TechnicalAnalysis TestID:7658803

Question#1of32 QuestionID:413430

Avalueof0.8intheshorttermTradingIndex(TRIN)mostlikelyindicatesthat:

A) tradingvolumeisheavierinadvancingissuesthanindecliningissues.

B) moreinvestorsexpectpricedecreasesthanincreasesintheshortterm.
C) themarketisoverbought.

Explanation

TheTRINorArmsindexisaflowoffundsindicator.Valueslessthanoneindicatemoretradingvolumeinadvancingstocks
thanindecliningstocks,whilevaluesgreaterthanonemeanmorevolumeisindecliningstocksthaninadvancingstocks.

Question#2of32 QuestionID:413439

AnElliottwavetheoristwhoforecastspricesbasedonFibonacciratiosismostlikelytopredictthatacorrectivewavewillbe:

A) fiveeighthsthesizeoftheimpulsewave.
B) fourninthsthesizeoftheimpulsewave.

C) sixeleventhsthesizeoftheimpulsewave.

Explanation

ThesequenceofFibonaccinumbersis0,1,1,2,3,5,8,13....FiveeighthsisaFibonacciratio.

Question#3of32 QuestionID:413423

Asupportlevelisthepricerangeatwhichatechnicalanalystwouldexpectthe:

A) supplyofastocktodecreasesubstantially.

B) demandforastocktodecreasesubstantially.

C) demandforastocktoincreasesubstantially.

Explanation

Supportandresistancelevels.Moststockpricesremainrelativelystableandfluctuateupanddownfromtheirtruevalue.The
lowerlimittothesefluctuationsiscalledasupportlevelthepricerangewhereastockappearscheapandattractsbuyers.
Theupperlimitiscalledaresistancelevelthepricerangewhereastockappearsexpensiveandinitiatesselling.

Generally,asupportlevelwilldevelopafterastockhasexperiencedasteadydeclinefromahigherpricelevel.Technicians
believethat,atsomepricebelowtherecentpeak,otherinvestorswillbuywhodidnotbuypriortothefirstpriceincreaseand
havebeenwaitingforasmallreversaltogetintothestock.Whenthepricereachesthissupportprice,demandsurgesand
priceandvolumebegintoincreaseagain.
Question#4of32 QuestionID:413414

Oneoftheunderlyingassumptionsoftechnicalanalysisisthatsupplyanddemandisdrivenby:

A) bothrationalandirrationalbehavior.

B) rationalbehaviorduringcalmmarketsandirrationalbehaviorduringvolatilemarkets.

C) rationalbehavioronly.

Explanation

Successfultechnicalanalysisassumesbothrationalandirrationalbehaviorduringallmarketconditions.

Question#5of32 QuestionID:413421

Theresistancelevelsignifiesthepriceatwhichastock'ssupplywouldbeexpectedto:

A) decreasesubstantially.
B) increasesubstantially.
C) causethestockpriceto"breakout".

Explanation

Supportandresistancelevels.Moststockpricesremainrelativelystableandfluctuateupanddownfromtheirtruevalue.The
lowerlimittothesefluctuationsiscalledasupportlevelthepricerangewhereastockappearscheapandattractsbuyers.
Theupperlimitiscalledaresistancelevelthepricerangewhereastockappearsexpensiveandinitiatesselling.

Generally,aresistanceleveltendstodevelopafterastockhasexperiencedasteadydeclinefromahigherpricelevel.
Techniciansbelievethatthedeclineinpricewillcausesomeinvestorswhoacquiredthestockatahigherpricetolookforan
opportunitytosellitneartheirbreakevenpoints.Therefore,thesupplyofstockownedbyinvestorsisoverhangingthe
market.Whenthepricereboundstothetargetpricesetbytheseinvestors,thisoverhangingsupplyofstockcomestothe
marketanddramaticallyreversesthepriceincreaseonheavyvolume.

Question#6of32 QuestionID:413417

Pointandfigurechartsaremostlikelytoillustrate:

A) significantincreasesordecreasesinvolume.
B) changesofdirectioninpricetrends.

C) thelengthoftimeoverwhichtrendspersist.

Explanation

Apointandfigurechartincludesonlysignificantpricechanges,regardlessoftheirtimingorvolume.Thetechnician
determineswhatpriceintervaltorecordassignificiant(theboxsize)andwhentonotechangesofdirectioninprices(the
reversalsize).Pointandfigurechartsdonotshowvolumeandarenotscaledtoeventimeperiods.
Question#7of32 QuestionID:413438

Elliottwavetheorydescribesthetypicalpatternofpricemovementsas:

A) fivewaveswiththedirectionofthetrend,followedbyfourwavesagainstthe
directionofthetrend.

B) fivewaveswiththedirectionofthetrend,followedbythreewavesagainstthedirection
ofthetrend.

C) fourwaveswiththedirectionofthetrend,followedbythreewavesagainstthe
directionofthetrend.

Explanation

AccordingtoElliottwavetheory,pricestendtomoveinfivewaveswiththedirectionofthetrendandthreewavesagainstthe
directionofthetrend.

Question#8of32 QuestionID:413432

Whichofthefollowingwouldatechnicalanalystmostlikelyinterpretasa"sell"signal?

A) %Klinecrossesbelowthe%Dline.

B) Rateofchangeoscillatorbeginsdecreasing.
C) SignallinecrossesbelowtheMACDline.

Explanation

The%Kand%Dlinesrefertostochasticoscillators.The%Klineiscalculatedbasedonthehighestandlowestpricesreached
inaselectednumberofdays,andthe%Dlineisamovingaverageofthe%Kline.Usedastradingsignals,crossoversofthe
%Klineabovethe%Dlinearebuysignalsandcrossoversbelowthe%Dlinearesellsignals.

Withamovingaverageconvergence/divergenceoscillator,asellsignalisindicatedwhentheMACDlinecrossesbelowthe
signalline,whichisamovingaverageoftheMACDline.Ifarateofchangeoscillatorisusedtogeneratesignals,thesewould
typicallybeindicatedwhentheoscillatorcrossesaboveorbelowthelevelaroundwhichitfluctuates(either0or100).

Question#9of32 QuestionID:413411

Whichofthefollowingisleastlikelyanunderlyingassumptionoftechnicalanalysis?

A) Marketsareefficientandallknowninformationisreflectedinprices.

B) Supplyanddemandforastockisdrivenbyrationalandirrationalbehavior.
C) Pricesaredeterminedbysupplyanddemand.

Explanation

Fortechnicalanalysistosucceed,marketsmusthavesomeinefficiencyinorderfortrendstodevelop.
Question#10of32 QuestionID:413413

Oneoftheassumptionsoftechnicalanalysisis:

A) allanalystshaveallcurrentinformation.

B) themarketisefficient.

C) supplyanddemandaredrivenbyrationalandirrationalbehavior.

Explanation

Themarketisdrivenbyrationalandirrationalbehavior.

Question#11of32 QuestionID:413441

Whentechnicalanalystssayastockhasgood"relativestrength,"theymeanthe:

A) ratioofthepriceofthestocktoamarketindexhastrendedupward.

B) stockhasperformedwellcomparedtootherstocksinthesameriskcategoryasmeasuredby
beta.

C) recenttradingvolumeinthestockhasexceededthenormaltradingvolume.

Explanation

Thisisthedefinitionofrelativestrength.Whentheratioofthestockpricetothemarketpriceincreasesovertime,thestockisout
performingthemarket.

Question#12of32 QuestionID:413427

Atrendismostlikelytocontinueifthepricechartdisplaysa(n):

A) ascendingtrianglepattern.
B) inverseheadandshoulderspattern.

C) doubletop.

Explanation

Trianglesareconsideredtobecontinuationpatterns.Aninverseheadandshoulderspatternwouldmostlikelyindicatethe
reversalofadowntrend,whileadoubletopwouldmostlikelyindicatethereversalofanuptrend.

Question#13of32 QuestionID:413431

Bollingerbandsaredrawnbasedonthe:

A) differencebetweentwosmoothedmovingaverages.
B) standarddeviationofrecentpricechanges.

C) highandlowpricesinarecentperiod.
Explanation

TouseBollingerbands,ananalystwillcalculatethestandarddeviationofpricesoversomenumberoftradingdays,and
typicallywilldrawthebandstwostandarddeviationsaboveandbelowamovingaverageforthesamenumberofdays.

Question#14of32 QuestionID:413436

AtechnicalanalystwhoidentifiesadecennialpatternandaKondratieffwavemostlikely:

A) isanalyzingadailyorintradaypricechart.
B) associatesthesephenomenawithU.S.presidentialelections.

C) believesmarketpricesmoveincycles.

Explanation

ThedecennialpatternandtheKondratieffwavearecyclesoftenand54years,respectively.Atechnicalanalystwouldbe
mostlikelytousethesecyclestointerpretlongtermchartsofmonthlyorannualdata.PresidentialelectionsintheUnited
Statesareapossibleexplanationforafouryearcycle.

Question#15of32 QuestionID:413424

Aftertrendingupwardforseveralweeks,thepriceofVibex,Inc.stockreachesahighof$54beforefallingto$48overthe
followingweek.Thestockthenralliesto$57butthendeclinesagainto$48.Thefollowingweek,thestockincreasesto$52on
lightvolumebeforeendingtheweekat$46.Atechnicalanalystobservingthispatternwouldbemostlikelytopredictthat
Vibexstockwill:

A) increaseto$50.

B) decreaseto$37.

C) decreaseto$39.

Explanation

Thepatterndescribedhereisaheadandshoulderstopwiththeheadat$57andthenecklineat$48.Thesizeofthepattern
is$57$48=$9.Thepricetargetfortheensuingdowntrendequalsthesizeoftheheadandshoulderspatternandis
measuredfromtheneckline:$48$9=$39.

Question#16of32 QuestionID:413412

Atechnicalanalystbelievesstockpricesareprimarilydrivenby:

A) marketsupplyanddemandforces.

B) specialisttrading.

C) therandomwalkhypothesis.

Explanation
Otherassumptionsoftechnicalanalysisinclude:Supplyanddemandisdrivenbybothrationalandirrationalbehavior,securityprices
moveintrendsthatpersistforlongperiodsoftime,andwhilethecauseforchangesinsupplyanddemandaredifficulttodetermine,the
actualshiftsinsupplyanddemandcanbeobservedinmarketpricebehavior.

Question#17of32 QuestionID:413433

Whichofthefollowingwouldatechnicalanalystmostlikelyinterpretasa"buy"signal?

A) 10daymovingaveragecrossesabovea60daymovingaverage.
B) 30daymovingaveragecrossesabovea5daymovingaverage.

C) 20daymovingaveragecrossesbelowa100daymovingaverage.

Explanation

Whenusingmovingaveragestogeneratetradingsignals,a"goldencross"ofashortertermaverageabovealongerterm
averageisabuysignal,whilea"deadcross"underthelongertermaverageisasellsignal.

Question#18of32 QuestionID:413435

TechnicalanalystswhousecyclesdefineaKondratieffwaveasacycleof:

A) 18years.

B) 10years.
C) 54years.

Explanation

TheKondratieffwaveisa54yearcyclethatsometechnicalanalystsbelieveexistsforequitymarketprices.

Question#19of32 QuestionID:413419

Whichofthefollowingtechnicalanalysisobservationsmostlikelyrepresentsachangeinpolarity?

A) Barsonacandlestickchartchangefromemptytofilled.

B) Aresistancelevelonalinechartisbreachedandlateractsasasupportlevel.
C) Followingan"X"column,apointandfigurechartbeginsanew"O"column.

Explanation

"Changeinpolarity"referstoaperceivedtendencyforbreachedsupportlevelstobecomeresistancelevelsandbreached
resistancelevelstobecomesupportlevels.

Question#20of32 QuestionID:413410
Theadvantagesofusingtechnicalanalysisinclude:

A) completeobjectivity.
B) theincorporationofpsychologicalreasonsbehindpricechanges.

C) easeininterpretingreasonsbehindstockpricetrends.

Explanation

Technicalanalysisavoidshavingtousefundamentaldataandadjustingforaccountingproblems,incorporatespsychological
aswellaseconomicreasonsbehindpricechanges,andtellsWHENtobuynotWHYinvestorsarebuying.Drawbacksinclude
subjectiveinterpretationofchartsandgraphs.

Question#21of32 QuestionID:413416

Constructingacandlestickchartrequiresdataon:

A) opening,high,low,andclosingpricesonly.
B) opening,high,low,andclosingprices,andtradingvolume.

C) high,low,andclosingpricesonly.

Explanation

Candlestickchartsrequiretheopen,high,low,andcloseforeachtradingperiod.

Question#22of32 QuestionID:413415

Atechnicalanalysischartthatillustratesonlytheclosingpricesofasecurityoneachtradingdayisbestdescribedasa:

A) linechart.
B) barchart.

C) pointandfigurechart.

Explanation

Linechartsarecomposedofclosingpricesforeachtradingdayconnectedbylines.Barchartsrequirehighandlowpricesfor
eachtradingday.Pointandfigurechartsdonotnecessarilyshoweachtradingday'sclosingprice.

Question#23of32 QuestionID:413437

TechnicalanalystswhoemployElliottWaveTheoryaremostlikelytouseFibonaccinumberstoforecastthe:

A) numberofsubwaveswithinalargerwave.

B) sizesofwaves.
C) timingofwavedirectionchanges.

Explanation
InElliottWaveTheory,thesizesofwavesarebelievedtocorrespondtoratiosofFibonaccinumbers.Technicalanalystswho
employthistheorymayuseFibonacciratiostoestimatepricetargets.

Question#24of32 QuestionID:413440

Themostappropriatetooltouseforintermarketanalysisoftwodifferentassetclassesisa:

A) movingaverageconvergence/divergencechart.

B) relativestrengthchart.
C) stochasticoscillator.

Explanation

Relativestrengthchartsareusefulforintermarketanalysisbecausetheyillustratetheperformanceofoneasset,sector,or
indexrelativetoanother.Momentumindicators,suchasstochasticoscillatorsandMACDoscillators,aregenerallyusedto
analyzeindividualmarkets.

Question#25of32 QuestionID:413425

Aheadandshoulderspatternismostlikelytoprecedeareversalintrendif:

A) volumedecreasesbetweentheleftshoulderandthehead,thenincreases
betweentheheadandtherightshoulder.
B) theleftshoulder,thehead,andtherightshoulderoccuronincreasingvolume.

C) theleftshoulder,thehead,andtherightshoulderoccurondecreasingvolume.

Explanation

Decreasingvolumeoneachofthehighpricesinaheadandshoulderspattern(oreachofthelowpricesinaninversehead
andshoulders)suggestsweakeninginthesupplyanddemandforcesthatweredrivingthepricetrend.

Question#26of32 QuestionID:413426

Aninverseheadandshoulderspatternmostlikelyindicates:

A) thereversalofanuptrend.

B) thecontinuationofadowntrend.
C) thereversalofadowntrend.

Explanation

Inverseheadandshoulderspatternstypicallyoccurafterdowntrendsandindicatethatthetrendisgoingtoreverse.

Question#27of32 QuestionID:413420
Thetrendlineforastockinanuptrendisconstructedbydrawingastraightlinethroughthe:

A) lows.
B) highs.

C) periodicaverages.

Explanation

Trendlinesconnecttheincreasinglowpointsonapricechartinanuptrendandthedecreasinghighpointsinadowntrend.

Question#28of32 QuestionID:413418

Whenarelativestrengthratio(stockpriceovermarketprice)isincreasing,thestockis:

A) underperformingtheindex.
B) trackingtheindex.

C) outperformingtheindex.

Explanation

Relativestrength:Whenpricesofanindividualstockorindustrychange,itisdifficulttotellifthechangeisstockspecificor
causedbymarketmovements.Iftwovariablesarechangingatthesamerate,theratiocreatedbydividingoneofthe
variablesbytheotherwillremainconstant.Thisiscalledtherelativestrengthratio.

RelativeStrength=StockPrice/MarketPrice

Iftheratioincreasesovertimethestockisoutperformingthemarket(a+trend)
Iftheratiodeclinesovertimethestockisunderperformingthemarket(atrend).

Question#29of32 QuestionID:484168

Thepointwheretechniciansexpectasubstantialincreaseinthedemandforastocktooccuriscalleda:

A) breakoutpoint.
B) resistancelevel.
C) supportlevel.

Explanation

Supportandresistancelevels.Moststockpricesremainrelativelystableandfluctuateupanddownfromtheirtruevalue.The
lowerlimittothesefluctuationsiscalledasupportlevelthepricerangewhereastockappearscheapandattractsbuyers.
Theupperlimitiscalledaresistancelevelthepricerangewhereastockappearsexpensiveandinitiatesselling.Abreakout
occurswhenthepricebreachesasupportorresistancelevelandthusmayindicateeitheranincreaseoradecreasein
demandforastock.

Question#30of32 QuestionID:413434
Atechnicalanalystexaminingthepast12monthsofdailypricedataforevidenceofcyclesismostlikelytoidentify:

A) Kondratieffwaves.
B) decennialpatterns.

C) impulsewaves.

Explanation

ImpulseandcorrectivewavesinElliottwavetheoryvaryinlengthandcanbeasshortasafewminutes.Decennialpatterns
refertotenyearcycles.TheKondratieffwavereferstoa54yearcycle.

Question#31of32 QuestionID:413429

Closingpricesforacommoditywere21.4onMonday,22.2onTuesday,21.8onWednesday,22.4onThursday,and23.2on
Friday.Thefivedaystandarddeviationis0.7andthe30daystandarddeviationis1.0.OnFriday,fivedayBollingerbands
usingtwostandarddeviationsareclosestto:

A) 24.2and20.2.

B) 24.6and21.8.
C) 23.6and20.8.

Explanation

Bollingerbandsaredrawnachosennumberofstandarddeviationsaboveandbelowamovingaverage,wherethemoving
averageandthestandarddeviationarecalculatedusingthesamenumberofperiods.The5daymovingaverageis(21.4+
22.2+21.8+22.4+23.2)/5=22.2.Usingtwo5daystandarddeviations,theupperbandonFridayis22.2+2(0.7)=23.6
andthelowerbandis22.22(0.7)=20.8.

Question#32of32 QuestionID:413428

Atrendismostlikelytoreverseifthepricechartdisplaysa:

A) headandshoulderspattern.
B) rectanglepattern.

C) descendingtrianglepattern.

Explanation

Headandshoulders(andinverseheadandshoulders)patternstypicallyindicateareversalofapricetrend.Triangleand
rectanglepatternstypicallysuggestthepricetrendwillcontinueinthesamedirection.