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IAPM > Technical Analysis > Flashcards

Technical Analysis Flashcards

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1
Q

What is Technical Analysis?

A

It is the forecasting of future financial price movements based on past price movements.

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2
Q

What instruments can Technical Analysis be applied to?

A

It can be applied to stocks, indices, commodities, futures, or any tradable instruments influenced by supply and demand.

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3
Q

What is the key assumption of Technical Analysis?

A

The current price reflects all information, and future price movements can be anticipated from past price patterns.

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4
Q

What are the three key ideas from Dow Theory?

A

Price Discounts Everything
Price Movements Are Not Totally Random
‘What’ is More Important Than ‘Why’

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5
Q

How does Technical Analysis differ from Fundamental Analysis?

A

Technical Analysis focuses on short-term price movements and internal market data, while Fundamental Analysis evaluates long-term value based on economic, industry, and company factors.

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6
Q

Who generally uses Technical Analysis?

A

Speculators who aim to make quick money use Technical Analysis, while investors rely more on Fundamental Analysis for long-term investments.

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7
Q

What is a trend in Technical Analysis?

A

A trend refers to the direction of price movement, which can be rising, falling, or flat.

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7
Q

What are Primary, Secondary, and Minor Trends?

A

Primary Trend: Long-term price movement, e.g., bull or bear market.
Secondary Trend: Short-term corrections in the main trend.
Minor Trend: Daily fluctuations, often random and not significant for long-term decisions.

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8
Q

What is a Support Level?

A

A price level where demand is expected to prevent further decline.

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9
Q

What is a Resistance Level?

A

A price level where selling pressure is expected to prevent further increase.

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10
Q

What is consolidation?

A

A period when a stock’s price moves within a narrow range without reversing or continuing a trend.

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11
Q

What is momentum in technical analysis?

A

The rate of price change and its inertia to continue rising or falling for a period.

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12
Q

What are the main types of charts used in Technical Analysis?

A

Line Chart: Based on closing prices.
Bar Chart: Shows highest, lowest, and closing prices for a day/week/month.
Point & Figure Chart: Focuses only on price movements.
Candlestick Chart: Uses open, high, low, and close prices to show bullish or bearish trends.

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13
Q

What is the Head & Shoulders pattern?

A

A reversal pattern with three rallies resembling two shoulders and a head, indicating a potential market decline when the neckline is breached.

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14
Q

What are the key features of Triangle Patterns?

A

Triangles can be ascending, descending, or symmetrical, and they indicate consolidation before a breakout.

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14
Q

What is the Rectangle pattern?

A

A pattern where the price moves between parallel support and resistance levels, signaling either consolidation or trend continuation.

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15
Q

What is the Cup and Handle pattern?

A

A bullish continuation pattern where the price forms a rounded bottom (cup) and a smaller downward movement (handle) before resuming the upward trend.

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15
Q

What is a Flag pattern?

A

A pattern where prices move in a small counter-trend after a strong move in the same direction, often signaling a continuation of the previous trend.

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16
Q

What is the Saucer pattern?

A

A U-shaped pattern indicating a reversal from a downtrend to an uptrend, often found at support levels.

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17
Q

What is a Double Top?

A

A bearish reversal pattern where the price peaks twice before falling, resembling an ‘M’ shape.

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18
Q

What is a Double Bottom?

A

A bullish reversal pattern where the price falls to a support level twice before rising, resembling a ‘W’ shape.

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19
Q

What are the different time frames used in Technical Analysis?

A

Time frames can range from intraday (1-minute, 5-minutes, hourly), daily, weekly, to monthly price data.

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20
Q

Why are different time frames important in Technical Analysis?

A

Different time frames allow for the identification of short-term, medium-term, and long-term trends.

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21
Q

What role does volume play in Technical Analysis?

A

Volume is used to confirm price movements, indicating the strength or weakness of a trend.

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22
What does low volume during a price increase indicate?
It may indicate a weak trend or lack of confidence in the price rise, potentially signaling a reversal.
23
What does “Price Discounts Everything” mean?
It means all available information, including economic, political, and psychological factors, is reflected in the current price.
23
Are price movements random according to technical analysts?
No, price movements are not totally random. Trends exist, and technicians believe they can be identified and exploited for profit.
24
What is a Bull Market?
A market condition where prices are generally rising, and investor confidence is high.
25
What is a Bear Market?
A market condition where prices are generally falling, and pessimism prevails among investors.
25
What is a reaction in price movements?
A counter-move or pullback during a price trend, such as a brief decline in a bull market or a brief rise in a bear market.
25
What does a violation of support level indicate?
It signals that selling pressure has overcome buying pressure, and a further decline in price is likely.
26
What does a violation of resistance level indicate?
It indicates that buying pressure has overcome selling pressure, and the price is likely to rise further.
27
What are momentum oscillators used for in Technical Analysis?
They are used to measure the speed and change of price movements, helping identify overbought or oversold conditions.
28
When are momentum oscillators most effective?
They are most effective in trending markets but can give false signals during consolidation.
29
What is the difference between a line chart and a bar chart?
A line chart shows only the closing prices over time, while a bar chart includes the high, low, and closing prices for each time period.
30
What does a white candlestick indicate?
A white (or unfilled) candlestick indicates a bullish trend, where the closing price is higher than the opening price.
31
What does a black candlestick indicate?
A black (or filled) candlestick indicates a bearish trend, where the closing price is lower than the opening price.
31
What is a symmetrical triangle pattern?
It is a pattern of narrowing price fluctuations, with neither the bulls nor bears dominant, often signaling a continuation of the previous trend after a breakout.
32
What is an ascending triangle?
An ascending triangle has a horizontal resistance line and a rising support line, indicating increasing demand and a potential breakout upwards.
33
What is a descending triangle?
A descending triangle has a falling resistance line and a horizontal support line, indicating increasing supply and a potential breakdown downwards.
34
What does a flag pattern indicate?
It indicates a brief consolidation phase within a strong trend and signals the continuation of the trend once the pattern is completed.
35
What signals a breakout in the Cup and Handle pattern?
A breakout occurs when the price surpasses the resistance line formed by the handle, confirming the upward trend.
36
What does the Head and Shoulders pattern signal?
It signals a reversal in a bullish trend and the beginning of a bearish trend when the price breaks below the neckline.
37
What is a Double Top pattern?
A Double Top pattern signals a reversal from a bullish to a bearish market, resembling an ‘M’ shape on the chart.
38
What is a Double Bottom pattern?
A Double Bottom pattern signals a reversal from a bearish to a bullish market, resembling a ‘W’ shape on the chart.
39
Why are trend lines important in technical analysis?
Trend lines help in identifying the direction and strength of a trend, serving as key points for buying or selling decisions.
40
What is a bullish rectangle?
A bullish rectangle forms after an uptrend when the price consolidates within a narrow range, signaling a potential upward breakout.
41
What is a bearish rectangle?
A bearish rectangle forms after a downtrend when the price consolidates, signaling a potential downward breakout.
42
What are the four key elements of a candlestick chart?
The four elements are the open, high, low, and close prices for a given time period.
43
What does a saucer pattern indicate?
It indicates a gradual reversal from a bearish to a bullish trend, usually forming at key support levels and signaling a long-term price increase.
44
What are minor trends?
Minor trends are daily price fluctuations that are often random and do not have significant implications for long-term trends.
45
Should investors focus on minor trends?
No, it is better to focus on primary or secondary trends rather than on minor trends.
46
What is Price Action in Technical Analysis?
Price action refers to the movement of a security’s price over time and is used by technical analysts to make trading decisions based on historical patterns.
47
What information does a bar chart provide?
A bar chart shows the highest, lowest, and closing prices for each time period.
48
What is unique about Point and Figure (P&F) charts?
P&F charts focus solely on price changes without considering time or volume, making them useful for identifying price direction.
49
What does the open and close represent in a candlestick chart?
The open represents the price at the start of the period, while the close represents the price at the end of the period.
50
In which direction can a symmetrical triangle break out?
It can break out in either direction, indicating a continuation of the previous trend after a period of consolidation.
51
How do traders use rectangle patterns?
Traders buy near the rectangle's support level and sell near the resistance level, or they wait for a breakout to occur in either direction.
52
What is the difference between a flag and a pennant?
Both patterns indicate consolidation, but a flag is rectangular while a pennant is triangular. Both signal trend continuation.
53
Why is volume important in confirming patterns?
Volume helps confirm price movements in patterns like triangles, flags, and double tops/bottoms, signaling the strength of the breakout.
54
What does the handle in a Cup and Handle pattern represent?
The handle is a small dip or sideways movement after the cup formation, signaling a pause before an upward breakout.
55
What are moving averages used for?
Moving averages smooth out price data to identify the direction of a trend over a specific period.
55
What is the difference between a simple and exponential moving average?
A simple moving average gives equal weight to all data points, while an exponential moving average gives more weight to recent data.
56
What is a reversal pattern in Technical Analysis?
A reversal pattern indicates a change in the existing trend, such as the shift from a bullish to a bearish market or vice versa.
57
What does the Head and Shoulders pattern signal?
It signals a bearish reversal when the price breaks below the neckline after forming three peaks (shoulders and head).
58
What does RSI measure?
RSI measures the speed and change of price movements, typically indicating overbought or oversold conditions when the index reaches extreme values.
59
How is a Double Top confirmed?
It is confirmed when the price falls below the support level after forming two peaks, indicating a bearish reversal.
60
What does MACD indicate?
MACD shows the relationship between two moving averages of a security's price and is used to identify momentum, trend direction, and potential buy/sell signals.
60
What is a common threshold for overbought and oversold conditions in RSI?
An RSI above 70 indicates overbought conditions, while an RSI below 30 indicates oversold conditions.
61
What do Bollinger Bands represent?
Bollinger Bands consist of a moving average with two standard deviation lines (upper and lower bands) and are used to measure price volatility.
62
What does it mean when price moves outside the Bollinger Bands?
It may indicate that the asset is overbought (above the upper band) or oversold (below the lower band).
63
What is a breakout in technical analysis?
A breakout occurs when the price moves above a resistance level or below a support level, signaling the start of a new trend.
64
What is Fibonacci Retracement used for?
It is used to identify potential support and resistance levels based on key Fibonacci ratios (23.6%, 38.2%, 50%, 61.8%) during price corrections.
65
What is a gap in technical analysis?
A gap occurs when there is a significant difference between the closing price of one period and the opening price of the next, often signaling strong momentum in that direction.

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