Congratulations on completing Chapter 3 of the Stock Market Course. You have now laid a foundation to mastering the stock market. You have learn the basics of technical analysis and you are ready for greater things to come. In order to determine how much you have absorbed, take the quiz below.
1. What constitutes support?
2. What constitutes resistance?
3. When a stock is in an uptrend:
4. A major support is
5. A minor support is made of
6. What are examples of subjective support?
7. The 200 MA is a subjective support because
8. Choose the correct statement
9. The trendline is useful because it helps us to
10. A stock that breaks an uptrendline tells us that
11. A stock that gaps down on unusual volume tells us that
12. Heavy volume when a stock is trading sideways tells us that
13. A stock is considered to have unusual volume when
14. The MACD or Moving Average Convergence Divergence can be used to:
15. The Bollinger Bands is useful to
1. A) Congestion areas, previous highs and previous lows
Real support consists of price which can be congestion areas, previous highs and previous lows. Other type of support like the 200 MA and round numbers are subjective support.
2. B) Congestion areas, previous highs and previous lows
Resistance consists of price which can be congestion areas, previous highs and previous lows. They are the same as support because price can act as support and resistance depending on where the stock price is at the moment.
3. D) Previous highs once overcome act as good support
When a stock is in an uptrend, it is very bullish and it can easily overcome previous highs. Once the old high has been conquered, it acts as a good support for the uptrending stock.
4. A) An area where there is a lot of price action and have kept the stock from dropping for many times
Major support is usually found in weekly charts where there has been a lot of price action at a particular area. The area has a history of keeping the stock from dropping. That is why it is called a major support.
5. A) Previous highs and previous lows
Previous highs and previous lows can act as support. Previous highs once overcome can act as a support. Previous lows are able to keep the stock from falling because they may be buyers waiting to step in there.
6. D) Round numbers, Fibonacci retracement, 200 MA and 50 MA
Subjective support are usually price derivatives which are very popular. Because so many people use them to spot support and resistance areas, they become a self fulfilling prophecy.
7. C) Sometimes there is no price support there but stock still bounces off it
The real support is made out of price. Sometimes the 200 MA can act as support even though no price support is present because there are so many people who look at it and think that it is support. Thus is becomes a self fulfilling prophecy.
8. A) Volume often precedes price
An unusual volume often precedes a big price move. We do not know which direction the stock will break into. Just because there is a heavy volume it does not mean people are heavily buying or selling the stock. We need to look at the chart and do our analysis to see whether the volume is a result of accumulation or distribution and make an educated guess.
9. C) Spot an early trend change and as subjective support and resistance
The trendline is very useful to spot an early trend change. If a trendline is broken, it does not mean the trend has ended. It just tells us the stock "might" have a trend change. Many times a stock may move sideways for awhile before resuming higher. Trendlines can also act as subjective support and resistance depending on whether the stock is in an utprend or downtrend.
10. D) Momentum is slowing down and a possible trend change is taking place
Just because your stock broke the handy uptrendline, it does not mean we should sell the stock. The trend has not ended yet. It just tells us that momentum has slowed down. From there we need to monitor the stock carefully to see if a new downtrend emerges. Many stocks that break their uptrendline tend to trade sideways before moving higher.
11. A) People are selling the stock and a crash in the stock might happen
Stocks that gap down usually do so because of bad news or it did not meet Wall Street's expectations. While it does not mean the stock is doomed, there are many times a gap down on unusual volume can point to heavy selling by insiders and institutions. With no support from the smart money and big money, the stock is very likely to crash in the coming months.
12. B) The smart money and institutions might be accumulating the stock
A stock that is trading sideways and not moving much is said to be consolidating or resting. The sideways move should not be choppy and it should be in a tight range. When you see heavy volume coming in during these periods, it tells us that the smart money and big money may be accumulating the stock in anticipation of a big move in the coming months.
13. D) Volume is at least 2X the average volume
For it to be classified as an unusual volume, the stock needs to have at least 2X the average volume. Sometimes, you can see the volume 5 to 10 times the average volume. The higher the volume the better.
14. B) Spot divergences, as a trend indicator, show us buy and sell signals and tell us momentum is slowing down
The MACD is a very versatile tool which is why there are so many people using it. However, it is not a very good overbought oversold indicator. You will need to complement it using other indicators such as the stochastics.
15. D) Spot reversal areas when combined with other indicators
Stocks tend to bounce off the upper and lower bands. Price action tends to be in the band 90% of the time. When you combine the Bollinger Bands with other overbought oversold indicators such as the stochastics, you can actually create a very reliable trading strategy.
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