Technical Analysis [Exam Prep - questions]

What defines a capital market?

A segment of the financial market where businesses raise capital by issuing securities.

What is included in the broad term financial market?

Capital markets, money markets, and other financial institutions.

What factors are considered in the investment process?

Investment objective, risk tolerance, knowledge, and decision-making skills.

How do companies raise capital?

By issuing financial instruments such as stocks and bonds.

What must investors evaluate when making financial decisions?

The level of risk they are willing to accept.

What is a hedging objective in investments?

Investments made for profit and to hedge against inflation and economic uncertainty.

Why is knowledge and skills important in investment?

Successful investment requires understanding of financial instruments and market trends.

How does an investor's personality affect their investment choices?

Decision-making skills and risk tolerance significantly impact investment choices.

What is the primary investment objective?

The reason for making an investment, such as wealth accumulation or retirement.

What type of analysis uses historical price and volume data?

Technical analysis.

What does fundamental analysis assess?

A company's financial health through economic indicators and financial statements.

What is the focus of portfolio analysis?

Asset diversification to optimize returns and minimize risk.

What is financial econometrics?

The use of statistical methods to analyze financial data and market trends.

What is a key application of rate of return analysis?

Evaluating price changes and investment performance.

What does market liquidity refer to?

The ease with which securities can be bought or sold without affecting prices.

What signifies high liquidity in a market?

Allows for quick transactions at stable prices.

What happens in low liquidity markets?

Transactions become difficult and may cause price fluctuations.

What can excessive risk lead to for investors?

Bankruptcy.

How does diversification help reduce risk?

A balanced portfolio minimizes losses from market fluctuations.

Who is the founder of Dow Theory?

Charles Dow.

What does the Dow Market Index represent?

A weighted average of selected financial instruments at a given time.

What is the main purpose of Dow Theory?

To recognize the emergence of bull or bear markets.

What is the first key principle of Dow Theory?

Averages discount everything.

What are the three trends identified by Dow Theory?

Primary trend, secondary trend, and minor trend.

What do the three phases of major trends include?

Accumulation phase, public participation phase, and distribution phase.

What signifies that averages must confirm each other?

If one index shows a new trend, another should confirm it.

What does volume confirmation indicate in trend analysis?

Volume should increase in the direction of the main trend.

What remains true about a trend until a definite reversal occurs?

A trend is in effect until clear signals indicate a reversal.

Why are closing prices crucial in Dow Theory?

They are used to determine trends, not intraday fluctuations.

What do support levels act as in an uptrend?

Buying zones.

What do resistance levels indicate in a downtrend?

Selling zones.

What signifies a breakout in technical analysis?

When the price moves beyond a support or resistance level.

What does a false breakout indicate?

A temporary move beyond support/resistance that quickly reverses.

What is a trendline in trend analysis?

A straight line connecting important price points to determine trend direction.

What is described as a bearish pattern with an upward-sloping price range?

Rising wedge.

What indicates a potential trend reversal?

A significant break of a trendline suggests it.

What are flags and pennants in chart analysis?

Small rectangular patterns that slope against the prevailing trend and small symmetrical triangles forming after strong price movements.

What does a cup and handle pattern indicate?

A bullish continuation pattern.

What is a key characteristic of double top patterns?

Formed by two peaks at the same price level.

What do support levels prevent?

Further decline in price.

What do resistance levels imply?

Prevents further increases in price.

What does breaking a trendline provide?

A potential signal of trend reversal.

What does a retracement refer to in trend analysis?

A temporary reversal in a prevailing trend.

What does adjusting a trendline imply?

Redrawing a trendline if it is too far from price action.

How can the angle of a trendline affect its stability?

Too steep indicates instability; too flat suggests a weak trend.

What is a bullish pattern characterized by a narrowing price range called?

Falling wedge.

How can the number of touch points affect a trendline?

The more times a trendline is touched, the stronger it is.

What confirms a trendline break?

Closing price above/below the trendline and volume confirmation.

What does a divergence between volume and price movement indicate?

Possible trend reversal.

What is the definition of a sideways trend?

Horizontal price movement with no clear direction.

What strategy is used in a downtrend?

Sell (Short Position).