Chapter 1 Quiz - Dstockmarket Stock Market Education Course

1. You should only buy a stock when it is in a:

  • A) Stage 1
  • B) Stage 2
  • C) Stage 3
  • D) Stage 4

2. Stage 4 of the stock market stages refer to:

  • A) Downtrend
  • B) Uptrend
  • C) Market Top
  • D) Bottoming Process

3. What are the 2 emotions that move the market?

  • A) Joy and greed
  • B) Fear and greed
  • C) Fear and passion
  • D) Greed and happiness

4. If you want to buy a stock that is likely to have a bullish move upwards, the stock should be:

  • A) Be above its 50 MA, 200 MA but below its 20 MA
  • B) Be below its 20 MA, 50 MA and 200 MA
  • C) Be above its rising 20 MA, 50 MA and 200 MA
  • D) Be above its 20 MA, 50 MA and 200 MA

5. What are the 3 most important indexes every investor and trader should look at:

  • A) The S&P 500, The Nikkei Index and The FTSE 100
  • B) The S&P 500, The Dow and The Nasdaq Composite
  • C) The Dow, The Shanghai Composite and The Nikkei
  • D) The S&P 500, The S&P 400 and Russell 2000

Answers

1. B) Stage 2

A stock that is in a stage 2 is in a bull run. It is also known as an uptrend. This is where the stock moves higher and it is the best time to buy a stock. An uptrend or Stage 2 is characterized by a stock making higher highs and higher lows. A stage 2 can last for months and this gives the astute trader or investor the opportunity to make a lot of money.


2. A) Downtrend

Stage 4 is known as the downtrend or stock declines. Stage 4 can happen over a long period of time but they can also happen very rapidly. In which case it is known as a crash. Stocks fall 3 times faster than it rises, therefore a Stage 4 usually lasts shorter than a Stage 2 (bull run). Traders who learn how to short stocks can make money when a stock is in a Stage 4.


3. B) Fear and greed

Fear and greed is the 2 major emotions that move stocks. People jump into stocks because of greed. They want to make lots of money fast. Those who missed out on a big move also have a fear of losing out on profits. So they rush into a stock blindly. On the other hand, when a stock starts to drop, fear of losing more money kicks in and this can send a stock crashing rapidly.


4. C) Be above its rising 20 MA, 50 MA and 200 MA

If you want to be in a stock that is making a bullish momentum and about to move higher, you want to see the stock above its rising 20 MA, 50 MA and 200 MA. The moving averages should start to slope higher and not be flat. A stock that is above its rising MAs is said to be in a bullish mode. Big winners in the stock market are usually above their rising MAs. When the stock crosses below its 20 MA and 50 MA, you know that the bull run is probably over.


5. B) The S&P 500, The Dow and The Nasdaq Composite

Its surprising. But all you need to follow to do well in the stock market is to look at these 3 important indexes. 3 out of 4 stocks follow the direction of these major indexes. Even stock markets around the world such as the Nikkei, FTSE 100, Shanghai Composite, CAC 40 and other major world stock indexes will rise or fall in tandem with these 3 major indexes. That's because we are in a very globalized economy and the companies in these 3 major indexes have far reaching business all over the world. Therefore, the S&P 500, Dow and Nasdaq is not only the proxy of the health of the US economy but much of the rest of the world economy as well.

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