often prices, especially in speculative bubble or in a panic, will accelerate upward or downward and run away from a straight trend line

32
Q

What is the opposite of a accelatring trend line? What is it called?

A

The opposite of an accelerating trend line is called a decelerating trend line, which can also be called a fan line

33
Q

What are fan lines?

A

Fan lines are regular trend lines that are being broken without any obvious reversal in direction and then being redrawn to account for each new support level

34
Q

What is a general rule of fan lines?

A

After 3 fan lines are drawn, we should expect a reversal of direction

35
Q

Explain the 2 general rules about trend lines

A

1) The longer and the more times that the drawn line is touched by prices, the more significant it is when the trend line is finally broken
2) the steeper the trend line, the more unsustainable it is, the sooner it will be broken

36
Q

What are retracements? What is their movement in an uptrend? WhT is their movement in a downtrend?

A

They are the correction to the principal trend. They counter trend moves (down in an uptrend. Up in a downtrend)

37
Q

What can retracements do for investors?

A

Can be investors a second chance for those who missed the earlier stages of the trend - a second chance to buy or sell in a downtrend

38
Q

What are the 2 variations of a retracements and when do they occur

A

1) Pullbacks
2) Throwbacks
-These two variations occur after a breakout in a horizontal or resistance zone

39
Q

Describe a throwback

A

It is a price retracement back to the breakout zone on an upward breakout

40
Q

Describe a pullback

A

It is a price retracement back to the breakout zone on a downside breakout

41
Q

When would you say breakouts occur

A

They occur when price breaks the resistance or support level/zone/trend line

42
Q

What do breakouts signal?

A

Signals a change in supply and demand and that a new trend in beginning

43
Q

What are the 5 breakout confirmation methods

A

1) Closing price (filter)
2) Price or percent filters
3) Time since breaking support/resistance
4) Volume
5) Volatility

44
Q

What is closing price (filter) in terms of confirmation methods

A

Tradeoff between probability vs. opportunity

45
Q

What is Time since breaking support/resistance in terms of confirmation methods

A

Idea that if prices remain outside the breakout zone for a certain time, it must be real
2 days +

46
Q

What happens to the daily true range as price volatility goes up?

A

The true range will expand and ATR will be larger

47
Q

What are pivot points

A

Pivot points are used for confirmation with day trading to determine support/resistance level and as confirmation of breakouts

48
Q

Can you anticipate a breakout?

A

Sometimes

49
Q

What do moving averages serve for in TA

A

Moving averages are used to smooth erratic data and show trends

50
Q

What are 2 conclusions that can be made with LONGER simple moving averages (SMA)

A

-the less influence each data point has on the SMA
-the slower is it to change direction but the more reliable it is

51
Q

What can be concluded with SHORTER SMA

A

the faster it changes directions but more frequently it errors.

52
Q

Name 3 aspects of crossover signals using more than one SMA

A

-Shorter SMA to longer SMA - crossover suggests change in trend
-Crossover points often turn into support and resistance levels
-Never to be used in a sideways market

53
Q

What does exponential moving average (EMA) use in terms of data

A

-the most recent data has the most effect on the average. Old data is less important

54
Q

What can said about the difference in results between SMA and EMA

A

The difference in results are found to be very small

55
Q

What are the 3 uses of moving averages

A

1) Determining trend, direction of and slope of moving average
2) Support and resistance
3) Price extremes

56
Q

How are envelopes percentages calculated and when are they used

A

-calculated as taking a percentage of a moving average and creates two symmetrical lines
-the percentage is determine by experiment and shouldn’t be too large or small
-Used in trading ranges

57
Q

What does crossing bands in envelopes percentage suggest

A

It is a trigger for buy/sell

58
Q

What is a big issue with envelopes percentage

A

it does not account for the changing volatility of the underlying

59
Q

What are bands

A

Same as envelope but adjusted for volatility (stand dev)

60
Q

What is channel

A

Trading range tipped at an angle such that it trends up/downwards

61
Q

What are the 5 aspects to keep in mind on how to use bands and envelopes

A

1) Tightening bands represent shrinking volatility, sharp price move expected
2) Broadening bands represent increasing volatility and potentially strong trend
3) When outer edge of a band is broken, empirical evidence suggests buy the breakout, just like you would do with a broken resistance
4) MA can become stops, or support resistance
5) Calculate %B (bandwidth indicator): difference between high band and low band, which represents increased volatility; breakouts can be confirmed with this, therefore volatility can warn of trend change

FINA 408 (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions